Periods of major market disruption only come around a handful of times during most CRE investment careers. However, most investors know from experience that these episodes provide rare windows of opportunity to capitalise both on dislocations in pricing and disruptions to supply pipelines that eventually set the stage for income growth as new cycles take shape. This article takes a closer look at these dynamics, exploring how they, along with other factors, create a compelling case for (re)conviction to Asia Pacific real estate in 2025 despite the increasingly complex and uncertain macro environment.
Long-term Fundamentals Remain Intact
Commercial real estate investment has been continually challenged over the past few years. Firstly, this was during the initial phases of the pandemic, followed by the fastest interest rate hiking cycle seen in decades, and now amidst widespread macroeconomic uncertainty. Despite the buffeting provided by these events, Asia Pacific’s longer-term fundamentals remain intact. The regional economy is projected to expand by USD 13 trillion in real terms by 2035, accounting for 41% of global output. Additionally, it is expected to generate 70 million new jobs, some 50% of global employment growth during this period.
The transformative effects of such growth should also be considered. International trade tariffs are front of mind in the current geopolitical climate, which are expected to dent global trade. However, Asia Pacific continues to increase its consumption of the goods it produces. In 2000, the region consumed USD 820 billion of goods it manufactured. By 2024, this had increased fivefold to USD 4.2 trillion. Given the underlying growth dynamics, this figure is only expected to increase further.
The key message here is that real estate investments typically involve longer time horizons compared to other asset types. Therefore, it’s crucial to account not only for the current operating environment but also for long-term growth drivers when evaluating opportunities.
Limited Pricing Reset, but Opportunities Exist
The rise in interest rates has led to a slowdown in investment volumes, which in turn has impacted real estate pricing. Despite this, markets in Asia Pacific have generally held up better than their counterparts in other regions. At the national level, most markets experienced a peak-to-trough decline in the 2021-24 period of around 3% in commercial real estate pricing. Beneath this rather benign headline, considerable variation exists between cities and sectors. On the one hand, Hong Kong, Sydney and Melbourne experienced relatively steep pricing declines, which are yet to fully recover.
In contrast, commercial real estate pricing in Singapore, Seoul and Tokyo has remained broadly flat during the hiking cycle, while Brisbane has experienced significant price growth following an extended period of little movement.
From a sectoral perspective, clearer differences emerge, highlighting the structural headwinds and tailwinds that are operating. Taking Australia as an example, the office sector has been most impacted with declines of approximately 20%, of which little has been recouped so far, reflecting the sector’s adjustment to new modes of working and judgements on what constitutes “quality.”1 Retail experienced a much milder decline and has now largely recovered to recent peaks as investors are re-examining earlier hypotheses on the sector. Finally, although the industrial sector has been affected by yield decompression, this has been offset by ongoing, robust rental growth. In addition, increasing competition for assets from investors seeking to increase their exposure to the sector is driving early evidence of yields selectively starting to recompress.
More widely, the region’s central banks are likely to remain accommodative, not only to support growth amidst macro uncertainty but also because on average they have only cut 75 basis points (bps) so far compared to an average of 165 bps across Europe and North America. Furthermore, not only has there been less volatility in the region’s key bond markets than seen in the U.S. since the April 2nd tariff announcements, but there has also been moderate tightening. While this is supportive of easing debt costs, it should be noted that the situation is fluid and that terminal rates are expected to be higher than their longer-run averages.
Notwithstanding, together these factors confirm that repricing, where it has occurred, has now largely run its course and that movement from here is more likely to be biased towards growth.
Supply Remains Elevated, but not Across all Regions and Sectors
As an expansive region, Asia Pacific is regarded as a high demand and high supply market. While this remains true, it needs to be put into context. There is approximately 525 million square feet (msf) of new supply under construction in the region’s office sector, broadly in line with the rolling 5-year average of 500 msf, though well below the peak of almost 750 msf. Over half of current supply is concentrated in 7 markets, with the next 10 markets accounting for a further 30% of supply and the remaining 24 markets just 18%. In absolute terms, new supply is therefore highly concentrated, though it is acknowledged that new supply is at least 20% of existing stock in half the markets analysed.
Outside of the office sector, new supply constraints are more evident. The industrial sector has been highly expansionary across the region as supply chains have been redesigned to take advantage of low production costs in India and South East Asia and as the Chinese mainland has focussed on higher order goods. This wave of new supply is starting to run dry, especially in more mature markets such as Australia, South Korea and Japan as the increased cost of construction and wider uncertainty limit developer activity. Importantly the region has been largely able to absorb this new stock, which has kept vacancy levels relatively tight. Although some markets have moved into neutral or tenant-favourable conditions, a quarter still favour landlords and more are expected to move towards being more landlord-favourable over the next three years.2
Data centres have experienced impressive growth over recent years, but remain undersupplied across most metrics. Overall data centre capacity in the region currently stands at approximately 12.3GW, or approximately 300,000 people per megawatt. In comparison, the equivalent number in the U.S. is just 16,500 people per megawatt. Even accounting for new supply, both planned and under construction, this will only bring the total to 132,000 people per megawatt.
Similarly, evolving forms of living such as build-to-rent (multifamily), co-living and student accommodation remain nascent across much of the region. As such, they are firmly in growth mode, though new supply remains limited leading to chronic housing shortages in many markets. Likewise, retail construction has stalled or at least slowed.
The diversification of the region, both between markets and between sectors, gives opportunities for investment across the risk curve. However, careful city and sector selection is required to match the correct asset to the preferred investment strategy.
Fundraising Momentum Picks up Again
Lastly, it is apparent that a window of opportunity may be forming. After several years of dry power accumulating—peaking at over USD 136 billion in 2022—it is now down 25% and at levels last seen in 2020 prior to the significant ramp up in 2021. At the same time, the macroeconomic environment proved problematic for capital raising endeavours—less capital was raised in 2023 and 2024 combined than in 2022. However, the latest data is showing early signs that the situation is easing. Year-to-date capital raising in Asia Pacific is currently at USD 10.5 billion—over 75% of the total raised in 2024. Furthermore, the average fund size has increased by more than double to USD 584 million.
Should such momentum be maintained, dry powder will be rapidly restored to recent highs, suggesting there could be first mover advantage for motivated investors before competition for assets intensifies further—especially as and when macroeconomic uncertainty starts to be resolved.
1 https://www.cushmanwakefield.com/en/australia/insights/reshaping-the-city
2 https://www.cushmanwakefield.com/en/insights/waypoint-global-industrial-dynamics