APREA Market Flash - 2025 Asia Pacific Market Outlook

Which regions or cities in the Asia Pacific are expected to emerge as top investment hotspots by 2025, and what factors—such as economic growth, infrastructure development, or affordability—will drive this demand?

Tokyo retained the top spot in CBRE’s 2025 Asia Pacific Investor Intentions Survey for cross-border real estate investment for sixth consecutive year. In developed Asia, Japan as a whole will remain attractive due to its stable pricing, strong domestic liquidity and breadth of opportunity set. NOI growth is now materialising across multiple sectors which will supplement readily available and highly accretive debt.

Australia has repriced significantly and will continue to attract a broad range of global capital. Favourable demographics and tightening supply will support long term rent growth and capital value appreciation. It offers the highest unlevered yields across developed markets regionally.

For growth in Asia, India stands out, fuelled by structural demand drivers, an expanding middle class and attractive risk adjusted returns, with two cities, Mumbai and Delhi, both ranked in the top 10 cross-border destinations for the first time. India’s scale and favourable fundamentals is attracting a deepening pool of market participants. While the growing body of successful exits, both public and wholesale, is instilling further conviction with investors who are forming a long-term view.

Callum Young

Executive Director, Capital Markets, Asia Pacific
CBRE

Which regions or cities in the Asia Pacific are expected to emerge as top investment hotspots by 2025, and what factors—such as economic growth, infrastructure development, or affordability—will drive this demand?

The diversity across the Asia Pacific region provides investors with a range of opportunities across the risk curve. Accelerating economic growth in the region’s advanced economies will support the investment thesis into these markets, as will forthcoming interest rate cuts in 2025. According to Cushman & Wakefield’s Asia Pacific Outlook 2025, Australia is likely to be a significant beneficiary given the developments over the past two years. Ongoing robust economic growth in India could prove attractive to investors with greater risk tolerance. More broadly, assets and sectors with strong growth fundamentals and opportunities for rental growth are likely to be attractive across the region.

How will changes in interest rates, inflation and broader economic conditions impact real estate investment strategies heading into 2025?

The current outlook for real estate investment in 2025 is net positive. Stable economic growth, along with an accelerating growth in most of the region’s advanced economies, and more accommodative central banks, are tailwinds for real estate investment. At the market level, the bid-ask spread between vendor and purchasers has also narrowed, indicating that the pricing declines observed over the past 24 months are largely behind us. We expect the investment market to now enter a period of pricing stability, with capitalisation rates forecast to remain stable across the vast majority of the region. However, it is important to note that asset level trends will likely differ from wider market averages.

What are the key themes for real estate and infra investments for 2025 in APAC—such as the continued rise of multi-family properties, the shift towards mixed-use developments, or the growth of data centers, logistics and industrial real estate—and how will these trends shape portfolio strategies?

Through-the-cycle sectors, such as data centres and multifamily, are likely to be in demand for both their growth and defensive qualities. Providing sufficient supply has been an issue in recent years, and while declining inflation and interest cuts are supportive, this issue is not likely to be completely resolved in the near term, likely leading to demand exceeding supply. The logistics and industrial sector should also gain momentum as global demand for goods recovers. The office sector remains relevant across the region, with investors likely targeting assets with strong underlying income profiles.

Dr. Dominic Brown

Head of International Research
Cushman & Wakefield

How will changes in interest rates, inflation and broader economic conditions impact real estate investment strategies heading into 2025?

We enter 2025 with optimism. As many central banks cut interest rates, we are witnessing increased capital flows into private markets. With these rate cuts expected to continue over the next two years, we anticipate that real estate yields, particularly in the retail sector, will stabilize and investors are likely to prioritize core markets and high-quality assets, including grocery-anchored retail parks, shopping centers, and high street properties.

