Market Outlook

Overview: Asian real estate securities are up 17.53% YTD in USD, supported by recovering REITs/Developers, positive FX, and falling rates reigniting investor interest. Lower borrowing costs in Asia ex-Japan enable earnings upgrades and accretive acquisitions, while a weak USD, low growth, and falling rates continue to support positioning in the sector.

• Japan: JREITs up 11.9% since January but still trade at a 13% NAV discount. Ongoing asset sales and buybacks continue, while BOJ remains cautious amid US-Japan trade tensions. Fundamentals in Office and Hotels remain strong, and rising construction costs are limiting new supply.
• Australia: The RBA is expected to cut rates later this year, with inflation within target and labour markets softening and part-time jobs declining. We are maintaining overweights in Residential-Diversified, Retail, and Self-Storage. Macro data is expected to drive prices ahead of August earnings.
• Hong Kong: HK real estate stocks rose over 20% in H1 2025, supported by falling rates, recovering retail, residential and tourism activity, and underweight investor positioning. HK Land has led gains on asset sales, buybacks, and dividend enhancement, while large-cap developers remain at wide NAV discounts.
• Singapore: Large-cap SREITs are trading at 2025 highs, supported by falling rates reducing refinancing costs and enabling DPU-accretive deals. The recent NTT Global Data Center REIT IPO was 2.5x oversubscribed with an initial 7.5% yield. New residential cooling measures are unlikely to materially impact the sector.

Overall: We maintain a cautiously optimistic view on Asian REITs, supported by falling interest rates across Asia ex-Japan, which enable lower financing costs and open the door for accretive acquisitions. Singapore exemplifies this trend, with Capitaland Ascendas acquiring assets at attractive cap rates using low-cost debt and equity raised at a premium to NAV.

Regional Highlights:

• Japan: JREITs have outperformed equities in 2025 despite rising bond yields, driven by wide valuation discounts and buybacks. While refinancing at higher rates is a headwind, rental growth from expiring COVID-era leases and strong fundamentals in office, hotel, and urban retail sectors provide earnings support. JREITs are preferred over developers at this stage.
• Australia: Ex-Goodman, REITs have rallied with names like Charter Hall and Mirvac seeing strong gains. Valuations are now full in some names, prompting rotation to undervalued plays like National Storage REIT, which may benefit from consolidation trends and takeover potential. Exposure to Australia has been trimmed in favor of better value in Singapore.
• Hong Kong: Ultra-low HIBOR levels and recovering residential demand support REITs and Developers, particularly those with floating rate debt. Retail REITs benefit from stabilizing sales and moderating outbound travel. Link REIT and Fortune REIT may gain from Stock Connect inclusion. Caution remains for the oversupplied Central office market.
• Singapore: Large-cap SREITs (CICT, CLAR, Frasers Centrepoint) offer compelling relative value. Despite rate cuts, sector underperformance persists, but the high yield spread over rates is expected to attract rotation from banks. Accretive acquisition pipelines and potential growth in data centers and healthcare assets add upside.

Overall: We still believe that the interest rate tailwind of slower global growth will support REITs in Asia especially Australia, Singapore and even Hong Kong (see fall in HIBOR). CPI in our region outside of Japan has been trending very much in the right direction.

• Japan (+7% in USD in April): The major developers will publish their annual results in May. After that it will be quiet until October and we see only limited upside potential. We have therefore added to REITs and bought Japan Real Estate Investment Corp.
• Australia (+9%): We continue to favor names like Stockland and Mirvac as we anticipate residential volumes to recover as the RBA cuts throughout the year. We are positive on self-storage due to continued population growth, and potential for more consolidation of unlisted, smaller players.
• Hong Kong (+2.3%): Money market rates continue to fall, the 1M HIBOR is below 2% now. For the short-term refinanced companies in Hong Kong a strong tailwind.
• Singapore (1.7%): We see continued drops in funding costs which will help earnings and fuel acquisition growth for some names that have strong costs of capital. With 1Q updates behind us, we see limited negative catalysts for the sector.

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.

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. 

October was a difficult month for Asian Real Estate (RE) securities and REITs. We mentioned in last month’s update that we expected volatility given the upcoming elections in both the US and Japan, along with recent economic data that had reduced expectations of more aggressive Fed interest rate cuts. Expectations of a Trump victory were clearly anticipated in equity, fixed income, currency, and crypto markets. The Asian RE universe fell by more than 7% in USD, with much of the weakness coming from exchange rates. Back in 2016, Asian RE Securities and REITs suffered after Trump’s surprise victory, initially falling by 6% in the weeks after the election and significantly trailing the SPX, which rose over that same period. However, the sector rallied by nearly 10% from the start of 2017 until mid-year when Trump officially took office and subsequently rose by 15.5% in 2017. Given the outcome was less of a surprise this time around, we believe the market had somewhat priced in a Trump victory already.

While the risks of accelerating inflation due to pro-cyclical policies are a concern, there are other forces that will help contain inflation, such as rising productivity; and while tariffs may spike US inflation initially, they are likely to hurt the economy and some US companies due to higher input costs and potential retaliation from trading partners. China is cautious in unleashing additional stimuli until Trump takes office, which has led to additional disappointment in the region. While it is hard to estimate the full potential impact on rates and Asian growth from Trump’s anticipated policies, the sector performance in October was worse than in the months after Trump’s 2016 surprise victory. Therefore, we are hopeful that we will see some bottoming soon given the sharp decline in stocks and forecasted recovery in DPUs going into 2025 and 2026.