ASIA PACIFIC REGIONAL SPOTLIGHT

Overview

The outlook remains one of an improving income-driven returns outlook despite the near-term jump in economic uncertainty. Occupier demand remains resilient and supply pipelines limited. But there are large differences in market performance by city and sector.

• We expect an ongoing prime real estate recovery that offers a better 5-year return than the previous 5 years. However, city stories differ with Beijing, Shanghai and Hong Kong a drag on near-term returns due to the ongoing challenging economic outlook. 
• Amid heightened economic uncertainty, near-term occupier demand is slowing but not enough to derail a real estate recovery based off falling interest rates and a limited supply pipeline. 
• Investor appetite remains subdued, but a risk-off mentality is driving a rotation toward Japanese and Australian markets where occupier momentum and resiliency are set to hold over the coming months. 
• The onset of tariffs remains the most prominent risk to the outlook. Notwithstanding a supply chain shock, any softening in occupier demand is set to be met with weaker supply and room for lower interest rates. That should help sustain rental growth. 
• With long-term rates set to remain above their 10-year average, the outlook is about income and income growth. And as cities each face differing demand-supply pressures, this dependence on income growth gives rise to a wide range of city-sector returns for investors to pursue