What are the Key Structural Reasons to Invest in Asia Pacific Real Estate Today?
We believe Asia Pacific real estate presents a long-term, compelling investment case. The region offers meaningful diversification, both globally and within Asia Pacific, across economies and property sectors. Its rising interconnectedness supports collaborative growth, while rapid urbanization and sector innovation provide early-mover access to emerging opportunities.
Asia’s ongoing development in areas such as transparency, market depth, and institutional stock presents both challenges and opportunities. These gaps can allow investors to source off-market deals, enhance assets, and potentially develop the next generation of core real estate. Over time, these factors may contribute to structural advantages. Investment performance may also benefit from active rotation across sectors and markets within each cycle.
1. Diversification Benefits at the Economic and Property Level
Low cross-country correlation strengthens diversification
Allocating to Asia Pacific diversifies macro risks, which affect demand for commercial space, interest rates, and consumer sentiment. GDP growth in Asia Pacific countries is weakly correlated, so economic fluctuations in one country do not necessarily impact others. Demand drivers vary across the region (e.g., tech in South Korea, manufacturing in Japan, finance in Singapore), making real estate valuations and rental income less likely to move in sync.
GDP GROWTH CORRELATION – 1990 to 2024
Sources: AEW, ANREV, INREV and NCREIF, as of Q1 2025
GDP GROWTH CORRELATION – AU CAPITAL CITES
Source: IMF World Economic Database, as of end 2024
The trends mentioned above are largely backward-looking, so understanding the outlook of key sectoral drivers is crucial to evaluating future diversification trends. Gross value-added and employment projections over the next five years continue to show variation at the city level, ensuring diversification benefits remain in place. Health care and engineering type roles should be a blanket driver of employment growth across the region, but beyond these two key sectors- employment drivers are varied, which ensure diversification through growth tailwinds.
STRONGEST JOBS GROWTH SECTORS BY MARKET (2025 TO 2029)
Source: Oxford Economics, as of end June 2025
Non-synchronous property markets all with different characteristics and cycles
Beyond economic cycles, real estate markets in Asia Pacific tend to be weakly correlated with one another, underscoring their local nature. Diversifying across geographies and sectors can therefore enhance portfolio resilience and risk-adjusted returns. That said, correlations are generally higher in retail and logistics, where demand has been more shaped by global structural trends over the past 7–10 years.
HISTORICAL RENTAL GROWTH INDEX , DEC 2018 = 100
Source: JLL, Bloomberg, URA REALIS, HKRVD, Land Institute of Japan, athome Japan, as of Q1 2025
Capital value growth tells a similar story of low co-movement. Since 2010 the logistics sector has generally moved out of sync with the office and retail sectors. As a result, adding logistics to an existing portfolio of office assets should contribute to a reduction of overall portfolio risk.
An investment mandate with multiple destinations to choose from enables an investor to select the markets with the best set of fundamentals during its deployment period. It reinforces the adage that “investment performance is no matter of chance, it is a matter of choice”.
2. Economic Benefits Flow from a More Connected Asia
Concerns about tariffs and their impact on global trade, particularly in the Asia Pacific region, are valid—but perspective is essential. Asia Pacific is the second-most integrated trade region globally, after Europe. While the U.S. and some western nations are focused on reshoring and nationalistic industrialization, Asia is increasingly centered on regionalization and friend-shoring. The region’s trade is characterized by robust intra-regional exchanges, which not only drive economic growth but can also provide resilience against global market volatility. We believe that future growth will largely stem from deeper cooperation among Southeast Asian and broader Asia-Pacific nations.
Geopolitical risks in Asia-Pacific are real, but intra-regional relationships focus more on commercial complementarity rather than political differences. The region’s integration, despite diverse currencies, languages, and economic movements, is the product of deliberate agreements like RCEP and numerous bilateral FTAs. This extends beyond goods to include digital trade as well, which also further ensures the growth and support of new economy businesses and services.