At ZDR Investments SG VCC, we focus on European retail real estate, offering Singaporean investors access through a master-feeder fund structure. Europe recently achieved a new high on the Global Retail Attractiveness Index, led by countries in Central and Eastern Europe, thanks to improved consumer sentiment and steady GDP growth. With low inflation and rising incomes further enhancing market potential, ZDR remains confident in delivering strong investment opportunities in high-quality retail assets.

Ondrej Sychrovsky

CEO
ZDR Investments

Which regions or cities in the Asia Pacific are expected to emerge as top investment hotspots by 2025, and what factors will drive this demand?

Key cities such as Sydney, Brisbane, and Singapore are expected to dominate investment activity by 2025. Sydney's robust performance in logistics and CBD office sectors stems from economic recovery, limited supply in premium-grade offices, and high demand for ESG-compliant spaces. Brisbane's diverse asset base, including inner-ring industrial properties and hotel refurbishments, highlights its appeal to investors seeking strong yield and growth potential.

Singapore's stable capitalisation rates and resilience in industrial, retail, and living sectors continue to attract global capital, underpinned by its reputation as a wealth-preservation hub. Similarly, Tokyo and Melbourne stand out for their low vacancy rates and strong demand for value-add plays, with a focus on repositioning obsolete offices and dated industrial assets into modern, ESG-compliant facilities.

Infrastructure development, government reforms, and demand for premium mixed-use and co-living projects, especially in Ho Chi Minh City and Jakarta, reinforce these cities as emerging hotspots. Across the region, the push toward sustainability and tenant-centric strategies will shape investment trends.

How will changes in interest rates, inflation, and broader economic conditions impact real estate investment strategies heading into 2025?

The anticipated direction of Fed rate cuts toward the end of 2024 has injected renewed optimism into APAC real estate markets, with increased activity expected in 2025. Core markets such as Sydney and Singapore are leading a recovery in transactions, particularly in CBD offices, logistics and industrial assets, as institutional investors seek income-generating and defensive investments. Easing borrowing costs are expected to unlock liquidity, spurring market activity and encouraging investors to re-enter segments that saw significant repricing in 2023 and 2024, such as CBD offices in Melbourne and Brisbane. However, while lower rates may improve financing conditions, pricing adjustments and a cautious approach to cap rate movements will remain crucial in maintaining stability in these markets.

In growth markets like Ho Chi Minh City and Jakarta, the focus is shifting toward repositioning underperforming or aging assets to align with emerging demand. This includes converting outdated Grade B offices into sustainable spaces or redeveloping industrial facilities into modern logistics hubs to meet rising e-commerce demands.

Sustainability mandates are reshaping investment strategies across the region. For instance, "brown-to-green" initiatives in Seoul and Hong Kong are targeting older offices and industrial properties to enhance ESG compliance, appealing to both tenants and investors. Additionally, tech-driven and alternative sectors, such as data centers and co-living developments, are emerging as key areas of interest, reflecting long-term structural trends.

Overall, a combination of improving financing conditions, strategic repositioning, and sustainability-driven redevelopment will define investment strategies heading into 2025, creating opportunities across core and value-add markets alike.

What are the key themes for real estate and infrastructure investments for 2025 in APAC, and how will these trends shape portfolio strategies?

In 2025, sustainability, value-add opportunities, and resilience in core sectors will dominate investment themes across APAC. Investors are capitalizing on the growing demand for logistics and industrial properties in key markets like Sydney, Auckland, and Bengaluru, fueled by e-commerce growth and urban logistics needs.

Value-add plays, particularly in Tokyo, Melbourne, and Singapore, are reshaping portfolios as developers upgrade dated offices, industrial facilities, and underperforming retail assets into ESG-compliant, tenant-friendly spaces. Mixed-use developments, co-living projects, and suburban offices are gaining traction, reflecting evolving lifestyle preferences and urbanization trends in markets such as Jakarta and Ho Chi Minh City.

Additionally, the repurposing of heritage and commercial assets in Kuala Lumpur and Manila reflects a broader shift toward adaptive reuse, ensuring flexibility and higher returns. The convergence of macroeconomic stability, urban growth, and ESG priorities will drive investment in resilient and sustainable assets across the region, shaping strategic portfolio diversification.

