On the back of strong capital flow into core real estate, capitalisation rates have steadily compressed by about 200 basis points to — or near — historical lows for all developed markets across the Asia Pacific region. This is especially pronounced for core property assets in Asia Pacific’s gateway cities. While cap rates may see further narrowing in light of strong capital inflows targeting direct real estate, the magnitude of compression is expected to be relatively muted when compared with the past two to three years (2014–2016), and some markets may even see a mild decompression. Despite lower yields, heightened investor appetite for direct real estate is expected to continue, as the yield spreads to risk-free rates continue to provide adequate buffers in many of Asia Pacific’s core markets.

Being optimistic about the relative return prospects for real estate, global property investors are expected to increase real estate allocations to 11.5 percent from 10.0 pe