The region’s office sector is experiencing a tale of two trends. On the one hand, occupiers are adopting a cautious stance, prioritising lease renewals over expansions as economic uncertainty lingers. Conversely, prime office assets in supply-constrained markets continue to attract strong demand.
Seoul and Singapore, for example, will have limited new supply over the next three years, at 32% and 26% below their 10-year averages, respectively. Seoul will continue to be one of the region’s major tech hubs. Currently, the tech sector is actively hiring to support new business initiatives, keeping the jobless rate at near cyclical lows. South Korean ICT employment has grown by 4.3% in the past 12 months, which will help support demand for office space in the future.
In contrast, Greater China’s office markets are facing persistent challenges. Shanghai, for instance, has seen office rents decline for 12 consecutive quarters, with landlords offering incentives to retain tenants. Meanwhile, Hong Kong’s liquidity constraints and Beijing’s high vacancy rates further underscore the uneven recovery across the region.
For investors, the flight to quality remains a dominant theme. Well-located prime assets with stable cash flows are in high demand, particularly as expectations of easing financing costs later this year could unlock new opportunities for value acquisition.
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Retail real estate: The rise of necessity-based anchors
The retail sector is undergoing a subtle but significant transformation. As consumer confidence wavers, retailers are shifting strategies, opting for pop-up stores, flagship repositioning, and experiential formats rather than aggressive expansion. This cautious approach to store acquisitions favours agile strategies such as pop-up stores to engage target customers and promote products. Additionally, many retailers are likely to enhance brand experiences by transforming existing locations into higher-quality flagship stores instead of increasing the number of outlets.
Grocery-anchored neighbourhood centres are emerging as a defensive stronghold. These assets, with their focus on daily necessities, are proving resilient to economic downturns. In Australia’s east coast cities, yields have stabilised in the 6%–7% range, drawing renewed interest from foreign investors. Japan’s prime high streets, though nearly fully occupied, are seeing moderated rental growth as luxury brands reassess their footprint in response to a stronger yen.
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China’s retail market remains under pressure, with landlords forced to lower rents and offer flexible lease terms to attract tenants. However, the long-term outlook for necessity-driven retail remains robust, particularly in markets where consumer spending is underpinned by strong demographic trends.
Logistics: Navigating trade winds
The logistics sector is facing short-term headwinds, particularly in trade-dependent markets like Hong Kong and Singapore. These regions have seen landlords become more flexible during lease negotiations due to weaker demand and increased market availability. Conversely, domestically driven markets such as Tokyo and Seoul remain robust, despite the export-orientated economies of Japan and South Korea being vulnerable to US trade tariffs. Both markets recorded positive net absorption in Q1 2025, driven by domestic third-party logistics (3PLs) and e-commerce companies. However, high vacancy rates have kept average rents largely flat.
A key differentiator is location. Properties near urban centres, where transportation costs are lower, remain highly sought after, while fringe locations struggle to attract tenants despite rental discounts. Looking ahead, investors are focusing on markets with favourable supply-demand dynamics, such as Seoul and Australia’s east coast, where new supply is expected to taper off post-2025.
Residential real estate: A shelter in the storm
The residential sector is poised to remain relatively resilient in 2025, driven by less elastic demand compared to the commercial sector and supported by long-term population growth in Asia Pacific. Despite its large and growing market, the sector remains fragmented with minimal institutional investment, especially in senior housing and student accommodation. Residential real estate offers a vast opportunity for investors looking to diversify portfolios, with the sector accounting for only 6% of commercial real estate (CRE) investment volumes since 2019, compared to 27% in Europe and 44% in the US.
In Japan, the multifamily segment is thriving, with rents in Tokyo’s central wards rising for seven consecutive quarters. Tight supply, coupled with strong demand from young professionals and foreign workers, is driving consistent rental growth. With new rental housing construction starts (groundbreaking) remaining low in Tokyo, tight supply is expected to sustain upward pressure on rents. This dynamic will maintain attractive returns for investors, even though yield spreads have narrowed relative to borrowing costs.
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Australia’s rental market is similarly constrained, with nationwide vacancy rates hitting a record low of 1.1% in early 2025. Soaring home prices and elevated mortgage rates have pushed more households into renting, with many now spending a third of their income on housing. This imbalance presents a compelling opportunity for developers to address the shortage of affordable rental units, particularly in high-demand urban centres.
Alternative sectors: Steady growth amid uncertainty
Alternative real estate sectors are proving their resilience, buoyed by structural demand drivers rather than cyclical trends. Japan’s senior living market, for instance, is experiencing a surge in investment activity, with transaction volumes more than doubling year-on-year in early 2025. The sector benefits from long-term leases, government subsidies, and an aging population that ensures steady demand.
Student housing is another bright spot, particularly in Australia, which remains a top destination for international students. Robust structural demand and limited high-quality supply will continue to support the growth of the purpose-built student accommodation (PBSA) sector in Australia and its attractiveness within a globally diversified real estate portfolio.
Data centres, meanwhile, are adapting to a new era of data sovereignty. While cross-border data flow restrictions pose challenges, growing demand for localised infrastructure is creating fresh opportunities for investors.
The road ahead: Selective opportunities in a shifting landscape
The Asia Pacific real estate market is at an inflection point. While risks such as trade tensions and economic slowdowns persist, the region’s underlying strengths — strong demographics, urbanisation trends, and policy flexibility — provide a solid foundation for growth. Investors are increasingly adopting a selective approach, focusing on markets and sectors with defensive characteristics. Prime office assets in supply-constrained cities, necessity-based retail, and well-located logistics properties are among the top picks. Meanwhile, the residential and alternative sectors offer stable income streams and long-term growth potential.
As the region navigates this period of uncertainty, one thing is clear: resilience and opportunity go hand in hand. For those willing to dig deeper, Asia Pacific’s real estate market remains a compelling destination for capital deployment in 2025 and beyond.
Louise Kavanagh is chief investment officer and head of Asia Pacific at Nuveen Real Estate
