Will 2026 Reshape APAC Property Markets?
Asia-Pacific real estate is moving decisively out of its post-tightening trough and into a recovery phase, supported by rising investment volumes, stabilising valuations and structural supply constraints. According to DWS’s Outlook, improving liquidity conditions and resilient occupier demand are reshaping the region’s risk-reward profile for institutional investors.
Transaction activity across income-producing assets gained momentum in 2025, with regional volumes rising by 15 percent year-on-year in the third quarter and increasing around 20 percent on a rolling 12-month basis in Japan, South Korea, and Australia.
Cross-border investors now account for roughly one-third of capital flows – the highest share since 2019 – highlighting a broad-based recovery in investor sentiment.
While rapid rate cuts appear unlikely, financing conditions have improved materially. Real estate borrowing costs have fallen by roughly 200-250 basis points in Singapore and South Korea and by more than 100 basis points in Australia compared with recent peaks.
These shifts are underpinning asset liquidity and supporting the early stages of yield compression outside Greater China, according to DWS’s Asia Pacific Real Estate Strategic Outlook Year-End 2025.
Supply Constraints Reshape Market Fundamentals
Elevated construction costs remain a defining theme across Asia-Pacific. Development economics have deteriorated to the point where economic rents for new office and logistics projects exceed current market rents by up to 30 percent in several major cities. As a result, project delays and cancellations are increasingly common, materially constraining future supply and strengthening medium-term rental prospects.
Office markets across Japan, South Korea, Singapore, and Australia are characterised by strong occupier demand for high-quality space in core locations. Vacancy remains exceptionally tight in Tokyo and Osaka, driving year-on-year rental growth of more than 7 percent. In Australia, premium-grade assets are outperforming secondary stock as tenants prioritise sustainability, amenities, and access to talent.
Logistics Remains a Structural Winner
The logistics sector continues to stand out, supported by e-commerce growth, near-shoring trends, and a sharply reduced development pipeline. Although vacancies have risen in some markets due to recent supply, prime urban and infill locations are expected to tighten again from 2026 onwards.
DWS highlights Japan, South Korea, and Australia as markets where constrained future supply could drive a renewed rental upswing.
Residential and living assets are emerging as a core allocation theme, particularly in Australia and Japan. Australia’s Build-to-Rent segment is expanding rapidly amid record-low vacancy and sustained population growth, while Japan’s multifamily market continues to benefit from urban migration and declining affordability of home ownership.
Alternative formats such as co-living are also gaining traction as investors seek higher-yielding operational strategies.
Returns Outlook Improves Across Key Markets
Over the next five years, total returns are expected to be driven primarily by income and rental growth, with selective cap-rate compression providing additional upside.
Logistics assets in India, South Korea, and Australia, along with prime offices in Sydney and Brisbane, are projected to deliver some of the most attractive risk-adjusted returns in the region.
More Selective, Opportunity-Rich Cycle
DWS concludes that Asia–Pacific real estate has entered a more constructive phase of the cycle, favouring investors who prioritise gateway cities, high-quality assets, and sectors with durable demand drivers.
As supply tightens and capital returns, selectivity – rather than broad exposure – is set to define successful strategies in the years ahead.