ASIA PACIFIC’S INTRA-REGIONAL TRADE
Sources: IMF World Trade, 2024
3. Participating in Growth of New Sectors
As noted earlier, sector diversification in Asia Pacific is expected to accelerate over the next decade, and early participation may offer a first-mover advantage. While looking at the U.S. and Europe are helpful guides to how Asia Pacific’s real estate sectors will evolve, closer to home, the Asia Pacific Developed REIT market (the FTSE EPRA NAREIT Developed Asia Index) serves as a useful forward indicator of investor appetite and capital pricing, providing a roadmap as to how private real estate will evolve. REITs, as active buyers and sellers, are often rewarded for rotating into favored sectors—effectively setting the pace for future trends in the private market.
FTSE EPRA NAREIT DEVELOPED ASIA SECTOR BREAKDOWN 2015 VS Q2 2025
Sources: Factset, as of Q1 2025
4. Market Inefficiencies Can Unlock Off-Cycle Opportunities
While transparency levels across Asia Pacific real estate markets are improving, making them appear more institutional and even on par with Western markets - underlying inefficiencies remain. It is evident in transaction-appraisal lags and the large size of the non-institutional owner base – especially in markets like Japan and South Korea. These markets are still highly fragmented and localized, suggesting that on-the-ground presence and strong local networks may provide unique opportunities at attractive pricing, sometimes leading to favorable off-cycle returns.
5. Creating Tomorrow’s Institutional Quality Stock
Longstanding real estate ownership in Asia has created a deep reservoir of underutilized assets. As urban needs evolve and economic priorities shift, these legacy holdings, many tied to generational wealth, are ripe for repositioning. At the same time, corporate real estate portfolios, particularly in Japan and South Korea, are being rationalized amid rising shareholder pressure and improved governance, unlocking a broader range of opportunities.
Real estate is closely linked to economic output, so we apply a top-down approach, using GDP as a proxy to estimate the overall market size. We then compare this with a bottom-up view of institutionally held real estate stock, revealing a significant gap and untapped potential- particularly in Japan and South Korea.
Another important feature of creating institutional quality stock is real estate owners participating in sustainable goals and targets. Recent CBRE survey showed that only 45% of asset owners in Asia Pacific report that 80% or more of their real estate holdings are green certified. In the next three years this is expected to change dramatically- a conscious effort by investors to keep their properties relevant, high performing and attractive to investors.
Efforts in the last five years have gotten somewhat derailed due to the surge in financing and construction costs, as well as the slowdown in investment activity – but it is nonetheless a significant scalable opportunity in the region. The potential comes from the collective goal and targets by: 1) governments & regulators; 2) corporate occupiers; as well as 3) landlords. These features combine well to provide clear drivers for investors to invest in green certifications.
SIZING THE MARKET
INSTITUTIONAL VS TOTAL REAL ESTATE IN DEV APAC
2015 VS Q2 2025
Source: AEW Research, IMF World Economic Database, CBRE Research, MSCI, as of June 2025
PROPORTION OF PORTFOLIOS EXPECTED TO HAVE GREEN CERTIFICATIONS
Source: CBRE Research, as of June 2025
Continue reading the next piece in the series at the link below:
Part Three: Strategic Opportunities and Risk Navigation in Asia Pacific
For more information, please contact:
HANNA SAFDAR
Head of Research and Strategy, Asia Pacific
hanna.safdar@aew.com
+65.6303.9014
JAY STRUZZIERY, CFA®
Head of Investor Relations
jay.struzziery@aew.com
+1.617.261.9326
This material is intended for information purposes only and does not constitute investment advice or a recommendation. The information and opinions contained in the material have been compiled or arrived at based upon information obtained from sources believed to be reliable, but we do not guarantee its accuracy, completeness or fairness. Opinions expressed reflect prevailing market conditions and are subject to change. Neither this material, nor any of its contents, may be used for any purpose without the consent and knowledge of AEW. There is no assurance that any prediction, projection or forecast will be realized.
