Q1 Real Estate APAC Quarterly Spotlight
A global economy in flux
Flagging growth despite a resilient first half
- Although global activity was remarkably resilient in H1 2025, risks to the global economy continue to lie to the downside. Prolonged uncertainty, simmering geopolitical and trade tensions amid more protectionism, as well as labor supply and inflationary shocks could reduce growth
- The International Monetary Fund (“IMF”) also cautioned in October 2025 of rising fiscal vulnerabilities, potential financial market corrections, and erosion of institutions that could threaten stability in the financial markets
- Global trade is expected to remain soft as higher US tariffs take effect and the lagged effects of heightened uncertainty are likely to suppress investment. The underlying demand story and outlook in major economies, including Asia Pacific (“APAC”), remains somewhat downbeat amid weak corporate sentiment and private consumption
- Based on IMF’s projections in October 2025, global growth is expected to decelerate from 3.3 per cent in 2024 to 3.2 per cent in 2025 – this is below the pre-pandemic average of 3.7 per cent
What piqued our interest?
More signs of a reversion to recovery for Asia Pacific commercial real estate markets, aided by easing interest rates and some progression in trade deals
- Capital flows taking a positive turn. Following two consecutive quarterly dips in real estate investment volume, APAC saw regionwide volume rising by 25 per cent in Q3 2025 according to MSCI Real Capital Analytics (“RCA”). Inbound cross-border activity remained strong, as acquisitions by overseas investors grew for a fifth consecutive quarter – the share of investment activity by these investors grew to 36 per cent as of Q3 2025, the highest since 2019
- Institutional capital returning. Institutional capital has become more active in many regional markets, especially for larger portfolio and entity-level deals as investors sought to scale up their allocation to sectors in demand. According to MSCI RCA, such transactions formed 50 per cent (USD 25.4bn) of the assets traded in Q3 2025, and a number of large entity-level deals were notably led by global investors
- Leasing situation improving. According to CBRE’s latest Asia Pacific Leasing Market Sentiment Index in September 2025, overall leasing sentiment improved across most markets and sectors in Q3 2025. The exception was Mainland China, where overall occupier sentiment remained lacklustre due to persistently weak demand
Figure 1: APAC Investment Transaction Volume YoY per cent Change by Sector
Source: MSCI Real Capital Analytics, HSBC Asset Management, as of October 2025.
- Recovery more selective than broad-based. Despite the marked improvement in liquidity in Q3 2025, the uplift in investment activity has only been only apparent in specific markets (e.g., Japan and Australia) and sectors (e.g., living and data centres). According to MSCI RCA, many of the large deals year-to-date have mainly been in data centres, emerging living sectors i.e., student and senior housing, Japan multifamily, as well as Australian warehouses. Meanwhile, global investors have (on top of the forementioned sectors) been also targeting office investments in Japan, Australia and South Korea
- Encouraging developments in Hong Kong. There have been more positive developments in the embattled Hong Kong real estate market in recent months: interest rate pressures have moderated considerably, its equity market has been performing robustly- according to KPMG, the city is the top global IPO spot in 2025 with an all-time high of more than 300 active IPO applications as at 7 December 2025), leasing sentiment and activity have improved especially in the prime areas i.e., Greater Central, and large-ticket deal flow has sustained well – following the sale of the top nine floors of One Exchange Square in April 2025, there has been more multi-billion dollar (HKD) office deals transacting across H2 2025 e.g., Virtus Medical Tower, 13 floors at One Causeway Bay and more recently, a 50 per cent stake in CCB Tower
- Student housing investments gaining traction. Purpose-built Student Accommodation (“PBSA”) in APAC is becoming more popular with investors, buoyed by positive international student mobility trends, tightening visa regulations in the US and supply constraints across many markets in the region. While Australia has typically been the most active (and largest) PBSA market in APAC, as evidenced by the standout deal of Greystar’s AUD 1.6bn acquisition of a joint portfolio from GIC and Wee Hur comprising 5,662 PBSA beds (seven assets), Hong Kong is now emerging to be a hotspot for PBSA
- Strong public sector support for PBSA in Hong Kong. In July 2025, Hong Kong's Development Bureau and Education Bureau jointly launched the Hostels in the City Scheme (which included plot ratio relaxation and streamlined development control procedures) to encourage the market to convert commercial buildings into student hostels, as part of wider efforts to improve the city’s position as an international hub for post-secondary education
- Alongside a surge in local and international student enrolments, Colliers1 noted in a December 2025 report that “policy changes have already triggered concrete market activity, with nine hotel and living sector investment transactions reflecting a total deal volume of over HKD 2.9bn between June and September 2025.” Notably, four transactions (estimated at about HKD 1.1bn in value) were earmarked for conversion to PBSA
- Retail C-REITs seeing strong demand. There has been a notable surge in market activity pertaining to retail China’s Real Estate Investment Trust (“C-REIT”) scene – for instance, CapitaLand Commercial C-REIT achieved 254.5 times subscription coverage from offline institutional investors in the bookbuilding tranche and its IPO in September 2025 also saw strong retail interest, with the public tranche closing ahead of schedule and being 535.2 times subscribed. Following this, China Overseas Land & Investment C-REIT also achieved 374x oversubscription from offline institutional investors. According to Cushman & Wakefield, the retail sector in China, in particular, has seen 12 listings in 2025, raising an estimated total of RMB 30.3bn. Meanwhile, there has also been several high-profile retail deals happening the recent quarters e.g., 48 Wanda Plaza megamalls and 10 Livat shopping centres
- Singapore showing more surprises on the upside. While uncertainties in the global trade situation have been less ideal for Singapore, Q3 2025 witnessed a marked improvement in real estate investment activity which came on the back of continued easing of domestic short-term interest rates, better-than-expected economic performance in H1 2025 and sustained momentum in institutional-led big-ticket (above SGD 300mn) office and retail transactions e.g., a 55 per cent stake in CapitaSpring, Jem office tower and Kinex.
