Commercial real estate has undergone significant repricing across Asia-Pacific and European markets, creating a compelling opportunity for private wealth investors.
Quality buildings in core markets are now trading below replacement costs – a dynamic not seen since the financial crisis – while institutional capital largely remains on the sidelines, according to global commercial real estate services and investment management firm JLL.
In Asia-Pacific, the replacement cost argument follows different mechanics but reaches similar conclusions. Rising construction and labour costs have pushed delivery costs for new prime office towers well above current acquisition pricing for quality existing buildings in markets like Sydney, while Tokyo presents selective opportunities in older buildings requiring repositioning.
"Rising construction and labour costs are being closely monitored by investors, in addition to the rate environment,” notes Tim Graham, global lead, international and strategic capital, and head of private wealth for Asia-Pacific, at JLL. "That's a bullish signal for existing well-located assets, because constrained supply creates rental growth potential in markets where occupier demand is healthy."
"The construction cost dynamic is now explicitly part of buying decisions in Asia-Pacific in a way it wasn't eighteen months ago," adds Daniel Billig, senior director, capital markets transactions, JLL. "When investors compare the economic costs of development against the option of acquiring income-producing assets with minimal capex, the acquisition case becomes much easier to make."
Private capital has been the largest source of funding for commercial real estate globally for four consecutive years. In Asia-Pacific, despite the overall decline in investment activity, private capital investment increased sharply in Hong Kong ( +40% ), Singapore ( +93% ), South Korea ( +237% ) and India ( +1,378% ), with Japan remaining a major focus across multiple asset classes.
By comparison, European markets moved first, with the United Kingdom, France and Germany now offering quality assets at substantial discounts to previous peaks and below current construction costs. The UK alone attracted more than €10.1 billion ( US$11.31 billion ) in private investment last year, up 66% from 2024. London secured €5.2 billion of that total, more than doubling its volume from the previous year.
"If you're looking at an asset that is currently trading at a discount of around 20-30% compared to previous peaks, then on a long-term basis that represents good value, and when combined with future rental growth and solid fundamentals, then that's a pretty mitigated risk," explains Joseph von Maltzahn, head of private wealth for EMEA at JLL. "When you couple that with the question 'what would it cost to replace this building today?' and the answer is more than you're paying, your downside is well protected."
