Emerging markets are back in fashion. An MSCI index of emerging market equities rose over 20% in the first nine months of 2025 compared with the same period in 2024. That is the strongest year-to-date performance in more than 15 years and easily outperforms advanced economies’ 13% gain in the equivalent benchmark. Solid economic fundamentals, benign inflation, improving financial conditions and a weaker US dollar all supported the increase. Many of these factors are likely to endure.
There is no standard definition of an emerging market, but the term generally refers to low- or middle- income countries that share some characteristics of advanced economies and are often undergoing transitional economic growth. Investors target emerging markets for their high returns potential, despite elevated risk and volatility.
But investment in real estate in emerging economies is low relative to other asset classes. These geographies account for just over one-tenth of the world’s professionally-managed real estate market, according to MSCI – compared with their 25-30% share of global equity and fixed income and 40% share of global GDP. However, the $75bn invested annually in emerging market real estate is still comparable with either the UK or Germany.
The majority of this activity is in China, home to the second largest real estate market globally by value. But this was not always the case: while investment activity across emerging markets was more diversified 15-20 years ago, the rapid growth and integration of the Chinese economy has absorbed much of the capital allocated to the group, crowding out other geographies.
Major events often mark a change in cycles and lead to shifts in economic regimes. The Covid-19 pandemic was such an event. Institutional real estate allocations towards emerging economies fell and are yet to recover. However, the most recent data shows a small uptick.
Global institutions investing in emerging market real estate
Source: Savills Research using the Hodes Weill & Associates/Cornell Institutional Real Estate Allocations Monitor
This is supported by the superior returns performance of real estate in these economies. Across a basket of emerging markets covered by MSCI, total unlevered returns since 2020 have averaged around 6% per annum (unweighted), compared with the 3.5% from the MSCI Global Property Index.
The emerging markets set to attract investment
If recent improvement in allocations data indicates a more pronounced shift in investor appetite, in line with trends across other asset classes, then which emerging economies stand to benefit?
There are many factors supporting commercial real estate sector growth, covering both economic and institutional drivers. Our own analysis shows that a simple model incorporating GDP, GDP per capita and an index of property rights protection can explain over 60% of the variation in real estate investment across a sample of around 90 global markets.
Real estate market size and economic wealth
Source: Savills Research using MSCI Real Estate Market Size Report 2025 and The Heritage Foundation
GDP is the most obvious driver. Larger economies have bigger and more sophisticated real estate requirements, as do wealthier ones. China’s rapid growth has enabled it to dominate investment flows into emerging market real estate. However, given the structural challenges now facing the domestic property sector in China, global investors in emerging markets are likely to look for opportunities elsewhere.
India naturally stands out as the next major opportunity, given its outlook of rapid economic growth. The country is home to some of the world’s fastest growing cities, supported by a relatively youthful population, rapid urbanisation and significant catch-up potential. However, as Arvind Nandan, Managing Director, Research and Consulting, Savills India, explains: “The maximum we’ve seen invested in Indian real estate in any given year was $6.6bn. But the size of the economy is now over $4tn, so it’s still a very small market.”
A lack of institutional grade A stock has historically limited growth in India, but this is changing fast. India was the third-largest global market outside the US in terms of LEED-certified space in 2024, according to the US Green Buildings Council, indicating an increase in quality assets. This has fuelled the expansion of global capability centres, with India being the preferred destination for US and European multinationals creating dedicated centres of excellence abroad.
Mexico and Vietnam also offer opportunity. Both have grown in prominence following disruptions to global supply chains after Covid-19 – the former as a nearshoring destination for the US market, the latter as a leading candidate in China+1 diversification strategies. Despite being relatively immature, the Mexican listed real estate investment trust sector has quickly become the largest among emerging economies.
Vietnam’s commercial real estate sector is “following a similar development pattern to that of India”, says Rayson Yeong, Executive Director, Regional Investment Advisory, Savills Singapore. This is underpinned by a rapidly growing economy and a relatively stable political and regulatory environment that encourages foreign direct investment.
