Asia-Pacific real estate market outlook Q1 2026

APAC economic outlook

The technology upcycle underpins Asian exports, but the US tariff dynamics and China’s property correction remain the key swing factors for Asia-Pacific’s (APAC) macroeconomic outlook. Meanwhile, policy divergence persists. China’s easing bias and Japan’s normalisation remain intact, while Korea, Singapore, and Australia could see an extended policy hold.

In China, domestic demand faces intensifying headwinds, given property market weakness. Policy is shifting back to stabilising investment, with further fiscal easing and modest monetary accommodation. On the other hand, Japan’s policy normalisation has outpaced our expectations, with the Bank of Japan (BOJ) raising policy rates to 0.75% in December. Service price pressures remain firm, and we now expect the next hike to take place in October. 

Growth is set to hover near trend at around 2% in Australia, as services inflation stays sticky. The Reserve Bank of Australia’s gradual easing cycle may have ended in the near term, and observers expect the cash rate to remain static at 3.6% for an extended period. Similarly, in Korea, chip-led external strength and improving domestic demand support the view that the Bank of Korea has reached the terminal rate. The policy rate is likely to remain on hold at 2.5% during 2026, even with inflation around target, as overheating risks in the housing market constrain policymakers’ flexibility.   

Singapore had a robust rebound in gross domestic product in 2025, anchored by pharmaceuticals and resilient electronics. With core inflation still subdued, the Monetary Authority of Singapore is likely to keep its foreign-exchange stance unchanged, and observers expect the Singapore Overnight Rate Average to drift lower in 2026. Consumption and investment have surprised positively in Hong Kong, while the discount rate has eased alongside the Federal Reserve’s. India’s growth has moderated as cuts in the Goods and Services Tax temper inflation. The Reserve Bank of India lowered its policy rate to 5.25% (from 5.5%) in December and is now expected to stay on hold. Tariffs and weaker urban consumption remain headwinds.

APAC economic outlook

Real GDP growth (%)

CPI (average; %)

Policy rate (YE, %)

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

APAC real estate market overview

We think the commercial real estate market in APAC has entered into a new regime, where the historic ‘leveraged beta’ trade is likely over. In other words, returns must be built on income that is resilient during the cycle and on embedded net-operating income (NOI) growth that can be credibly underwritten. With monetary cycles decoupled and yield compression no longer doing the heavy lifting, investment strategies must prioritise income durability in markets where supply is structurally inelastic. 

In Japan, there are concerns over asset values, as the BOJ continues on its path of policy normalisation. But we expect wage inflation and net migration to support multifamily property values in Tokyo. Higher rent reversion is gaining acceptance, translating into faster mark-to-market for portfolio rents. Rental growth in the market is likely to remain robust, given vacancy rates are tight at just 3% [2] and new supply is constrained by elevated development costs. 

New supply is also projected to taper sharply in the central business district (CBD) office markets of Sydney, Osaka, and Singapore. The change in stock over the next three years is expected to be -0.1% (from +3.8% in the last three years), 3.4% (from 14.4%), and 4.5% (from 7.4%), respectively [3]. A fight-to-quality has contributed to the bifurcation of performance in the office markets, and we expect this trend to remain intact. In Sydney, for instance, the headline CBD vacancy of 14.9% masks a deep divide, where the prime vacancy rate tightened, while the secondary/grade-B vacancy rate increased. The Australian government’s agencies and multinational companies increasingly require the National Australian Built Environment Rating System’s five-star-rated occupancy. This has created a ‘green premium’ arbitrage, given the widening yield gap between prime and secondary assets.

Australian logistics properties have transitioned from a growth phase to a stabilisation phase, and this recalibration presents an attractive entry point for patient capital. Rental growth has moderated from the heady levels of 2022-2024 to a more measured pace, while yields have stabilised at 5-5.5%. Meanwhile, structural tailwinds like population growth, ecommerce penetration, and the shift towards last-mile fulfilment remain intact. For core investors, returns will now be driven primarily by income yield – and rent reviews will be linked to the Consumer Price Index – rather than by speculative yield compression. 

APAC real estate market trends

Offices

The dominant theme for APAC offices is less yield compression and more manufactured NOI plus liquidity solutions. The days of passive yield tightening are likely over, and investment strategies must focus on fixing buildings, rather than waiting for markets to recover.

Grade-A offices in Tokyo and Osaka remain in a rental upcycle, but higher borrowing costs have become more of a headwind. With the average yield at just 3-4% and the 10-year yield now over 2%, we think a more compelling angle could be to acquire stressed grade-B or secondary buildings in Tokyo and Osaka. These could offer opportunities for flight-to-quality retrofits like environmental, social and governance (ESG) upgrades, wellness amenities, and flexible suite configurations.

Prime office pricing in Seoul is supported by owner-occupiers, which is limiting conventional value-add opportunities. We believe a more attractive strategy could be to screen for older assets, where the entry basis could allow for a higher capital expenditure budget to fund ‘green’ retrofits.