Christine Li

Head of Research, Asia Pacific
Knight Frank

Sydney Office stands at the Cusp of a Multi-Year Upcycle

Headline figures for Sydney’s office market continued to paint a sobering picture in 2024, with vacancy of 14.7%, net effective rents -10.5% below their 2020 peak and capital values down -21% from their 2022 highs. When looking at the most recent trend though, the second derivative across most key metrics has turned positive and will remain so as new supply is dwindling in a city that continues to grow and is seeing large corporate tenants come back to market in search of high-quality office space.

Third quarter net effective rents rose 3.0% yoy on the back of 77,000 sqm of net absorption in the first nine months of 2024 and vacancy edged down from 15.4%. 108,000 sqm of new office space will come to market in 2025, with 71% of that already pre-committed. Sydney will see new offices complete in 2026 and 2027, but it will be below historic averages, and a good amount of that space has also already been pre-committed. As construction costs rise and regulatory and energy requirements become more stringent, supply is likely to undershoot demand for a prolonged period.

For Sydney office landlords, including some of Australia’s largest REITs, the next few years could prove to be a still widely underappreciated upcycle.

Joachim H Kehr

Portfolio & Regional Head, Asia-Pacific
CenterSquare Investment Management Asia Pacific

Which sectors/markets look more attractive as the easing cycle gains momentum?

1. U.S. interest rate cuts are not just good news for U.S. markets and U.S. real estate, but also positively impact markets across Asia. Hong Kong’s monetary policy is directly linked to that of the U.S. on account of the HKD’s peg to the USD, and as the Fed cuts rates it feeds through to Hong Kong and has a positive impact on the residential market in Hong Kong. But more than that, rate cuts will improve overall market sentiment towards real estate and help lift performance meaningfully.
2. The power of lower interest rates on REITs is immense! Lower risk-free rates boost asset values and NAVs rise as cap rates fall. REIT share prices will need to rise to keep pace with the higher valuation of REIT property portfolios. On the financing side, lower interest rates reduce debt costs and lower priced debt capital, and an overall lower cost of capital will allow REITs to acquire more and more accretively, too. High dividend paying stocks like REITs also benefit from falling rates as the yield spread to bonds improves, providing a further driver of REIT outperformance.
3. Global REITs are well placed to continue to benefit after having risen 11.6% in the past six months and just over 27.0% since November 11, 2023. REIT earnings growth should accelerate in 2025 and beyond as interest rate headwinds ease. Debt spreads for U.S. REITs are down 75bps on top of the 75bps drop in base interest rates, making for a far more compelling financing environment. REITs are well placed to take advantage of that and of lower real estate valuations by acquiring assets. In 9M24 U.S. REITs alone issued $43bn in unsecured debt, well above the 2023 and 2022 totals, providing lots of firepower to go and acquire accretively.

Joachim Kehr

Portfolio & Regional Head, Asia-Pacific
CenterSquare Investment Management Asia Pacific

Which sectors/markets look more attractive as the easing cycle gains momentum?

South Korea has seen growing investment activities with year-to-date transaction volume rising 31% from the same period a year ago. This is as senior loan costs for prime office came down and the bid-ask gaps narrow. Mega office deals returned in Q3 with others still in the pipeline. Foreign investors showed conviction in logistics and hotels as sector performance improved. And the market recorded its first sale of a stabilized hyperscale data centre, a significant milestone for Korea.

While Australia hasn’t experienced easing yet, the certainly of base rates peaking is providing more clarity around a pricing trough. Offshore groups returned noticeably acquiring logistics and office assets, with inbound flows rising 20% YTD.

And despite the BOJ’s monetary tightening, investment into Japan continues to rise with volumes up 28% YTD. Pricing is expected to hold steady due to strong competition for assets and accommodative access to credit provided by Japanese financial institutions and lenders. Japan’s long-term interest rate remains low and positive yield spread across all property types are highly attractive. The emergence of price growth means investors can view property as an inflation hedge rather than a substitute for fixed income.

