APAC real estate markets revive amidst easing interest rates

Declining rates, shifting capital flows, and niche assets are fueling regional momentum.

The Asia-Pacific real estate market shows signs of recovery as easing interest rates, adjusted pricing, and growing demand for niche sectors drive increased activity. After years of stagnancy caused by high borrowing costs and economic uncertainty, investors are re-entering key markets, setting the stage for a potential revival in 2025.  

“The big change at the moment is the direction of interest rates,” said Colin Galloway, Principal Author and Consultant at the Urban Land Institute. “We’ve now seen the beginning of an easing cycle in the US, which suggests that interest rates will come down, also in Asia and in some markets. That’s already begun to happen.”  

As borrowing costs decline, property owners are expected to adjust their pricing expectations, which could narrow the gap between buyers and sellers, Galloway noted. “You will start to see greater transactions, particularly on the core side, with the larger office and retail assets that the big international investors usually look to buy.”  

China’s real estate market continues to face challenges from a weak economic environment and geopolitical tensions. “Global investors are not willing to invest in real estate in China,” Galloway explained. This capital has shifted to other markets, particularly Japan and Australia, where conditions are more favorable.  

“Japan is still very popular among investors,” said Simon Smith, Regional Head of Research & Consultancy at Savills Asia Pacific. “Mixed-use projects and multifamily housing remain attractive for their high rental returns and inflation-hedging capabilities.”  

Australia has also emerged as a beneficiary of redirected capital flows, buoyed by a broad-based market recovery. “Government spending and stronger-than-expected economic growth have supported the Australian markets this year,” Smith said. He also highlighted the appeal of alternative asset classes, including data centers, student housing, and cold storage, which continue to draw institutional interest.  

Beyond core assets, niche sectors such as data centers and life sciences are gaining momentum in the region. “The impact of AI and the demand for processing and storage capacity have made data centers even more appealing for investors,” Smith noted.  

Meanwhile, the return of tourism is providing a much-needed boost to retail and hospitality markets. “The yen’s depreciation is attracting overseas tourists, with positive implications for Japan’s retail and hospitality sectors,” Smith added.  

Despite the optimism, challenges remain. The potential for higher inflation under a new US administration could delay the expected decline in interest rates. “If policies cause interest rates to stay high, banks will likely pressure asset owners to inject more equity or foreclose, leading to distressed sales,” Galloway warned.  

Still, regional growth prospects remain broadly positive, supported by adjusted pricing and improving sentiment. “We’ve begun to see a pickup in activity levels in the region,” Smith said. “Offices, industrial, and retail assets have all made a comeback, and we expect this momentum to continue into next year.”