Sydney and Melbourne offices have repriced materially, while refinancing stress is creating distressed recapitalisation plus ‘brown-to-green’ investment opportunities. That said, refurbishment downtime and high debt costs mean investors must acquire at a significant discount to replacement costs to generate acceptable risk-adjusted returns.

Logistics and industrial (L&I)

The theme for APAC’s L&I sector is less about yield compression and more about creating investable, financeable space. The opportunity lies in upgrading assets to meet evolving occupier and lender requirements.

Selectivity is paramount in Korea. Investors should avoid speculative cold-chain developments and large dry-box facilities in Seoul’s western region, where oversupply can extend leases up to 18 months or longer. Despite high vacancy rates, prime yields have compressed to 5.3% (from 5.5%), as investors are pricing in a severe drop in future supply. New project finance loans have largely halted, which points to a sharp drop-off in new supply post-2026. That said, older facilities could face permanent vacancies as tenants consolidate in new grade-A stock.

In Australia, rental growth is moderating, which suggests models assuming yield compression may be fragile. We favour last-mile and infill sites in land-constrained precincts; and complex cold-storage conversions, where planning approvals and operational capability create genuine barriers to entry.

Retail

We believe investment strategies targeting retail space in APAC are no longer a straightforward rent reversion bet. Active asset management and tenant remixing are non-negotiables.

In Australia, we believe the opportunity lies in defensive neighbourhoods and convenience retail. Returns are driven by stable yield spreads and leverage (entry yields of 6-7% still offer a positive spread over debt costs). There is modest alpha from tenancy remixing towards services and medical uses, extended weighted average lease expiries, and aggregation into an institutional platform. That said, we would avoid fashion-heavy discretionary shopping centres.

We think Japanese prime high-street retail in Tokyo’s Ginza, Shibuya, and Omotesando areas offers the clearest upside for investors. The vacancy rates are near-zero and robust inbound tourist spending will support more aggressive rental resets. Value-add strategies include converting fixed leases to base-plus-turnover structures, activating upper floors through improved access and signage, and remixing towards high-margin experiential tenants. That said, investors should budget for materially higher façade- and fit-out costs, while recognising the tail risk of tourism shocks.

Tenant survival dominates the value-add calculus in Singapore. Creating value requires technical conversion to food-and-beverage uses, labour-efficient layouts, and better gross turnover/ point-of-sale transparency to support turnover rents. Stress-testing is also needed to assess operating costs and tenant insolvency risks.

Living

Value-add investment strategies targeting APAC’s living sector are increasingly an operations-and-structure play, rather than a pure yield compression trade. Lenders underwrite these assets like operating businesses and limit leverage accordingly.

Korea’s nascent institutional living sector remains a conversion story. The highest-conviction angle is buying distressed three-star hotels or officetels at a discount to replacement cost for conversions, combined with reducing operating expenses via a consolidated digital platform.

Project financing debt, however, remains scarce and expensive, which implies a ‘build-to-core then refinance’ strategy. Policy whiplash remains a key risk, as the government’s tax treatment of corporate landlords could flip based on political winds. Converting commercial assets to residential properties could also face fierce resistance from local district offices that are concerned with overcrowding in areas like schools and parking.

In Australia, build-to-rent (BTR) properties, purpose-built student accommodation, and land-lease communities are moving towards institutional core status. But exits remain platform-based, with portfolio scale and manager quality still the most important considerations. High construction costs mean greenfield BTR developments are mostly uneconomical without government incentives, despite high rents and tight vacancies. Policy changes like Managed Investment Trust tax or foreign surcharge regimes are significant risks that could alter underwriting overnight and rapidly eliminate buyer demand despite demographic tailwinds.

Outlook for risk and performance

We believe APAC real estate has entered a higher-risk regime where elevated debt costs, uneven demand, and quality bifurcation undermine the ‘leveraged beta’ investment playbook. Higher interest rates – most notably in Japan – will erode cash-on-cash returns and render debt-funded strategies less effective. There are also important implications for exit yield assumptions. Across APAC, strategies that overly rely on exit yield compression to deliver the required returns, rather than durable NOI growth, may now be more fragile.

Structural bifurcation of quality is another key market-wide risk. Tenants are migrating to prime, ESG-compliant assets, leaving secondary stock with increased lease-up periods and obsolescence. In Australia and Korea, secondary office and logistics assets face refinancing stress, as yields are too tight relative to sovereign yields. Distressed sales signal increased capital risk, amplified by banks tightening their loan-to-value caps and more stringent debt service coverage ratio requirements. These dynamics have raised refinancing execution risk across the region.

In China, the regulatory expansion of eligible assets that could be injected into Chinese real estate investment trusts has created exit options but also compliance fragility. Assets that fail to meet the strict thresholds risk becoming stranded, while organic rental growth remains weak. Meanwhile, rent deflation in tier-1 office markets and a looming logistics supply wave amplify downside risks.

Risk mitigation requires more conservative underwriting, including exit yield assumptions, lower leverage and higher contingencies. Also, investment strategies must focus on robust operational alpha generation and durable NOI growth over financial engineering. This should defend income and preserve their options during this transition.