APAC economic outlook

The global baseline plus the reciprocal tariff regime announced by the US on 2 April exceeded our base case expectations. While there may be scope for the tariffs to fall over time as deals are done with trade partners, it’s also possible that the tariff level keeps rising in the near term as retaliation occurs and as more sector-specific tariffs are announced [1].

The tariffs represent a stagflationary shock to the US economy, pushing down on growth and up on inflation. For the rest of the world, the impact will partly depend on retaliatory measures, but it’s the negative growth shock that’s likely to dominate. Weaker growth and exporters cutting prices to boost demand are likely to impart a disinflationary shock outside the US; central banks will ease accordingly.  

The escalating trade war between the US and China remains a highly fluid situation, with most observers expecting the tariffs to shave 100-200 basis points (bps) off China’s near-term growth. This should translate into a very weak inflation environment and pave the way for more policy easing. Outside of China, initial estimates of the tariffs’ negative impact on near-term economic growth range from 30-50bps for Japan and Australia, to about 100bps for more open economies like Hong Kong and Singapore.    
The heightened uncertainties will likely have implications for the pace of interest rate normalisation by the Bank of Japan, especially as the Japanese yen strengthens given its status as a safe-haven currency. 

We also think recent events may also persuade the Reserve Bank of Australia (RBA) to pivot to a more dovish stance, despite a relatively limited direct impact on Australia’s economy from the tariffs. As at the time of writing, money markets are now fully priced for a quarter-point easing at each of the RBA’s next three policy meetings starting in May, with more to follow in 2026.     

APAC real estate market overview

Prior to the 2 April announcement, we had expected a ‘K-shaped’ recovery and bifurcation to expand not just between markets but also between different locations and grades within the same sector. While the negative growth shock is likely to dampen the overall leasing demand, tenants’ flight to quality/location will likely continue, especially as negotiating power shifts towards the tenants. 

Japan and Korea have been the markets where we have the highest real estate investment conviction in APAC, and the latest tariffs have not changed that assessment. In fact, we expect incremental investment capital to favour lower-risk core markets like Japan and Korea amid the prevailing uncertainties. A slower pace of interest rate normalisation in Japan and faster policy easing in Korea will also support capital values, even as prospective rental growth slows. Finally, we think there’s also a good chance that tariff rates for both markets could be negotiated lower over time.  

The living sector ranks highly in our investment preferences globally. We believe the investment case remains robust for Tokyo multifamily, despite the potential economic slowdown because of the tariffs. The overall vacancy rate was relatively tight to begin with, and 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 near-term uncertainties.

Office occupier fundamentals in Tokyo and Seoul are also likely to withstand the near-term negative growth shock, with vacancy rates in both cities among the lowest globally. In Tokyo, while new office supply is scheduled to rise again in 2025, pre-leasing has been healthy for the major developments in the pipeline. Leasing demand for newer buildings is expected to remain robust as companies look to retain talent in a tight labour market. 

While some investors are concerned about the significant new supply that could be delivered from 2028 in Seoul, we think there are potential mitigating factors. Demand for advanced technologies should endure, despite the near-term uncertainties. Korea remains at the forefront of the global technology upcycle, which should, in turn, underpin office space demand over the longer term. 

APAC real estate market trends

Offices

Upward rental pressure is building in markets that favour landlords, such as India, Japan, and Korea. While leasing activity is dominated by renewal versus relocation in most markets, robust expansionary appetite has been observed in India and Japan. 

In Tokyo, the all-grade office vacancy rate dropped below 4% for the first time in three years in the fourth quarter of 2024. Net absorption was at 50,000 tsubo (165,000 square metres), which was 20% above the quarterly average [2]. Osaka offices had tighter vacancy rates across all grades during the quarter, despite significant new supply. While the all-grade office vacancy rate was unchanged at 4.3% in Nagoya, broad-based rental increases were observed, especially in buildings deemed to offer value for money to tenants. 

With vacancy rates at just 3% and limited new supply in the next three years, Seoul’s office rents are expected to trend higher in the near term, albeit at a slower pace. While there are some concerns over significant new supply that could be delivered from 2028, there are potential mitigating factors. These include project delays or cancellations for elevated development costs. A third of the new supply expected for the central business district in 2029 is also planned for owner occupation. This could limit vacancy risk in these new buildings.     

