Staging a turnaround
Looking at annual local currency price performance over the past decade (excluding dividends), the year 2025 stood out as a turning point. Following three consecutive years of declines, Asian REITs returned to positive territory, signalling a long-awaited recovery.
Despite this improvement, prices have yet to fully recoup their pre-pandemic highs, remaining below pre-Covid-19 levels.
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The firm showing was supported by resilience across all key REIT markets. Japan, the best-performing market with yen-denominated price gains of 21.8%, posted a positive return for the first time since 2021, reversing three consecutive years of annual declines.
Hong Kong, the second-best-performing market, also ended a five-year losing streak with positive Hong Kong dollar-denominated price returns of 17.3%.
Singapore rallied 11% in 2025, posting its largest one-year gain since 2019, while Australia advanced 7%, in line with previous years.
Sector returns diverged
While geographic performance across Asian REITs was broadly positive, sectoral returns were more mixed.
Heightened trade tensions weighed on REITs with significant exposure to industrial and logistics assets, dampening their performance.
In contrast, sectors anchored in domestic demand — particularly residential and retail, along with office landlords to a somewhat lesser degree — fared relatively well.
Meanwhile, data centre equities lagged, pressured by a lack of developments on key partnerships and further tempered by selective equity issuances that diluted investor sentiment.
A mixed bag of macro drivers for 2026
De-dollarisation and strong gains in Asian currencies gave a substantial lift to US dollar-denominated returns for Asian REIT investors in 2025, a trend set to continue supporting Australian and Singaporean REITs amid expectations of sustained resilience in the Australian and Singapore dollars over the next 12 months.
Yet, the interest rate advantage is fading. With most rate cuts already priced in during 2025, further support from lower yields appears limited.
Several markets are now nearing the end of their easing cycles. Australia is widely expected to hike rates in 1H2026 (the Reserve Bank of Australia raised rates on Feb 3), implying headwinds for its REIT sector, while Japan remains in tightening mode, adding pressure on valuations.
In contrast, liquidity-rich markets like Singapore and Hong Kong enjoy a softer rate environment. Short-term rates there fell 148 basis points (bps) and 191 bps, respectively, in 2025, slashing borrowing costs nearly in half from January levels.
Ongoing expectations of US Federal Reserve rate cuts and persistent safe-haven capital flows into Singapore should help keep financing conditions accommodative in the near term.
Australia, Singapore are preferred markets
We maintain our preference for REITs in Australia and Singapore as long-term investments, given their well-regarded governance regimes, stable currencies and steady track record of returns over the last decade.
With the current yield spread in Australia deeply negative at –165 bps — and likely to stay compressed as the Reserve Bank of Australia eyes tighter policy — we advocate a more selective approach to stock selection in this market.
We see residential and retail REITs as bright spots in Australia, buoyed by favourable supply-demand dynamics that are more attractive for landlords in these subsegments and sustained population growth.
The residential sector remains structurally undersupplied, with a 66,000-unit shortfall in FY2025 relative to the government’s 1.2 million home target, supporting rental upside.
Retail is equally compelling, with tight supply, low occupancy costs and robust demand driving mall sales growth to 2.5%–3.5% (annualised) in 3Q2025, up from 1%–2% previously.
At home, low domestic interest rates are set to boost projected distributable income across Singapore’s REIT sector, particularly for the estimated 70% of REITs currently paying above-market borrowing costs.
As high-cost debt from 2022 is refinanced at today’s lower rates, interest savings should fuel distribution per unit (DPU) growth — especially for REITs with large Singapore dollar-denominated debt books.
This tailwind coincides with a healthy operating environment: the office and retail segments remain supply-constrained, logistics rents are stabilising, and demand for data centres remains firm. Together, these dynamics support solid top-line growth, with Singapore-focused REITs best positioned to benefit.
On the policy front, the government’s equity market development programme is providing additional momentum, with targeted reforms and liquidity measures aimed at revitalising mid- and small-cap listings — segments where REITs are prominently featured.
Indeed, 15 of the 50 constituents in the newly launched iEdge Singapore Next 50 Index are REITs.
Meanwhile, speculation that Temasek-backed giants CapitaLand Investment and Mapletree Investments may merge points to possible consolidation among their listed REIT vehicles. Given their prominence, any such moves could reshape the sector, making it a key medium-term development to monitor.
Opportunities in Japan, Hong Kong
Elsewhere, we are adopting a more measured approach towards REITs in North Asia. In Japan, the October 2025 appointment of Sanae Takaichi as prime minister brings policy shifts toward a steeper yield curve and further yen depreciation. In Greater China, Hong Kong’s recovery has progressed more slowly than anticipated.
In 3Q2025, Tokyo’s central Grade A office rents surged 3.4% q-o-q — the fastest pace since 2007 — reaching an 18-year high of US$1,075 ($1,370.68) per tsubo (3.3 sqm), while vacancy plummeted to just 1.0%. Tight supply, elevated construction costs and project delays have constrained new inventory, amplifying rent growth amid Japan’s shift into reflation after decades of deflationary pressure.
With corporate profits strong and employers prioritising premium workspace to attract and retain talent, demand for high-quality offices remains robust, keeping upward pressure on rents.
Given that office income accounts for 45% of developer revenues and around 37% for J-REITs, the trend offers meaningful upside for the broader sector.
Still, office-heavy J-REITs are more sensitive to any future supply rebound or macro reversal, warranting selectivity.
While Hong Kong’s commercial property market remains under pressure, early signals suggest the office cycle may be nearing a trough. In Central, the core business district, vacancies fell to 11.1%, marking four straight quarters of improvement.
Large transactions like Alibaba’s US$925 million ($1.168 million) acquisition of the top 13 floors at One Causeway Bay — Hong Kong’s biggest real estate deal of 2025 — typically signal a potential turning point in the market.
Retail’s recovery, meanwhile, remains fragile. Government data shows retail sales growth slowed to +6.5% y-o-y in November 2025 from 6.9% in October 2025, hit by softness in luxury goods and weakening consumer confidence.
Non-discretionary retail faces mounting challenges — from rising cross-border shopping into mainland China to the rapid rise of e-commerce.
We remain focused on larger, more liquid REITs, now trading at deeply discounted valuations. With Hong Kong interest rates expected to remain low, these names are well-positioned to benefit from the hunt for yield. Once launched, the highly anticipated REIT Connect could serve as an additional catalyst.
Jen-Ai Chua is equity research analyst, Asia, at Julius Baer
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