Business parks in major markets Mumbai and Chennai picked up as well. Both domestic and global institutional investors saw upside in India’s strong economic growth alongside favourable demographics.

What is the expectation for U.S. rate cuts for 2024/2025 — will the cut in rates boost beaten down sectors such as U.S. commercial property, REITs etc. Which areas will see the biggest turnaround with the move to an accommodative stance?

During the rate hike cycle that began in 2022, the higher cost of debt eroded the risk-adjusted return of core investments and prompted a re-pricing cycle. Investors sought higher returns by accepting higher risks in value-add and opportunistic investments and diversifying into alternative sectors. At the rate reduction cycle takes shape and Asian central banks move to loosen monetary policy at varied pace, the spreads between property yields and cost of debt will widen. This will lead to the re-emergence of core real estate strategies in office markets where cap rates have adjusted the most.

Do you see other central banks following suit, with some emerging market central banks having already cut rates ahead of the Fed, and how would real estate investments in emerging markets compare with developed markets in this easing cycle?

Real estate investments in emerging markets (EM) are less sensitive to inters rates as most of them are value-add/ opportunistic in nature. Investors consider market-specific secular trends when investing in EM. Transparency is also a key factor as it encourages highest investment and is used as a market filter to understand the risk profile for potential investments. Progress in transparency, such as greater data coverage, more institutionalization, and better regulatory framework is beneficial to the development of capital markets in EM. Investors do also look for opportunities through development, JV, entity and construction financing opportunities in EMs.

Pamela Ambler

Head of Investor Intelligence & Strategy, APAC Capital Markets
JLL

Which regions or cities in the Asia Pacific are expected to emerge as top investment hotspots by 2025, and what factors—such as economic growth, infrastructure development, or affordability—will drive this demand?

In 2025, Southeast Asia as an investment destination will still show its competitive advantages. Among Southeast Asia, we expect Vietnam and Japan will emerge as top investment hotspot by 2025.

Vietnam will be a investment hotspot, driven by strong economic growth, rapid urbanization, and significant infrastructure upgrades in Hanoi and Ho Chi Minh City. As a global manufacturing hub and key player in the China+1 strategy, it attracts substantial FDI. Competitive property prices, a youthful population, and rising demand for real estate make Vietnam a lucrative, long-term investment market.

Japan remains a top choice for investors seeking stability and steady returns. Cities like Tokyo and Osaka offer strong demand for residential, office, and logistics real estate, backed by a mature economy and low-risk market environment.

How will changes in interest rates, inflation and broader economic conditions impact real estate investment strategies heading into 2025?

Heading into 2025, we expect global inflation will persist, and the extent of interest rate cuts will be limited. However, the situation in China is the opposite, with continued interest rate cuts and accommodative monetary policies expected. In 2025, the global geo-economic landscape will still contain numerous uncertainties, thus the stability of investments has become more valued by investors. Broader economic slowdowns will favor defensive strategies, emphasizing resilient sectors like industrial and necessity-based retail. Investors will prioritize stability, value-add opportunities, and ESG-compliant assets to navigate these conditions.

What are the key themes for real estate and infra investments for 2025 in APAC—such as the continued rise of multi-family properties, the shift towards mixed-use developments, or the growth of data centers, logistics and industrial real estate—and how will these trends shape portfolio strategies?

These trends will encourage diversification across asset classes and geographies, with a focus on resilient sectors like logistics, multi-family housing, and data centers. Value-add opportunities, particularly in mixed-use and industrial properties, will attract risk-tolerant investors, while sustainability will remain a core focus to meet tenant demand and regulatory standards. At the same time, in 2025, globalization strategies will become a key focus for investors, with a pursuit of cross-market allocation across different asset classes.

Kong Lingyi

Managing Director and CIO
SCGC Realty Capital

Which regions or cities in the Asia Pacific are expected to emerge as top investment hotspots by 2025, and what factors—such as economic growth, infrastructure development, or affordability—will drive this demand?

