Commercial real estate markets in Asia Pacific delivered strong total returns for investors in recent years.
Average annual returns in ten major office markets in the region ranged between 5% and 20% per year during the 2016-2018 period, as compared with low single-digit returns in New York City and London for the same period.
Nevertheless, currency movements are also an important consideration for inter-regional investors diversifying into Asia Pacific real estate markets.
Given the multi-currency landscape, pan-regional real estate investment vehicles in Asia Pacific often carry a higher degree of currency volatility risk compared to peers in the Eurozone and United States.
Comparing property market returns in local currency against foreign currency-adjusted returns (for foreign investors with no hedging) shows just how different the unhedged performance would have looked to investors in different parts of the world.
Table 1 demonstrates the effects of foreign exchange (FX) gains and losses on average annual total returns between 2016-2018 for investors from…