Tokyo Retains Crown as APAC’s Top Real Estate Investment Destination

For the second year in a row, Tokyo is Asia Pacific’s most desirable destination for property investment, according to a survey by the Urban Land Institute and PwC.

Low interest rates continue to make Japan an investor favourite, with the country’s second-largest metro area, Osaka, climbing one spot to reach second place in the Emerging Trends in Real Estate Asia Pacific 2025 report. Rounding out the top five are Sydney, Singapore and Seoul.

The poll of 137 real estate and finance professionals across the region shows that several markets are on the cusp of revival, said ULI Asia Pacific CEO Alan Beebe. The continued mismatch in pricing expectations for traditional assets is driving investors towards alternatives with new-economy themes and high growth prospects, including data centres and multi-family residential.

“We are entering a period where both buyers and sellers should be motivated to make strategic concessions, whether they are managing inactive funds with mounting dry powder, or investment managers with time-limited funds under pressure to liquidate assets so that they can return capital to their own investors,” Beebe said. “This market recalibration can only materialise once we see a return to more normalised trading conditions and improved liquidity.”

Japan Environment Tightens

While Tokyo and Osaka scored slightly higher than they did last year, sentiment among interviewees seemed somewhat weaker, according to the 19th edition of the yearly report.

Japanese assets remain prized for their yields and for providing an alternative for capital that might previously have been deployed to China, but the multitude of foreign buyers competing for deals could signal a market peak as rate hikes loom in 2025, ULI said.

“Japan feels a lot like the rest of the world two years ago and before, where it’s very tight, you’re having to get really aggressive on rental assumptions, or you’re going to have to underwrite cap rate compression that in today’s world feels pretty tough,” a manager at a global fund told ULI. “That’s why for most of foreign investors, it’s gotten harder to find transactions that really hunt.”

In Australia, owners are starting to reprice assets to better reflect debt costs, making investors more positively inclined towards Sydney core properties that have sat unsold for several years, the report said. Even so, most interviewees continue to wait for further outward movement in cap rates.

“Deals are happening, but they are far fewer, and from a very different capital base than we’ve seen previously,” said one fund manager based in the Harbour City. “The Aussie domestic institutions are net sellers, and offshore investors are still paralysed by exposure in the US or Europe, so there’s no way anyone would be brave enough to put it to a global investment committee. That means the transactions that have happened, particularly in Sydney, have mostly been syndicated down to high-net-worth family-office capital.”

Stable Singapore

Southeast Asian star Singapore has seen office pricing remain “remarkably stable”, according to the report, with tight supply and strong demand from inbound corporate occupiers bolstering the market even as most investors view cap rates as too tight to be buyable.

In contrast, Seoul is drawing “phenomenal” numbers of inquiries for its counter-cyclical outperformance, said a brokerage analyst interviewed for the survey. The Korean capital’s office market boasts some of the tightest occupancy in the world, but strong recent rental growth indicates that the segment may have reached a cyclical peak.

Some investors are pivoting to Seoul logistics assets after a wave of overbuilding created distressed opportunities, particularly in cold storage. A fund manager active in Seoul noted that the market got overbuilt, spurring investors to take on more leverage to make the returns work, then the economy slowed and interest rates went up.

“It’s just a classic real estate cycle,” the respondent said.