Institutions support investor confidence
That leads us to the second major driver of real estate: the quality of institutions, broadly defined as the rules and regulations (formal or informal) that structure social interactions, shape economic incentives and provide a framework for behaviour. These are often represented by indicators of property rights protection, the rule of law and other data benchmarking the quality of governance and the regulatory environment.
There is a well-established link between the quality of institutions and economic development. Given the immobile and long-term nature of real estate investments, it stands to reason that institutional quality is important in supporting investor confidence by reducing risk and creating a stable, transparent and predictable environment in which to deploy capital.
Our model finds the strongest relationship with an index on property rights protection. However, given that many institutional quality indicators are highly correlated – for example, robust property rights protections are generally accompanied by a strong rule of law – in practice a range of institutional factors are important.
Real estate market size and institutional quality
Source: Savills Research using MSCI Real Estate Market Size Report 2025 and The Heritage Foundation
“Title security is still a concern in India,” says Nandan. “It’s a very diverse country with a relatively complex and fractured regulatory landscape that differs across the 28 individual states.” India remains a challenging environment, which helps explain its still nascent real estate market. However, the policy environment is becoming more accommodating of real estate investment, with a push towards greater transparency – for example, through the digitisation of land records.
In contrast, other markets such as South Africa have very mature real estate sectors despite relatively low per capita incomes. This is usually underpinned by the strength of local institutions. “South Africa is a key conduit for the wider continent, with many multinationals basing their regional headquarters in the country,” says Mike van Schoor, Director, Swindon Property, an international associate of Savills. “This is true of the real estate sector also, which is supported by an institutional backdrop considered first world from an African perspective.”
Malaysia, too, is considered a “more stable economy from a political and regulatory perspective, compared with regional peers”, says Yeong. “It shares many institutional qualities associated with more advanced income economies.” A relatively sophisticated market, Malaysia is dominated by domestic institutions and private wealth.
In South Africa and Malaysia the commercial real estate sector as a share of GDP is similar in scale to more advanced economies. Both have an established listed sector, supporting liquidity and facilitating growth in the stock of institutional-grade assets. They are also characterised by a relatively limited role for foreign capital.
This is despite a wider correlation between institutional quality and cross-border investment. Cross-border investors generally face information asymmetries relative to domestic investors and therefore require greater transparency and a level playing field to compete. In some markets, such as Thailand, foreign ownership restrictions can present tangible barriers to investment, while in others, such as Indonesia, it is often the close links between public- and private-sector institutions that act as barriers to entry.
In terms of institutional quality, the Central and Eastern European (CEE) region has often stood out in the past. Emerging real estate markets in the region, including Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia are all members of the EU, while Serbia is a candidate country. This signals the quality of rules and regulations governing ownership and transfer of tangible assets in the region.
This has supported strong inflows of foreign capital, as Stuart Jordan, CEO of Central and Eastern Europe, Savills, explains: “The type of capital active is very diverse and has been for a long period, attracted by the region’s strategic location and easy access to Western Europe, the Middle East and Asia.” Activity has been supported by high build quality, often a limiting factor in some emerging economies – and the growing sophistication of regional capital.
However, increasingly the region is becoming fragmented. “The CEE region was largely considered as one bloc by investors as recently as a decade ago, but is now far more fractured,” explains Jordan. While the markets share common rules through their EU membership or candidacy, the application of these rules varies across markets, often reflecting broader geopolitical divisions. This is increasingly evident in capital flows.
An opportunity for excess returns
The previous economic cycle, bookmarked by Covid-19, was a golden age for real estate investment. But those returns will be hard to replicate in this new cycle. Emerging markets are an under-invested geography, providing a unique opportunity to deliver excess returns. Markets that can deliver a combination of economic growth, and transparent and stable institutions, will be best placed to succeed.
