Investing in Asia Pacific Real Estate: Structural vs Cyclical Strategies

The Asia Pacific commercial real estate market currently sits at the top of the interest rate hike cycle (excl. Japan) and repricing for assets is beginning to materialise. Now is the opportune moment for investors to acquire discounted assets in specific markets and sectors which are expected to see both pricing and performance rebound over the medium-term. This report identifies opportunities for buyers and sellers seeking to capitalise on changing market dynamics.

Offices in markets such as Australia, Korea, and India, albeit on a case-by-case basis, could offer an attractive entry point in 2024 with rental growth prospects looking more positive. Core assets with strong Environmental, Social and Governance (ESG) performance are increasingly sought after, with deadlines for occupiers’ commitments to net-zero targets approaching more rapidly than owners’ and landlords’. In Seoul, although rental growth is expected to continue, owners should realise returns as growth is expected to normalise.

Industrial & logistics assets in locations with higher potential for manufacturing occupier demand, such as Southeast Asia, India and regional areas in Japan are expected to outperform. 

With retail occupier demand shifting back to core locations, the rental outlook has been upgraded for Vietnam and Hong Kong SAR. Vacancy in Ginza, Japan now stands at 1%, making core retail appear attractive.

Living sector demand continues to accelerate despite the limited scale of this asset class in Asia Pacific. Investors are advised to stay focused on established markets such as Japan, where cash-on-cash yields remain attractive. Other options include developing or acquiring projects for build-to-rent or student accommodation in markets with significant supply shortfalls, such as Australia and Hong Kong SAR.

Credit strategies continue to offer cyclical and vintage opportunities. Bridge loans and development finance remain available for credit funds in markets with larger funding gaps, such as Australia and Korea. Opportunistic and credit fund investors are looking more closely at the office and residential sectors in mainland China, where weakening fundamentals have led to significant discounts.