Economic, geopolitical, and AI influences
The Asia Pacific region faces unprecedented economic and geopolitical uncertainty in 2025, with the returning Trump administration likely to impose aggressive trade policies and protectionism. This shift may force a reassessment of trade strategies, particularly between the US and China, and could prompt a reshuffling of global supply chains away from China to South and Southeast Asia. Rising tariffs could slow interest rate cuts, impacting property investment recovery.
Additionally, the ongoing advance of AI is set to reshape the real estate market, particularly regarding new assets like data centres. The continued focus on ESG continues to influence investment decisions, driving demand for certified assets with a green premium.
Diverse investment interest and opportunities
After two years of subdued investment activity, Asia Pacific investment volumes began to pick up in the second half of 2024. We expect this growth to increase in 2025, buoyed by a positive economic outlook, a clearer interest rate trajectory and a narrowing bid-ask spread. This should attract global institutional investors back to the region, especially to advanced markets such as Australia and South Korea, which previously faced higher interest rates.
However, weaker investment sentiment in mainland China and Hong Kong will mean activity is likely to be dominated by domestic investors and end-users, and characterised by distressed sales, liquidity issues and less attractive yield returns.
“Beds and sheds” are expected to remain popular among global investors in 2025. The living sector, including multifamily/rental housing, student housing, co-living, and senior housing, retains its appeal due to demographic changes in the region and low housing affordability in major urban areas. These factors will contribute to stable rental incomes and attractive yields, particularly for rental accommodation in Japan and Australia. There is also rising interest in multifamily properties in tier-1 cities in mainland China, driven by sluggish residential sales and increased government support.
Demand for industrial and logistics assets remained resilient in 2024, driven by the growth of manufacturing and ecommerce, alongside strong global demand for semiconductors. This is likely to continue, as the diversification of global supply chains and rising tariffs on Chinese imports are likely to further boost demand for industrial and logistics warehouse assets in India and emerging Southeast Asian markets, especially Vietnam and Indonesia.
Despite most prime office markets facing oversupply issues, elevated vacancy rates and tight yield spreads, assets in well-located areas continue to attract significant attention from core funds. This trend excludes mainland China and Hong Kong, however, where the only growing interest – especially within China’s tier-1 cities – is coming from opportunistic funds in distressed office assets.
An increasing number of global funds have been seeking to diversify their portfolios from traditional assets to alternatives. We expect alternatives’ popularity to strengthen in 2025, driven by their lower sensitivity to economic cycles and their attractive yield returns. As the boom in AI technology applications continues, requiring ever more processing power, data centre assets are in high demand. Lower-cost markets such as India and Malaysia are particularly attractive.
Cautiously positive occupier outlook
The 2025 outlook for the Grade A office occupier market is cautiously positive, with most regions expecting mild rental growth or stable rates. Only mainland China and Hong Kong will face high vacancy rates and significant oversupply.
The prime retail occupier markets will generally favour tenants, except in Bangkok and Ho Chi Minh City, where tight availability will tip the balance towards landlords. Overall rental growth in prime shopping centres is projected to be between 0% and 5%, with Tokyo, Bangkok, and Kuala Lumpur potentially seeing increases of up to 10%, due to strong inbound tourism. At the other end of the scale, tier-1 cities in mainland China and Hong Kong may see rental corrections of 5-10%.
The outlook for the prime industrial and logistics sector in 2025 remains positive across the region, underpinned by strong export performance. Moreover, consistent demand for rental housing is projected to fuel rental growth in most markets, particularly in the multifamily sector in Japan and the build-to-rent sector in Australia, where low vacancy rates and strong demand continue to dominate.