The Asia Pacific region is shaping up to be a key destination for real estate investments in the year ahead, on account of steady economic growth, supportive policy changes and evolving market opportunities. Despite global challenges, such as geopolitical tensions and strategic policy realignments, the region’s GDP is projected to grow by 4.4 per cent, setting the stage for a steady expansion.¹

Key cities such as Tokyo, Osaka, Sydney and Singapore continue to attract investor interest for their stability and advanced infrastructure. Meanwhile, emerging markets like India, Indonesia and Vietnam are gaining momentum due to shifts in the global landscape. India, in particular, is benefitting from global supply chain shifts, leading to increased demand for office, industrial and logistics assets. For instance, the gross absorption of office spaces across India’s six major cities reached a record high of 75.2 mn. sq. ft. in 2024, registering a 21 per cent yearly growth.²

Going ahead, with positive drivers, such as rising income levels, favourable demographics, easing of interest rates and continued infrastructure expansion in place, the Asia Pacific real estate market is expected to thrive, offering a mix of stability and growth opportunities for global investors.

How will changes in interest rates, inflation and broader economic conditions impact real estate investment strategies heading into 2025?

The outlook for 2025 suggests a promising yet complex environment for real estate investments. Inflation is expected to decline, with the IMF projecting global rates to drop from 5.8 per cent in 2024 to 4.3 per cent by 2025.³ This cooling inflation offers stability, easing pressure on operational costs and a positive investment landscape. Interest rates are also trending downwards, driven by changes in policy stance from key central banks across the globe. For instance, countries such as China, the US and the UK are adopting easing policies, creating a conducive environment for increasing real estate investments.

The changing global economic landscape is fuelling cautious optimism, hinting at a positive real estate growth cycle. Investors are expected to capitalise on easing rates and improving inflation, which can lower borrowing costs and increase return on investments. Going ahead in 2025, real estate strategies will likely focus on leveraging favourable environment, prioritising investments in emerging, high-growth markets, resilient asset classes and innovative financing models to maximise returns.

What are the key themes for real estate and infra investments for 2025 in APAC—such as the continued rise of multi-family properties, the shift towards mixed-use developments, or the growth of data centers, logistics and industrial real estate—and how will these trends shape portfolio strategies?

As we look towards 2025, several new trends are shaping real estate and infrastructure investments across the APAC region. On the commercial front, the surge in digitalisation and AI adoption is driving significant demand for data centres and related tech infrastructure. India, for instance, is emerging as a data centre hub, with the data centre market expected to reach a value of USD10 billion by 2025.⁴ Similarly, the industrial and logistics sector is experiencing healthy growth, driven by the e-commerce boom and supply chain realignment. Markets like Japan and South Korea are expected to experience strong rental growth. On the residential front, the concept of multi-family properties is becoming increasingly attractive, driven by rising urbanisation and changing demographics. Today, consumers are inching towards integrated townships, which offer advanced amenities across living, working and leisure spaces that can cater to modern lifestyle preferences. In India, the luxury housing market grew by more than 37 per cent during January–September 2024.⁵ Going ahead, as global demand for sustainable and technological assets continues to grow, investors are likely to diversify their portfolios to reflect these trends and changing consumer behaviours.

Neeraj Bansal

Partner and Head India Global
KPMG in India

¹ Asia Pacific Real Estate Forecast 2025: Navigating Challenges with Resilience and Opportunity, Construction and Property, 29 December 2024, accessed on 7 January 2025.

