Asia-Pacific (APAC) economic outlook

The global trade shock has moderated and the risk of a tariff spiral has receded, so we have upgraded some of our growth forecasts and reduced the probability of a US recession. Uncertainty has not dissipated, however, and concerns over fiscal policy have grown[1].

May activity figures suggest China is holding up reasonably well to the shock unleashed by the trade war. The détente with the US will provide some reprieve for manufacturing, and we now forecast China’s slowdown to be more modest than initially estimated. The flipside, however, is that the urgency for authorities to introduce more policy easing has declined.

We expect Japan to avoid a recession despite our forecast of slower growth. The Bank of Japan (BOJ) has left rates unchanged since March, while markedly downgrading its growth and inflation forecasts. The timeline for tariff talks, domestic politics, and fiscal events suggests the BOJ is likely to wait until January 2026 to resume rate hikes. We expect a 25-basis point (bp) policy rate hike to 0.75% in January and for the BOJ to be on hold for the rest of 2026.

Following the 25bp cut in the Reserve Bank of Australia’s (RBA) cash rate to 3.85% in May, most observers expect another two rate cuts of 25bp in 2025. The latest gross domestic product (GDP) print appears to justify further easing. Australia’s real GDP growth slowed to 0.2% quarter on quarter (QoQ) in the first quarter of 2025 (from 0.6% in the fourth quarter of 2024), which was below the expectations of both the market and the RBA.

As expected, the administration of newly elected Korean President, Mr. Lee Jae-Myung, has introduced a second supplementary budget, which includes consumption subsidies to boost domestic demand. Meanwhile, the Bank of Korea (BOK) is increasingly concerned with household debt and Seoul’s rising house prices. All this suggests the BOK could take its policy rate down further to 2% (from 2.5%), but perhaps not much lower.

APAC economic outlook

Real GDP growth (%)

CPI (average; %)

Policy rate (YE; %)

Source: Aberdeen Investments Global Macro Research; June 2025 
Forecasts are a guide only and actual outcomes could be significantly different.

APAC real estate market overview

Even before the full impact of the tariff shock is felt, it appears occupier market fundamentals in several APAC markets/sectors have already begun to soften. Just 30% of those we track have registered faster year-on-year (YoY) rental growth in the first quarter (from 45% the previous quarter), while 28% reported a faster decline (from 23%).

India (offices and prime retail), Australia (Sydney offices and prime retail), and Japan (offices and multifamily in Tokyo and Osaka) dominated the markets/sectors that registered faster YoY rental growth in the first quarter. Conversely, Chinese tier-1 cities and Hong Kong dominated the markets/sectors that reported a faster rental decline during the quarter. Unlike most other markets where supply pipelines are tapering, near-term new supply remains elevated in China and Hong Kong. We expect this will remain a drag on occupier performance.

Commercial real estate (CRE) repricing in APAC has lagged other regions. Meaningful outward yield shifts have taken place in Australia, Korea, and Greater China, where occupier fundamentals are still weak. With institutional investors based in the US and Europe still generally under-allocated to APAC CRE, we expect the motivation to diversify into the region to increase – especially towards core markets such as Japan, Australia, and Korea. Meanwhile, increased refinancing needs and unlisted fund expiries could present opportunities for capital deployment into the region.

Following repricing in recent years, we think offices in Sydney and logistics in Greater Seoul are starting to look attractive. Vacancy rates may have peaked, with a sharp decline in new supply in the future.

For markets/sectors where repricing has been more limited, but where occupier fundamentals remain solid, we think the investment case for Japanese multifamily properties remains robust. Vacancy rates in Tokyo and Osaka are still relatively tight. The trends underpinning residential leasing demand – such as net migration, improved wage growth and increased female labour participation/dual-income households – will likely endure, despite the potential of an economic slowdown. Lately, more rental housing units have also been converted into short-term stays, which could further reduce the available stock for lease. This would push rents higher.

APAC real estate market trends

Offices

Office leasing sentiment softened in the second quarter of 2025, with most markets reporting a decline in tenant enquiries and site inspections. Greater China witnessed rising incentives and falling rents, while India and Japan – where expansionary demand persisted – remained in favour of landlords[2].

The 2025 Mori Building survey of large-scale office buildings across Tokyo’s 23 wards indicated that the projected completions for new office space in 2025-28 are now 4.6% lower than a year ago. They are also 13.3% below the annual average in 2015-24. Near-term new supply is therefore unlikely to threaten the tight vacancy rate for Tokyo’s offices, despite a potential economic slowdown. The robust occupier outlook has translated into solid investment demand. Investment volumes for Japanese offices exceeded JPY1 trillion in the first quarter of 2025, for the first time since the first quarter of 2015[3].

Seoul’s grade-A office vacancy rate rose marginally to 2.6% in the first quarter of 2025 (from 2.4% in the fourth quarter of 2024). This was principally driven by higher vacancies in the central business district (2.7%, from 1.9%), given slow backfilling of space vacated in 2024. Consequently, the average effective rental growth eased to 1.2% QoQ from 1.8%2. Domestic co-working operators appear to be doing well, so far. Korea’s largest operator, Fast Five, reported record-high revenue and its first year of profit in 2024.

Logistics and industrials (L&I)

Markets shifted in tenants’ favour, as occupiers stayed cautious amid ongoing trade disruption. There was muted demand in Hong Kong and mainland China. Consequently, the overall rental outlook remained subdued, as more occupiers mulled over consolidation moves[2].

