Asia-Pacific commercial real estate investment reached US$53.5 billion in the second quarter of 2026, up 31.1% year-on-year (YoY) and 16.1% above the five-year Q2 average, according to Knight Frank’s latest Asia-Pacific Capital Markets Insights. Activity declined 22.5% from a record first quarter, signalling a normalisation from an exceptional start to the year rather than a reversal in the regional recovery.

The market is increasingly driven by conviction rather than broad momentum, as we see capital being deployed with greater discipline, targeting assets with the strongest income visibility, pricing clarity and value-add opportunities.

Dan Dixon, Head of Capital Markets, Asia-Pacific, Knight Frank, says, ‘Q2’s pullback from Q1’s record turnover is a moderation from an exceptional quarter, not a change in direction. We continue to see institutional investors re-engage with conviction, particularly where assets offer income resilience and clear execution pathways, even as rate paths across the region have turned less obliging than many expected.”

Hotels lead sector growth as tourism recovery supports investment

Hotel investment totalled US$5.4 billion in Q2, rising 55.2% year-on-year. Sustained tourism recovery, improving operating performance and a limited supply of quality assets supported demand, while refurbishment, repositioning and rebranding strategies offered investors clear routes to value creation.

Investor appetite was reflected in several high-profile transactions, including CapitaLand Investment’s US$243.1 million acquisition of Voco Seoul Myeongdong and Wentworth Capital’s US$269.2 million purchase of two Sydney hotels.

Knight Frank also witnessed this hotel sector momentum firsthand. In June, we successfully sold The Orchid Hotel in Singapore for S$273 million (US$213 million) and, in July, advised on the sale of the Silka Seaview Hotel in Hong Kong SAR. Over the past five years, our Hong Kong SAR team alone has transacted more than HK$7.3 billion (US$930 million) of hotel assets, representing more 200+ room hotel transactions than the rest of the market combined.

With a strong pipeline of mandates and active sales campaigns across the region, we expect this momentum to continue, underpinned by sustained investor demand and increasing transaction activity across the Asia-Pacific hospitality sector.

Cross-border capital concentrates on liquid gateway markets

Cross-border investment into Asia-Pacific reached US$12.5 billion during the quarter, accounting for 23.4% of total regional investment volume. Although volumes declined 42.2% from Q1’s elevated US$21.7 billion, they were 156.8% higher than in Q2 2025. The sharp annual increase reflects a more active international investor base and growing willingness to transact where pricing, liquidity and income fundamentals remain transparent.

Japan remained the region’s leading destination for cross-border capital, attracting US$5.0 billion of inbound investment, more than double the volume recorded a year earlier. International demand remained resilient despite softer overall investment volumes and the Bank of Japan’s interest rate increase to 1% in June, reinforcing Japan’s position as a core deployment market offering liquidity, scale and a broad range of investible opportunities.

Singapore followed with US$3.0 billion, more than three times the level recorded in Q2 2025. International capital represented 58.1% of total investment volume, led by IOI Properties Group’s US$1.9 billion acquisition of Asia Square Tower 2 from CapitaLand Integrated Commercial Trust. The transaction underscores continued international demand for Singapore’s prime CBD office market, supported by stable recurring income and a constrained development pipeline.

Australia was the region’s third-largest recipient of cross-border capital, attracting US$1.9 billion, up 56.9% year-on-year. Rather than signalling a broad-based return of offshore capital, the increase reflects selective re-engagement as valuations have reset and income fundamentals remain resilient. Hotels were a particularly bright spot, with cross-border investment rising nearly fivefold year-on-year to US$674 million. Notable transactions included Forest Endeavour’s US$250 million acquisition of the Novotel Surfers Paradise and adjoining Paradise Centre from Abu Dhabi Investment Council and Challenger Life.

The preference for these markets reflects their liquidity, transparency and established investment frameworks. In a more demanding financing environment, those attributes are becoming increasingly important in determining where global capital can deploy at scale. Daniel adds, “The willingness of cross-border capital to keep deploying into key gateway markets despite tightening monetary policy speaks to the resilience of the region’s fundamentals. That said, macro risks remain, and we expect the remainder of 2026 to reward quality, scale and pricing discipline over broad-based activity”

Outlook: quality and execution will define the next phase

The next stage of the recovery is expected to remain selective. Christine Li, Head of Research, Asia-Pacific, Knight Frank, says “While Q2’s results reinforce the underlying strength of Asia-Pacific’s investment recovery, the path forward looks more uneven than the headline growth suggests. Liquidity is concentrating around quality assets, clearer pricing and large-scale execution opportunities, and the next phase of the recovery is likely to be led by investors with strong conviction and the ability to underwrite asset-level complexity. Prime office, selected retail, logistics and tourism-linked hotel assets should stay in focus, while large-scale opportunities in liquid markets are likely to command the strongest capital interest.”

Transaction volumes remain above both year-earlier levels and the five-year Q2 average, giving the region positive momentum heading into the second half of 2026. The pace of deployment will hinge on pricing alignment, asset-level income visibility and investors’ ability to execute value-add strategies.