The relatively strong performance of the office sector in many Asian markets has not prevented Western private real estate investors and managers from reducing their exposure to the sector in the region.

PERE reported this week that manager Invesco Real Estate is planning to reduce the office exposure in its Asia core fund by 15-20 percent in the next 12 months. As part of the plan, the firm offloaded Majestar City Tower B, the only Korean office asset in its Asia core fund, for $385 million to a REIT managed by Korean real estate company Koramco last month.

Invesco is not alone. Other Western organizations also selling offices in Asia include mega-manager Blackstone and investor PIMCO Prime Real Estate. Blackstone is reportedly in talks to sell a prime office building called Arc Place in Seoul to Koramco, while Pimco is in the middle of selling Waverock, a 2.4 million-square-foot office in India’s Hyderabad to Singaporean sovereign wealth fund GIC for about $258 million.

Yet, in contrast to the crisis facing offices in US and European markets, some Asian office markets are among the top-performing real estate sectors in the region. This can be attributed to factors including the region’s higher return-to-office rates. Around 34 percent of employers in Asia-Pacific expect their employees to fully work from the office compared with less than 7 percent in the US and Europe, according to a CBRE report in June. In particular, employees in Northen Asia are expected to spend more time working from the office. Majestar was sold for double its purchase price in 2017 in a prime example of this trend.

The region’s transaction volumes also reflect a more resilient office market. While investment in offices in the US and Europe dropped 25 percent and 30 percent respectively during 2019 to 2022, the volume in Asia-Pacific only slid 3.8 percent below the pre-pandemic level in 2019, according to CBRE.

Asian investors continue to express confidence in their local markets by participating in some of the largest office transactions in the region. Besides Koramco, another notable recent example is Korea’s KB Asset Management investing $630 million in Samsung SDS Tower this week.

However, these factors have not deterred Western investors from reducing their exposures in these markets. In the case of Invesco, the firm is instead trying to capitalize on strong sales to shift its investments toward preferred sectors like multifamily and logistics.

Data from Asian sector association ANREV supports this shifting pattern among Western managers. Despite still being a strong component of their portfolios, Asia core funds’ average allocation to offices fell from 47 percent in 2016 to 41 percent in 2023, while the allocation to logistics climbed from 13 percent to 38 percent in the same period.

In the case of PIMCO, it was a “natural call” to exit and take profits in a market where there is demand and then to redeploy that capital, Pimco Prime Real Estate’s head of Asia-Pacific, Scott Kim, told us. PIMCO’s sale of Waverock was reportedly to be at a price 19 percent more than its original purchase, in local currency.

While the office sector is suffering at fundamental levels in Western markets, the wholesale offloading by global firms threatens to include well-performing office assets in the process, including in Asia. What is thus seen as surplus to requirements by these international operators as they view the market through a pan-regional lens, will be regarded an opportunity to buy for those with a greater appreciation for local performance.