After weathering one of the most dramatic interest rate hiking cycles in history, the CRE markets are showing clear signs of a turning point.
Asia Pacific investment volumes are rebounding from recent lows, with a notable surge in cross-border activity driven by capital from outside of the region. In the 12 months ending June 2025, $40 billion flowed into Asia Pacific from external sources, primarily North America—practically doubling the volume from one year previously.
The primary destinations for this capital have been Australia and Japan, which have accounted for $12 billion and $11 billion over the past 12 months, with Singapore, South Korea and India being the next favoured markets. Investment activity has been comparatively evenly distributed between Data Centres (excluding the AirTrunk transaction), Logistics & Industrial, and Office.
Capital Raising Activity Returns to Growth
While this provides an encouraging backdrop, a more forward-looking signal for recovery is in recent fundraising activity. Following two years of decline, as interest rate hikes stymied demand for commercial real estate assets, fundraising activity has turned the corner and started reaccelerating. Year-to-date fund closings with APAC markets as their core geographic focus have totalled $14 billion, which is already on par with the total amount of capital raised in 2024. If fundraising continues at a similar rate, it is projected to reach approximately $21 billion for the full year—remaining steady compared to 2023 but marking a significant 43% year-over-year (YOY) increase.
In a further positive sign, the average size of fund specifically targeting the region has increased 80% from $203 million in 2024 to $366 million in 2025 year-to-date. This is the highest average closing since 2008, highlighting not only investor conviction in the region, but also that many remain underweight in Asia Pacific.
Australia and Japan Remain Key Target Markets
The single largest capital raising was for BGO’s Asia IV fund, which closed at $5.1 billion and is reportedly the company’s largest capital raising to date. The diversified fund is targeting value-add opportunities across multiple sectors including office, hospitality and logistics in the region’s main Tier 1 markets. Notably, almost half of the capital raised came from the United States and almost a quarter from the Middle East.
Recent transaction activity has highlighted strong investor interest in Australia and Japan. This is also echoed in fundraising activity. A total of 58 funds specifically targeting Asia Pacific have closed this year. Of this, 41% (24) are targeting assets in Australia and a further 29% (17) are targeting assets in Japan, meaning 70% of funds are targeting just two markets within the region. Outside of this, India and South Korea are the next two favoured markets.
Disaggregating the data further reveals ongoing strong conviction for data centres and logistics & industrial assets, as these represent the largest single sector capital raisings. Keppel has reached the second close of its multi-regional Data Centre Fund III, while Ares Management successfully closed its Japan DC Partners I fund, having raised $2.4 billion. CPPIB committed 54% of the total, citing that the increasing adoption of AI and cloud computing technologies position Japan as a key global data centre market.
In aggregate, these capital raisings point to heightened competition for assets as investors become increasingly targeted in their geographic and sectoral approaches.
Increasing Demand for Core Assets
After the past two years of investors targeting debt and/or value add opportunities, largely as a reflection of the stage of the cycle, core assets are coming back into demand. In overall dollar terms, the vast majority of capital continues to target value add strategies. However, for the first time in several years, the amount of capital targeting core assets now exceeds that targeting CRE debt. Unsurprisingly, most core funds are seeking assets in Japan, though Hong Kong-based CDH closed a China-specific logistics core fund at a little over $685 million.
REIT Outlook Improving
The unfavourable interest rate environment of the past two years has placed significant downward pressure on real estate pricing. While the level of repricing has been highly variable between markets, sectors and individual assets, it has been more universally apparent within the REIT market, with the sector lagging the broader index.
In further positive news, REITs are roaring back again. Although the Australian REIT market had been one of the hardest hit during the cycle downturn, it’s up over 12% year-to-date and some 55% above its nadir. Notably, A-REITs are now trading at a premium to their net tangible assets, while S-REITs have nearly achieved this feat, and J-REITs are now trending in the right direction. With the cost of capital declining and the outlook for CRE improving, REITs are in a position to attract fresh funding, secure new assets, and return to net purchasing activity—a dynamic that has been missing these past few years. Some halve already started down this track, such as Goodman Group, which successfully raised A$4 billion, with the offering 4-times oversubscribed. However, any equity raising will need to balance the amount of capital required for deployment against its impacts on distribution metrics.
The previous edition of our Tide is Turning series highlighted many of the key trends emerging in commercial real estate markets, offering investors reasons to cautiously increase their exposure to this asset class in 2025. The recent pick up in equity and debt fundraising is yet another important signal that the sector is on an upward trajectory. This trend serves as a leading indicator of rising investment volume, reflecting growing confidence among capital sources capable with multi-asset capabilities. It suggests they are looking beyond potential short-term challenges to strategically position portfolios favourably for the long term.
