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The latest Emerging Trends in Real Estate® 2025 Asia Pacific report from PwC and Urban Land Institute (ULI) indicates that the start of an interest rate easing cycle in the US has sparked optimism in the commercial real estate markets across Asia Pacific. Investor sentiment is improving, and Q3 data from MSCI shows a significant deal pipeline for the fourth quarter.
The Emerging Trends in Real Estate® survey, conducted in October, ranked Tokyo (1), Osaka (2), Sydney (3), and Singapore (4) as the top four cities for investment prospects in the region. However, data from MSCI and anecdotal reports indicate significant disparities across different geographies and sectors within the Asia Pacific region.
Japan
- Persistently low interest rates have once again made it a favourite for investors, although those surveyed suggested that the potential for domestic rate hikes in 2025 has made global investors more cautious due to cap rate compression in the market.
Australia
- Drawing more attention as local institutional funds lower asking prices, resulting in price corrections by approximately 20-25 percent. Global funds are now actively seeking deals in core markets after a three-year absence, with Sydney showing signs of recovery, although Melbourne still faces high vacancies.
China
- Continues to experience a multi-year downtrend, resulting in a unique property microclimate. With the prevailing economic conditions, foreign investors remain cautious about investments, although opportunities exist for established foreign players to pick up assets at bargain prices.
Singapore
- Remains a consistent performer within the top four cities for investments. Office pricing has demonstrated notable stability throughout the downturn, bolstered by limited supply and robust demand from inbound corporate occupiers. However, many investors consider local cap rates too tight for viable investments. Consequently, transaction volumes have been low, though a few significant transactions in the third quarter of 2024 increased annual transactions to levels comparable to 2023.
This year's report also shows rising interest in assets in emerging markets like Southeast Asia and India, driven by the shift of manufacturing activities from China to these regions, boosting demand for industrial and logistics assets.
Investors across the region have reported that the ongoing discrepancy in pricing expectations (wide bid/ask spreads) has caused them to shift away from traditional property types in search of assets that can meet return thresholds. These alternative assets include data centres and living sector assets such as multifamily, residential and senior housing, which are associated with new-economy themes and high growth prospects.
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