In the wave of global asset allocation, overseas commercial real estate has become a focus for investors due to its counter-cyclical nature and stable cash flow. However, returns vary significantly across different markets, property types, and investment strategies. From North America to Asia Pacific, from core assets to value-added projects, the return profile of overseas commercial real estate continues to evolve with economic cycles and market structure changes.
Stable Returns in Core Markets: The Ballast of Mature Economies
In global gateway cities such as New York, London, and Sydney, the returns of core commercial real estate are typically deeply tied to economic fundamentals. Taking the US as an example, the capitalization rate (Cap Rate) of rental apartments generally remains in the 4%-5% range. These assets, with their long-term leases and stable cash flow, have become a safe-haven option for institutional investors. While high-end office buildings in London’s West End have been impacted by remote working, prime assets in core locations can still achieve rental yields of 4.5%-5%, with some shared ownership projects even exceeding 6%. The Perth retail market in Australia is showing strong growth momentum. In the first quarter of 2025, the median annual sales price per square meter of retail properties increased by 23.8% year-on-year, with 28.7% of transactions concentrated in the AUD 250,000 to AUD 500,000 range. Small and medium-sized investors maximized their returns through precise site selection.
Excess Returns from Value-Added Investments: Driven by Leverage and Operations
Compared to the stability of core assets, value-added investments generate higher returns through active management. In the North American market, the annualized yield of reselling renovated existing properties can reach 10%-15%. If land development or functional conversion (such as converting industrial plants into data centers) is involved, the yield can climb to 15%-20%. Leverage further amplifies the potential returns: for example, with a 6% capitalization rate, if 50% of the financing is done with a loan at an interest rate lower than the asset return rate, the return on equity can increase to 7.5%; if the loan-to-value ratio increases to 80%, the yield may even exceed 40%. This “high-risk, high-reward” model is particularly common in cities like Vancouver, Canada, during periods of declining interest rates. While the capitalization rate for multi-family residential properties there remains stable at 6.7%, improved operational efficiency through energy upgrades can increase revenue potential by 25%-50%.
Structural Opportunities in Emerging Markets: Value Opportunities Amidst Supply-Demand Imbalance
As yields in developed markets converge, structural opportunities are emerging in emerging markets such as Southeast Asia and the Middle East. Dubai, leveraging its tax-free policy and international positioning, boasts a commercial real estate rental yield of 4.8%, exceeding the global average of 3.1%. Istanbul, through its status as a Belt and Road Initiative hub, attracts regional headquarters of multinational corporations, driving office rental yields to remain stable at 5%-7%. The Hong Kong market presents a differentiated picture: leading companies like Hysan Development and Hang Lung Properties offer dividend yields exceeding 5%, while Hysan Development, through its “commercial + community” model, keeps retail property vacancy rates below 5%, achieving dual benefits of rental income and asset appreciation.
The Risk Balancing Techniques Behind the Returns
The high returns of overseas commercial real estate are not without their flaws. Fluctuations in US tariff policy, sticky inflation in Australia, and the costs of Europe’s energy transition can all erode investment returns. The counter-trend increase in Canadian office capitalization rates stems from shrinking demand caused by remote working. Investors need to establish a “three-dimensional evaluation system”: at the macro level, tracking interest rate cycles and trade policies; at the meso level, analyzing urban population inflows and industrial layout; and at the micro level, examining property operational efficiency and tenant quality. For example, Harvest Global Real Estate Fund, by allocating over 60% of its assets to REITs, has achieved an annualized return of 11.6% over the past decade. Its success hinges on carefully selecting high-quality assets in low-leverage, high-dividend markets such as the US and Australia.
The global commercial real estate market is undergoing a transformation from scale expansion to quality cultivation. For investors, grasping the stability of core markets, the leverage effect of value-added projects, and the structural dividends of emerging markets requires constructing a dynamic asset portfolio. Whether it’s institutional funds seeking long-term stability or high-net-worth individuals seeking excess returns, the key to profitability in overseas commercial real estate always lies at the intersection of “asset quality” and “operational depth.” Against the backdrop of declining interest rates and rising inflation, assets that can improve net operating income through energy upgrades and enhance tenant stickiness through space optimization will ultimately stand out in the revenue race.