² Office Market at All-Time High Gross Absorption of 75.2 Mn Sq. Ft. in 2024, Realty&More, 30 December 2024, accessed on 7 January 2025

³ IMF: Global Inflation to Cool to 4.3 per cent by End of 2025, MDM, 23 October 2024, accessed on 7 January 2025

⁴ Data Centers in 2025: What’s Driving the Boom in India?, CIO&Leader, 27 November 2024, accessed on 7 January 2025

⁵ Luxury Home Sales Surges in the First Nine Months of 2024, CBRE India, 17 October 2024, accessed on 7 January 2025

Based on current trends and market analysis as of April 2024, Tokyo is expected to emerge as a top investment hotspot in the Asia Pacific region by 2025. Several key factors contribute to Tokyo's attractiveness:

• Strong supply-demand fundamentals: Tokyo's real estate market continues to demonstrate robust demand across various sectors, particularly in office and residential segments. This is coupled with a escalated construction cost challenged supply pipeline, maintaining a healthy balance in the market.
• Surge in M&A, private equity, and activist activity: There's a notable increase in corporate restructuring, mergers and acquisitions, and private equity investments in Tokyo. This trend is likely to continue, releasing inventory that was locked on companies Balance Sheet to the market creating opportunities for value-add and core sale-lease-back strategies.
• Healthy capital markets: Tokyo's capital markets remain liquid and well-functioning, providing investors with various options for both entry and exit strategies. The availability of financing and the stability of the Japanese yen contribute to the market's appeal.
• Demographic shifts: While Japan faces an aging population overall, Tokyo continues to attract young professionals and maintains a dynamic urban environment, supporting long-term demand for various real estate assets.

These factors collectively contribute to Tokyo's potential as a leading investment destination in the Asia Pacific region by 2025, offering a combination of stability, growth prospects, and market depth that appeals to a wide range of international investors.

Looking ahead to 2025, the impact of interest rates, inflation, and broader economic conditions on real estate investment strategies is expected to be nuanced, particularly in Japan:

• Interest rate trajectory: Any increase in interest rates is likely to be subtle and gradual. The Bank of Japan is expected to maintain a cautious approach to monetary policy adjustments, which should provide a stable environment for real estate investors.
• Yield spread advantage: Japan continues to offer the best delta between real estate yields and interest rates among developed markets. This favorable spread results in the highest cash-on-cash returns for investors, making Japanese real estate particularly attractive in a global context.
• Inflation considerations: While inflation has been a concern in many economies, Japan's historically low inflation rate is expected to remain relatively stable. This stability helps preserve the real value of rental income and capital appreciation.
• Capital preservation: In a scenario of global economic uncertainty, Japan's real estate market may be viewed as a safe haven for capital preservation, attracting more conservative investors.

Given these factors, real estate investment strategies heading into 2025 are likely to emphasize capitalizing on Japan's unique yield advantage while maintaining a long-term perspective on asset selection and financing structures. The gradual nature of any economic changes should allow for measured, strategic adjustments rather than dramatic shifts in investment approaches.

Key themes for real estate and infrastructure investments in APAC for 2025 are expected to revolve around several asset classes, each offering unique advantages:

• Multifamily properties:
  • Strong inflation hedge due to short-term lease structures allowing for frequent rent adjustments
  • Growing demand in urban centers, particularly in markets like Tokyo and Osaka
  • Stable cash flows and lower operational risk compared to other asset classes
• Hotels:
  • Emerging as an effective inflation hedge, on the back of recovering tourism
  • Ability to adjust room rates daily in response to inflationary pressures
  • Potential for significant upside as international travel continues to rebound post-pandemic
• Data centers:
  • Representing a large secular trend driven by increasing digitalization and cloud adoption
  • Strong demand fueled by 5G rollout, AI advancements, and the Internet of Things (IoT)
  • Attractive long-term leases with technology tenants providing stable income streams
• Logistics and industrial real estate:
  • Emerging as a contrarian play despite high vacancy rates in some markets
  • Potential for value-add strategies in repositioning or redeveloping older assets
  • Long-term demand drivers remain strong, including e-commerce growth and supply chain reconfiguration

Investors will likely diversify across these asset classes, balancing inflation protection, technology focus, and value-add opportunities to optimize returns and manage risks in the evolving APAC real estate landscape.

Shai Greenberg

Senior Director, Head of International Capital, Japan Capital Markets
JLL