Investors look to traditional favourites Hong Kong, Australia and Japan, with uplift in cross-border investment activity.

Investment volumes in the last quarter of 2017 reached a new high of US$52 billion in Asia Pacific, up 16 per cent compared to the same period in 2016, according to new data from real estate consultant JLL.

Traditional favourites Hong Kong, Australia and Japan all saw an increase in transaction volumes, with Hong Kong's red-hot market leading the way. Its Q4 transaction volumes reached US$7.4 billion, a 171 per cent year-on-year increase driven by mega-deals such as the US$1.15 billion sale of Wheelock's 8 Bay East in Kwun Tong. Australia (+40 per cent) and Japan (+31 per cent) followed behind Hong Kong. The Hong Kong figures exclude the US$5.2 billion sale of The Centre, which will close in early 2018.

Hong Kong capital values climb

"The sale of The Centre makes it the most expensive office building in Hong Kong and the biggest property transaction in Hong Kong's history, ahead of the US$2.98 billion sale of the Murray Road site in Central in May. Capital values of Grade A offices surged by 17.5 per cent in 2017, the strongest growth among all real estate sectors," says Joseph Tsang, Managing Director and Head of Capital Markets at JLL Hong Kong. "While the limited supply of Grade A office assets available for sale may hinder investment activity in 2018, we believe that there is still sufficient demand for capital values to rise a further 10 per cent."

Institutional investors and sovereign wealth funds from Singapore and Hong Kong made up US$2.9 billion and US$2.2 billion of total Q4 transaction volumes in Asia Pacific respectively, continuing the trend of increasing portfolio allocations to real estate.

Across the region, the office sector made up half of all transaction volumes in Q4 2017. Retail bounced back to account for a quarter of Q4 volumes, supported by the growth in the retail sector in Hong Kong which saw retail sales record the strongest growth (7.5 per cent year-on-year) in nearly three years.

Investor interest in Australia moves beyond usual suspects Sydney and Melbourne

Australia remains a top pick for investors with its comparatively higher yields, strong rental growth prospects in Sydney and Melbourne, and position as one of the world's most transparent real estate markets. Investment volumes in Australia reached US$7.2 billion in Q4 2017, compared to US$5.2 billion in Q4 2016.

"Investors from Singapore, Hong Kong, Japan, the United States and Canada continue to focus on prime properties despite a lack of available stock. While Sydney and Melbourne remain the favoured investment destinations, tighter pricing and a shortage of opportunities have resulted in increased activity in Brisbane, Perth, Adelaide and Canberra. Brisbane commercial property markets accounted for more investment activity during the quarter (US$1.9 billion) than Melbourne did (US$1.1 billion)," says Andrew Ballantyne, Head of Research, JLL Australia.

Foreign investors remain active in Japan​

Transaction volumes in Japan reached US$10.5 billion in Q4 2017, up 31 per cent year-on-year, with foreign investors remaining active. Norges Bank Investment Management, the Norwegian pension fund, made their first Asia Pacific real estate investment in Tokyo in December. The joint venture with Tokyu Land saw them scoop a portfolio of five prime retail assets.

"Japan remains one of the core markets in the region for investors due to its low cost of debt and deal availability. Robust foreign trade has helped fuel the longest economic expansion in nearly two decades and will remain a key driver of growth in the short term. Tokyo remains top of the investor list, accounting for 45.5 per cent of total Q4 transaction volumes. Investors have also been looking beyond Tokyo at the surrounding prefectures of Chiba, Kanagawa and Saitama, which accounted for 22.2 per cent of total investment volumes in Q4. Some of the largest deals of 2017 have been heavily concentrated in the outer areas of metropolitan Tokyo, in particular Yokohama," says Takeshi Akagi, Head of Research, JLL Japan.

For more information, download our "Global Capital Flows" report.