Logistics

Tenant enquiries increased slightly in the first quarter of 2025, with occupiers consolidating and downsizing. Singapore led the region in both enquiries and site inspections[1]. Incentives stabilised during the quarter, especially in India and Korea where supply growth is slowing. While the overall leasing market has shifted slightly more in favour of landlords on tapering new supply, it remains predominantly in favour of tenants.

Despite the softer occupier market fundamentals in Greater Seoul, assets with excellent accessibility are attracting robust investment demand. Gimpo Seonggwang Logistics Centre, a dry storage facility, was sold for KRW83.5 billion (USD60.6 million) in the second half of 2024[3]. This translated into a unit price of KRW9.2 million per pyeong (py) – significantly above the average market price of KRW5.1 million py for Greater Seoul’s dry storage space. The tender also reportedly attracted keen bids from multiple foreign investors. 

There was also solid investment demand for Singapore’s logistics properties in 2024, but it appears prime rents could be entering a consolidation phase after a few years of robust growth. Prime logistics rents were flat quarter-on-quarter QoQ) for the second consecutive quarter in the fourth quarter of 2024, following a 42.7% rise from the first quarter of 2020 trough. Occupancy could fall below 90% in 2025 as more new supply is delivered.    

Retail

Most markets had lower vacancies in 2024, with leasing demand focused on high-quality space in core locations[1]. Leasing sentiment improved in India, Mainland China, and Singapore at the start of 2025. But rents in most markets were unchanged as retailers adopted a more cautious stance towards real estate planning. 

On average, prime retail rents across Chinese tier-1 cities were down 12.5% from five years ago, while the correction in capital values was even larger at 16.5%[3]. Despite the losses to date and some improvement in leasing sentiment, it appears the outlook remains challenging. This is especially the case in Shanghai, where vacancy rates are already elevated and new supply in the pipeline is expected to add another 15% to its retail stock over the next three years. 

Australian retail properties had improved investment demand in 2024, chiefly driven by better occupier performance and the repricing that has already taken place. Sustained population growth and a resilient job market should support retail spending, which should, in turn, underpin further rental upside. This is especially the case for large regional centres in Brisbane, Perth and Adelaide, where vacancy rates are relatively tight and where no new supply is scheduled for completion in the near term. 

Living 

The average multifamily rent in the Tokyo 23 wards climbed 1.3% QoQ (6.4% YoY) in the fourth quarter of 2024, representing a slightly faster pace than the 1.2% in the third quarter[4]. All 23 wards experienced rental increments on both a quarterly and an annual basis, but rental growth within the central five wards outperformed, registering a sequential hike of 2.2%. Rental growth was also broad-based across unit types in the fourth quarter, although larger units registered the highest increase of 4.4%. We expect the positive momentum to continue in 2025 as robust net migration, faster wage growth and elevated for-sale condo prices underpin leasing demand.  

In Korea, the shift from the traditional jeonse deposit rental system to monthly rentals continues. Around 57.7% of all residential leases registered in 2024 were monthly rental contracts – the highest since 2014 when the Supreme Court began collecting this information. The jeonse fraud incident in 2022 was a key catalyst for the shift. But the increasing number of young people entering the housing market who prefer renting to buying their homes (and who are less averse to paying monthly rent) has also been an important driver. Together with supportive government policies, this has encouraged institutional investments in Korea’s rental housing market.  

Outlook for risk and performance

Despite heightened macro uncertainties, we have raised our total return forecasts to chiefly reflect a less bearish outlook in some office markets. In Sydney, for instance, office attendance has improved, while incentives have started to ease. Meanwhile, prices have adjusted ahead of other APAC markets and could begin to attract more investment capital. 
We have also trimmed our projected downside for Greater Chinese commercial properties, even as the near-term outlook remains challenging. While vacancy rates remain high and there is still significant new supply, a more business-friendly environment (coupled with the sharp correction in pricing that has already materialised) could help stabilise these markets sooner than expected.

Overall, our base case of a ‘K-shaped’ recovery envisages not just a wider bifurcation between markets, but also different locations and grades within the same sector. 
Macroeconomic drivers and geopolitical developments will have a significant impact on real estate’s near-term performance. Trade policies remain highly uncertain, which will weigh on business and investment sentiment. There is some scope for trade deals to be made, but the risk of sharply higher tariffs and/or erratic trade barriers is also significant. This could translate into more-cautious-than-expected real estate demand. 

On a more constructive note, elevated construction and financing costs may discourage new starts and defer completions. This could translate into lower downside risks to occupier markets in the medium term. This is especially the case for better-quality assets that benefit from the growing bifurcation in performance.