Market Outlook

Overall: REITs are providing some relative shelter from the tariff storm. The business of REITs is more domestic in nature than most of the other sectors. Lower interest rates will likely benefit the sector, and the JPY tends to strengthen when financial markets suffer. We continue to view Asian REITs as defensive and under owned.

• Japan: JREITs and Developers, despite suffering from the tariff sell-off, have outperformed. We expect defensive sectors to start outperforming, with JREITs taking the lead over Developers. Second quarter reporting will affect the sector in Japan as well.
• Australia: Australia has had the largest correction in Asia Pacific (-13% YTD), mostly on Goodman (GMG) due to its size in the index. Overall, sell-off in Data Centers might be overdone, and we believe RBS is poised to continue easing as well. We remain optimistic in other sectors with a preference for living stocks. The Abacus Storage King and National Storage story is developing and should be navigated carefully. We would not be surprised to see more consolidation in the AREIT sector among smaller names.
• Hong Kong & Singapore: Despite sharp falls in HK due to Chinese trade tariff retaliation, we see several drivers to support the HK REIT sector. HK Stock Connect should include HK REITs soon (Link REIT and Fortune REIT likely inclusions). We prefer REITs over Developers in HK currently, but could see recovery in both. Anticipated stimulus from Chinese Government to offset tariffs could improve HK sentiment. Singapore REIT (SREIT) sell-off due to trade war presents a good opportunity as falling rates have led to positive refinancing rates and acquisition cycle could restart. Rotational buying in Singapore out of large cap banks could be a tailwind for SREITs as well.

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The Asia Pacific commercial real estate market will see a modest improvement this year on the back of a resilient regional economy and the downward interest rate cycle. However, the outlook by market and sector will vary, often significantly, leading us to adopt “Steady Growth, Split Performance: Navigating a Multispeed Recovery” as the central theme of our 2025 Asia Pacific Real Estate Market Outlook.

Economy: Asia Pacific GDP growth is forecasted to reach 4.1% in 2025. Although U.S. tariffs could weigh on regional growth, the precise implementation and impact of any new tariff regime remains uncertain. Policy rates across many Asia Pacific economies are forecasted to fall at relatively modest magnitudes, except for Japan, which is expected to implement further interest rate hikes this year.

Capital Markets: CBRE forecasts commercial real estate transaction volume to rise 5-10% y-o-y in 2025, driven by growth in Singapore, Korea, Australia and Hong Kong SAR, and continued investor interest in Japan and India. With individual Asia Pacific markets at different stages of the pricing cycle, yield movement will diverge across markets.

Office: Leasing activity and rents are expected to register modest growth, with flight to quality demand remaining prominent. This will drive additional requirements for high-quality office space in prime core locations, with properties in non-core areas set to become even less attractive.

Industrial & Logistics: Expansionary sentiment among logistics occupiers will gradually pick up this year, backed by a mild increase in requirements from manufacturers and e-commerce platforms. However, most occupiers will retain a cautious approach towards real estate portfolio planning amid high rental growth.

Retail: Consumer sentiment is expected to improve in 2025 amid the solid employment market, leading to stronger retail sales growth. Regional retail rents will continue their slow but steady recovery as retailers retain a cautiously optimistic attitude towards real estate planning.

Hotels: The outlook for the hotel sector is positive, with international tourism projected to complete its recovery in 2025. CBRE expects modest RevPAR growth in 2025, driven by further hotel occupancy gains as daily rates continue to moderate.

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The real estate sector in the Asia Pacific (APAC) region continues to demonstrate robust growth with significant advancements in the housing segment, financing schemes and sustainable transformation. Technological progress in APAC economies has also catalysed transformation within the real estate sector, with technologies such as 3D printing and online home building tools gaining momentum. These changes have concurrently influenced the development of real estate projects within the region.

The APAC real estate sector is progressively adopting green energy innovations mainly through partnerships and investments for renewable energy projects, green technologies and sustainable urban development. This shift is evident in the updated real estate regulations within the region for 2QFY25. Numerous APAC economies, such as Australia, India, Singapore and China, have introduced policies and initiatives that encourage green infrastructure and the incorporation of technology to enhance their property markets. Furthermore, commercial and industrial real estate developments witnessed a steady rise in the APAC region with development plans for business and commercial projects underway.

In line with these strategic developments, APAC economies offer an attractive prospect for investors due to regulatory updates aimed at attracting diverse asset classes and types. These economies are predicted to play a pivotal role in channelling regional investments and fostering development in the forthcoming months.

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November was another challenging month with the results of the US election weighing on the REIT space and Asian currencies. However, there was a decent recovery starting mid-month and we did start to see a recovery in the JPY as attention is now shifting to monetary policy with upcoming meetings by the Fed and BOJ. Overall, we expect that the BOJ has enough justification to move again in December as US jobs and growth continue to be solid which reduces the likelihood of aggressive Fed interest rate cuts and Japan’s economic data continues to be solid. Inflation is running above the BOJ target for 30 consecutive months and while there are some more dovish members that may dissent, we expect another hike this December. 

Trump 2.0 has become a major worry for Asia and the impact of higher rates and weaker currencies led to a sharp sell-off in October well before the election. The magnitude was similar to the sell-off following Trump’s surprise victory in 2016 as were the concerns (i.e., protectionist policies, inflation concerns). RE Securities in Asia ended up rallying from the December 2016 lows about one month after the election and rose 15% from the bottom despite overall economic concerns including interest rates. The Fed raised interest rates three times in 2017. What appears different this time is that the correction started well before the election result in both securities and currencies and while the pace of interest rate cuts could be dialled back from previous expectations, it is unlikely the Fed will tighten in 2025. 

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