Investors poured US$65.6 billion into Asia-Pacific commercial real estate in the third quarter, up 17.9% from the second quarter and 7.3% from a year earlier, Knight Frank said Oct. 30. The consultancy called it the second-strongest quarter on record, but warned that rising borrowing costs are starting to slow the market.

For Asian landlords, REIT holders and lenders, the numbers point two ways. Capital is still flowing to prime buildings in the region's biggest cities, and foreign buyers have returned in force. Yet the cost of debt is climbing in several markets at once, and Knight Frank expects some sellers and buyers to delay deals or agree to new prices.

Year-to-date volume reached US$183.4 billion, a 29.3% rise from the same period of 2025, according to the firm. That nine-month total already equals 93.9% of last year's full-year figure, and Knight Frank forecasts 2026 volumes will grow 15% to 20%.

Japan, Singapore and Australia Draw Cross-Border Capital

The sharpest move came from overseas buyers. Cross-border investment jumped 88.3% from the second quarter to US$23.8 billion, Knight Frank said, or 36.3% of all regional deals. That is the highest share since the fourth quarter of 2024.

Japan was the top destination for foreign money for a fourth straight quarter, attracting US$6.4 billion, up 66.3% from a year earlier. Apartment blocks were a large part of the draw: multifamily investment in the country reached US$1.6 billion, which the firm put down to steady rental demand and attractive gaps between property yields and borrowing costs.

Singapore came second with US$3.4 billion of cross-border inflows, up 75.9% from a year earlier. Knight Frank pointed to the sales of Paragon and Wheelock Place as evidence of demand for scarce prime retail and commercial property. The Paragon purchase by CapitaLand Integrated Commercial Trust, worth about US$3 billion, made up close to a quarter of all retail investment in the region during the quarter, according to Institutional Real Estate, Inc., which reported on the Knight Frank data.

Australia ranked third at US$3.0 billion, up 20.8%. Nearly half of that, close to US$1.5 billion, went into offices, with rent growth in Sydney and Brisbane supporting the case for buying despite higher financing costs.

Retail was the quarter's fastest-growing sector. Investment in shops and malls rose 54.3% from a year earlier to US$12.5 billion, or 19.1% of regional volume, Institutional Real Estate reported.

Christine Li, Knight Frank's head of research for Asia-Pacific, said cross-border investment in the first nine months had already passed the full-year 2025 total. If that pace holds, she said, foreign buying in 2026 could top US$90 billion for the first time. Offices remain the largest sector, at more than a quarter of investment demand, she added, with buyers in Singapore and Tokyo targeting high-quality towers where tenant demand is strong and little competing supply is coming. Singapore's prime office vacancy has fallen to 2.6%, according to CBRE.

Rising Debt Costs Test the Rally

The warning in the report is about money. Daniel Dixon, Knight Frank's head of capital markets for Asia-Pacific, said higher debt costs were putting pressure on liquidity, pricing and returns, and that many investors were turning more cautious and selective.

He expects some transactions to be pushed back or repriced while both sides reset expectations. Buyers with deep pockets and a long horizon, he said, should find openings with "motivated sellers where pricing adjusts quickest."

Other brokers describe the same pressure. In its third-quarter investment brief, CBRE noted that Japan's policy rate has been raised twice this year to 1.25%, lifting funding costs to their highest level in years. Yields have been broadly flat outside Tokyo logistics, CBRE said, because double-digit growth in Grade A office rents has offset the higher cost of borrowing. The Bank of Japan kept its rate at 1.25% at its October meeting.

In India, CBRE said an October rate increase is bringing an end to the compression of capitalization rates, although steady demand from office, warehouse and retail tenants should keep institutional buyers interested. Domestic REITs, mutual funds and alternative investment funds are increasingly active in completed offices there, while foreign investors lean toward data centers and other alternatives, according to CBRE.

A Strong Year, With a Slower Finish Possible

The third quarter extends a run that began early in the year. Knight Frank's first-quarter figures showed US$64.6 billion of deals, up 64.7% from a year earlier and the strongest quarter since the end of 2021, Real Estate Asia reported in May. Cross-border buying then was US$22.4 billion.

The third-quarter cross-border total of US$23.8 billion is higher still, and it came even as financing grew more expensive. Li said the willingness to trade despite that uncertainty reflects confidence in the income of the best buildings.

Knight Frank's 15% to 20% growth forecast for the full year implies a quieter fourth quarter than the third. Based on Knight Frank's figures, Capital Times calculates that the region needs only about US$41 billion to US$51 billion of fourth-quarter deals to hit that range, well below the US$65.6 billion just recorded. The Reserve Bank of Australia's Nov. 3 decision is the next rate call for one of the three biggest cross-border destinations.