Despite record net absorption in the first quarter of 2025, the vacancy rate for Chinese L&I remained at a high of 20.3%, as net supply was equally robust. Therefore, rents for L&I continued their downward slide, but at a slower pace (-2.8%, from -3.4%). Weakness is expected to persist in the near term, with the full-year new supply forecasted to be 23% YoY higher[2], despite growing warehouse demand from consumption-related industries.

Despite record net absorption in the first quarter of 2025, the vacancy rate for Chinese L&I remained at a high of 20.3%, as net supply was equally robust. Therefore, rents for L&I continued their downward slide, but at a slower pace (-2.8%, from -3.4%). Weakness is expected to persist in the near term, with the full-year new supply forecasted to be 23% YoY higher[2], despite growing warehouse demand from consumption-related industries.

Meanwhile, investment volumes for income-producing Australian L&I properties more than doubled YoY to AUD11 billion in 2024, significantly surpassing the long-term average of AUD5.5 billion per year[2]. Greater Sydney led the investment activity, despite a rise in vacancy rates to 2.1% at the end of 2024 (from 0.5% at the end of 2023). This still indicated a very tight occupier market. Scheduled completions in 2025 are already 50% pre-committed. Only 4% of total industrial-zoned land in Greater Sydney is undeveloped and serviced, which will likely cap any hike in vacancy rates. We expect replacement costs to remain high and that they will support values in Greater Sydney’s income-producing L&I properties.

Meanwhile, investment volumes for income-producing Australian L&I properties more than doubled YoY to AUD11 billion in 2024, significantly surpassing the long-term average of AUD5.5 billion per year[2]. Greater Sydney led the investment activity, despite a rise in vacancy rates to 2.1% at the end of 2024 (from 0.5% at the end of 2023). This still indicated a very tight occupier market. Scheduled completions in 2025 are already 50% pre-committed. Only 4% of total industrial-zoned land in Greater Sydney is undeveloped and serviced, which will likely cap any hike in vacancy rates. We expect replacement costs to remain high and that they will support values in Greater Sydney’s income-producing L&I properties.

Retail

Like office occupiers, retailers adopted a more cautious attitude towards real estate planning in the second quarter of 2025, with most markets seeing a pullback in enquiries and site inspections. Expectations for rental growth softened in almost all markets. Japan was the lone outlier, with higher expectations for rental growth[2].

Singapore’s island-wide retail vacancy rate rose to 6.8% (from 6.2%) in the first quarter of 2025, with rents in both the prime Orchard area and suburban markets sequentially static[4]. Singapore’s consumers are increasingly trading down in dining, with a 20% decline in restaurant sales from January to April 2025. Meanwhile, fast food and café sales have risen since February[5]. Seasonal factors were at play, but the broader decline was attributed to tightened consumer spending and increased travel abroad. Coupled with rising business costs, it’s not surprising that food-and-beverage closures have picked up since 2024.

Investment volumes for India’s retail properties jumped 52.8% in 2024 to reach INR46.3 billion – the highest level since 2018[6]. Growing affluence, an aspirational shift, and the influence of social media are driving the trend of ‘premiumisation’[3]. In the past four years, a total of 60 international brands entered India, with new entrants nearly doubling to 27 in 2024 (from 14 in 2023).

Living

The average multifamily rent in Tokyo’s 23 wards climbed 5% QoQ in the first quarter of 2025. This represents a significant pick-up in sequential growth from 1.3% in the fourth quarter of 2024[4]. Importantly, the central five wards led the market in terms of rental growth, while smaller unit types registered the largest quarterly gain. Single- and compact-type units in centrally located areas near public transport hubs should perform well, given sustained net migration into Tokyo and rising wages among workers in their 20s and 30s.

Robust occupier fundamentals are supporting the investment case for Seoul’s rental housing. Besides the increase in one- and two-person households, and a greater adoption of monthly rental contracts, private rental housing stock has also been on a downward trend. It peaked at 335,000 units in 2018, falling over 80% to just 66,300 units by 2023[7]. Noudit Hongdae, a 296-unit co-living property located near to Seoul’s Hongik University, was recently put up for sale and attracted a total of five bidders. The property, which opened in 2023, achieved an average occupancy rate of 96% in 2024. This is despite a rental premium of 10-30% compared with surrounding studio apartments and officetels (a unique type of small rental housing in Korea)[8].

Outlook for risk and performance

We have added data centres (DCs) in tier-1 markets like Tokyo, Singapore and Sydney. We have also added the Australian self-storage sector to our coverage this quarter. These changes contributed to higher total return forecasts for the overall region.

The total live capacity of DCs in APAC grew 19.3% per annum (pa) over the last five years, and this is expected to accelerate to a pace of 26% pa from now to 2027[9]. As such, there have been some concerns over a potential oversupply. We are more positive about the outlook for two reasons: power constraints in many markets imply some of the planned capacity may not materialise; and the ramp-up in supply may still fall short of demand. APAC’s DC demand could reach 45-55 gigawatts (GW) by 2027-28, as data growth, cloud migration and artificial intelligence (AI) adoption gather pace. This would represent a four-to-five times increase from the current utilised capacity of 11.4GW[2].

Increased AI adoption and automation could have negative implications for white-collar jobs and, by extension, office demand. Importantly, this may happen sooner than initially expected. On the other hand, there are CRE sectors that could be net beneficiaries, in addition to obvious ones like DCs. Recent research found that nearly 40% of all occupations in the public real estate investment trust and CRE services space have the potential to be automated, with management, sales and administrative support roles accounting for the bulk of these[10]. The automation of roles in sectors like hospitality and multifamily could therefore improve operating margins and drive net-operating growth.