LaSalle’s ISA Outlook 2025: Potential structural changes and distinctive cyclical patterns offer APAC opportunities

Singapore (December 12, 2024) – Asia Pacific macroeconomies and real estate markets are showing signs of potential structural changes and unique cyclical patterns, setting the region apart from global trends.

This is the thrust of the Asia Pacific chapter of ISA Outlook 2025 report just released by LaSalle Investment Management (“LaSalle”). Published every year since 1993, LaSalle’s ISA Outlook is designed to help the real estate industry navigate the year ahead.

This year’s key findings include:

• Investors in Asia Pacific real estate must navigate new investments and existing portfolios in a complex environment with signs of structural change and a distinctly different cycle compared to historical norms. These factors could have a combination of positive and negative implications for investors, some of which may only become apparent years later.

• Adding to the complex macro environment is the US election result, which could lead to heightened economic uncertainty and periodic capital market volatility. China is particularly vulnerable and, to a lesser extent, Hong Kong. Beyond China and Hong Kong, it is difficult to predict clear winners or losers from the U.S. election result for now. We believe that select real estate markets or sectors could benefit from some supply chain rebalancing. In addition, investors may consider focusing on Asia Pacific real estate markets/sectors that are anchored by domestic demand and domestic capital.
• In China, which faces the weakest economic growth and consumer confidence in decades, heightened geopolitical tensions between the US and China, as well as the absence of impactful structural reforms or larger-scale stimulus packages, suggest an extended period of economic weakness. This creates a challenging environment for China’s residential and commercial real estate markets over the next few years.
• Japan remains the most liquid market in the region, with inflationary growth prospects. Should the substantial domestic investor base in Japan continue to anchor the real estate capital market, the potential impact of further interest rate hikes can be limited. Nonetheless, it is essential to allow for flexibility and the potential for unexpected outcomes, when evaluating investment opportunities or setting up business plans for existing portfolios in Japan.
• In other developed economies of the region, the varying and sometimes contrasting cyclical patterns among major real estate sectors within each country set the region apart from global trends.
• Commercial real estate liquidity in Asia Pacific has demonstrated resilience compared to other global regions but is still constrained to varying degrees, except for Japan. The gap between buyer and seller expectations is weighing on liquidity and some investors are adopting a wait-and-see approach. Nonetheless, savvy investors understand that sometimes the best returns come from vintages in the wake of cycle turning points or when signs of structural change emerge.

Where favorable macroeconomic conditions present themselves and as global investment appetite returns, the diversity of Asia Pacific markets and sectors within the region will offer discerning investors a variety of opportunities with a wide range of risk-return profiles.

Five strategic themes are highlighted in the Asia Pacific ISA Outlook 2025:

1. Multi-family: At a nascent stage, except Japan

The multi-family sector in Asia Pacific is undergoing structural changes, driven primarily by demographic shifts and government policies, with significant potential for institutionalization. This sector offers a range of investment opportunities in a basket of markets except China, although it would take time to fully unlock value in this nascent sector outside of Japan due to unproven liquidity.

• Office: Navigate cycle changes vs. potential for structural shifts

Office market performance across Asia Pacific varies significantly. It is increasingly important to consider the timing of entry and exit as well as risk mitigation plans. South Korean, Japanese and Singaporean offices offer strategically selected investment opportunities for investors with different risk and return appetites.

• Logistics: Not a clear outperforming sector

The logistics sector shows dispersion in performance across markets, submarkets and sub-sectors. With relatively balanced supply-demand dynamics, Australia, Singapore and select Japanese markets offer investment opportunities, despite reducing return expectations.

• Retail: Distinctive consumption patterns

We expect that well-managed retail assets that have adapted their tenant mixes and market positioning in response to changing consumption habits will outperform, adding to operational intensity. A granular, asset-level approach to investment is crucial, given the performance variations across markets and sub-sectors.

• Hotel: Momentum mostly priced in, except Japan

The Japanese hotel market is set to continue its growth trajectory, driven primarily by domestic demand and, to a lesser extent, inbound tourists. However, the performance is expected to vary across markets and segments, influenced by the operational capability to navigate challenges such as labor shortages and rising labor costs.

Looking ahead, investors in Asia Pacific real estate must navigate a complex environment marked by structural changes and atypical market cycles.

Elysia Tse, Asia Pacific Head of Research and Strategy at LaSalle, commented: “There are many unknowns in the current complex economic climate, compounded by impending changes in Trump 2.0, which will likely lead to periodic episodes of capital market volatility. Investment strategies that favor domestic tenant demand and domestic capital, as well as those that focus on operational intensity, such as deal execution and in-house leasing, are important for value creation and preservation. In the event of significant dislocation or capital market volatility, investors could seek attractive entry points or creative, structured solutions to address capital stack issues for some troubled property owners or developers.”

Brian Klinksiek, Global Head of Research and Strategy at LaSalle, added: “As we enter 2025, we’re seeing the dawn of a new real estate cycle. While challenges remain, particularly in resolving legacy capital stack issues, we’re observing improving capital market conditions and emerging opportunities across a wide range of sectors and geographies. Investors who recognize these shifts early and act with flexibility are likely to benefit from attractive risk-adjusted returns. However, it’s crucial to remain vigilant about risks on the horizon and avoid the expectation of a rapid return to ultra-low interest rates.”

Ends

About LaSalle Investment Management | Investing Today. For Tomorrow.

LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, LaSalle manages US$88.2 billion of assets in private and public real estate equity and debt investments as of Q3 2024. LaSalle’s diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. LaSalle sponsors a complete range of investment vehicles, including separate accounts, open- and closed-end funds, public securities and entity-level investments.

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NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.