Following a year of domestic investing by Asian investors in the region’s property markets, asset owners and managers are concerned that a scarcity of investment prospects is combining with mounting capital inflows to cause a spiralling in prices.

During the fourth quarter of 2020 Asia Pacific real estate enjoyed a record $54 billion of investor flows, according to property analytics company RCA. Both JLL and Colliers predict investment volumes into Asia property will rise by another 15% to 20% this year.

That investor capital is flowing in a region that may struggle to absorb it. Investors on the ground say it has already become difficult to find suitable property investment opportunities.

Allan Lee,
Schroder Pamfleet

In part this is down to the lingering effects of Covid-19 on the commercial and hospitality sectors. Allan Lee, head of Asia ex-China real estate at Schroder Pamfleet in Hong Kong, predicts it will take at least two years until valuations in Hong Kong’s office sector returned to pre-Covid levels. Many corporates are finding themselves with too much space after having reduced size or transitioned some of their teams to work from home.

“The sector is going through what retail went through a couple of years ago, with large occupiers unclear on how they use their spaces,” Lee told AsianInvestor. “There is going to be a shake-up [in] the mix of occupants across financial services, technology and [other] service sectors. It is hard to see where the demand will come from”.

Lee has not completed a transaction in Hong Kong since 2018. He said it remains unclear what the work from home policies of the large of multi-national tenants will be in future, making it hard to predict the impact on rents and prices.

According to property management company JLL, in 2020 Hong Kong fell out of the top 10 markets preferred by Asian investors for the first time ever. It predicts rents in Hong Kong’s Central district will fall 1% between 2021 and 2025.

Henry Chin, CBRE

Rival CBRE has a similar forecast. “The office market was pretty much dead last year,” said Henry Chin, head of Asia Pacific research for CBRE in Hong Kong.

Other major China-linked cities also face challenges. Kelvin Wong, who leads Schroder Pamfleet’s China business in Hong Kong, told AsianInvestor the Shanghai office sector remained 5% to 10% over-valued. However, he believes that price falls are unlikely, now that buyers who were unable to travel to view properties last year have begun braving the 14-day quarantine required to visit the country.

“It is very challenging to underwrite any acquisition. We have been hoping for some distress, but still not seen much. Negotiations have favoured sellers, a trend that is continuing as people travel more,” he said, adding that he had not bought an office building in China since November 2019.


Korea-based investors have also been having difficulty finding targets at home as domestic institutional investors pulled back from cross-border investing and channeled money into the domestic sector. According to Real Capital Analytics in the year to March 31, office rental yields in Seoul dropped from 4.5% to 4%.

“Investors are frustrated with a market they view as frothy. They are struggling to find deals,” Spencer Park, Hong Kong-based counsel at law firm Dechert told AsianInvestor.

Daniel Oh, KIC

On 27 April, Daniel Oh, director of real estate group at the Korean Investment Corporation, the country’s sovereign wealth fund, told AsianInvestor that difficulties in sourcing suitable real estate deals was keeping it from expanding within the asset class, even though it is keen to substantially increase its allocation to alternative assets in general.

Korean investors have also found themselves being crowded out of property investments in the US and Europe by domestic buyers and high prices. Park said that since January, his South Korean clients had bid unsuccessfully on several deals in the US office and logistics sector, typically losing out to cash buyers from the US.


The desire to accumulate more property in the US appears to be far more prevalent than those seeking to make a profit from existing investments.

Seventy percent of respondents to CBRE’s Americas investor intentions survey published at the end of March, said they planned to buy at least 20% more real estate this year than in 2020. But only 30% said they planned to sell at least 20% more this year than last.

“This will create a sellers’ market in the Americas leading to more buying pressure and higher prices,” said Chin, who predicts volumes into Americas real estate will increase by 25% this year.

Investors are facing similar problems in Europe. Nick Deacon, head of Nuveen Real Estate’s European office arm in London, says that heavy buying by domestic institutions has pushed rental yields for core office buildings the five leading German cities down to 2.75% from around 3.25% before the start of the pandemic. 

“It’s not a market we can compete in, our cost of capital is higher than this,” he said.  

“The same buyers – typically the French and German pension funds – crop up across those key markets,” he added, noting Paris and Amsterdam in addition to the German cities. “They are taking in-bound cash from policy holders and it has to be spent. Supply of good quality is down.”

Chin believes the trend will continue. He noted that French and German institutions rated offices as their preferred asset class, according to CBRE’s 2021 EMEA Investor Intentions Survey, published in March.

Joseph Lee, co-chief executive and president of Igis, agreed that heavy buying by local buyers is driving up prices in the European office sector.

“Europe is challenging given the local competition,” he said, adding that German pension funds and insurers have often been cash buyers of office buildings in Europe’s leading capitals.