According to CBRE, Singapore’s total investment volume (excluding public investment transactions) in Q3 2025 were up by about 32 per cent QoQ. Correspondingly, 9M 2025 private investment volumes were up by 15.9 per cent on a YoY basis. This positive momentum is expected to maintain, as evidenced by the continuation of sizeable transactions in Q4 2025 e.g., PLQ Mall, The Clementi Mall and a one-third stake in Marina Bay Financial Centre Tower 3 - Some exuberance at the smaller end of Singapore’s investment market. In particular, the shophouse investment market was more active after a lull performance in late 2023 and 2024. Apart from a marked increase in shophouse sales that are SGD 10mn and above, there were several non-caveated prime shophouse portfolio sales which transacted in Q1 2025 that came to light in recent months – these were namely Macau property magnate Loi Keong Kuong’s sale of five shophouses at Pagoda Street and Spanish-turned-Singaporean tycoon Ricardo Portabella’s divestment of six shophouses at Stanley Street.
Factoring in the forementioned, total shophouse investment sales volume 9M 2025 have already surpassed that for the whole of 2024. Meanwhile, there were also more strata-titled offices transacting in Q3 2025, notably at Visioncrest, Suntec Towers and Vision Exchange - Japan staying strong but taking a breather. We believe Japan is set to take the pole position as the most active APAC investment market in 2025, as investment volume (excluding development sites) in the market over the first three quarters of the year came in at USD 36.8bn based on MSCI RCA data, well ahead the other top contenders i.e., China (USD 23.5bn) and Australia (USD 21.0bn). Leasing fundamentals, particularly for office and residential, also remained solid.
While Japan multifamily portfolio sales have returned to strength after slowing in 2024, overall commercial real estate deal activity appears to have somewhat plateaued in recent months after a strong run between 2021 and 2023 – the year-to-date growth in investment volume in the market was only 7 per cent YoY with offices and data centres accounting for most of this growth. In view of the compressed cap rates across many sectors (notably office, residential and hotel), as well as further interest rate hikes in the horizon, this tapering off in growth is not the least surprising
What was concerning?
Some challenges in Greater China persist, while risks continue to loom
- Still seems like a slowburn for China real estate. Despite some positive macro developments e.g., resilient economic growth in 9M 2025 (5.2 per cent), growth in high-tech sectors surpassing overall industrial production growth, the stock market reaching a new high since the pandemic2, sustained residential and land sales in select top-tier cities’ residential markets and remarkable growth in the C-REIT space3, the tougher external environment – marked by higher US tariffs and more restrictive industrial policies – has blunted policy impact.
The overall commercial real estate investment market in China remains thick in transition. Investment volume in 9M 2025 was down 16 per cent YoY according to MSCI RCA and the share of distressed sales surged to a new high of around 37 per cent in Q3 2025 in the face of the uncertainty around tariffs. The office market continued to grapple with oversupply concerns, rising vacancy and downward rent pressure. Cross-border investments have also plummeted with insurance companies and to some extent, end-users being the dominant sources of capital. Meanwhile, leasing fundamentals remained soft with the ongoing trade uncertainty and weak consumption weighing on expansionary appetite. Demand drivers for the retail sector stayed lacklustre in H2 2025, bogged down by labour market and property sector pressures. Golden Week spending was a strong tell-tale sign – per-capita trip spend was down 0.6 per cent YoY and 2.6 per cent down relative from 2019. Given these circumstances, more landlords have relented to offering longer rent-free periods and more significant rental discounts - Hong Kong facing its fair share of challenges. Ongoing US-China trade tensions and geopolitical risks continue to weigh on the market, and this uncertainty alongside fundamental challenges e.g., oversupply in some key sectors, continued to have a net negative impact on the commercial real estate market. The office sector, especially in emerging/ decentralised submarkets, remained the weakest link in Hong Kong. The supply overhang situation remains a major challenge – the new supply from 2025 to 2027 (estimated at 7 million sq ft) is estimated by JLL to be five times the historical average annual take-up. This implies a very uncertain recovery trajectory for the office sector in the near- to mid-term.
Other commercial real estate sectors in the city also faced headwinds, with industrial and logistics languishing under the duress of the global trade uncertainties. Despite no new supply entering the market, leasing momentum was sluggish while warehouse vacancy rose to close to 12 per cent in Q3 2025 and rents continued to falter (year-to-date decline was around 6.5 per cent) based on CBRE estimates. - Burgeoning policy risks for residential investments. While most Asian governments (notably in Greater China) appear to favour pro-growth policies at this current juncture so as to counter any negative impact from US trade tariffs and/ or stimulate recovery, some jurisdictions have conversely been experiencing some tightening in their residential market policies. Singapore announced higher Seller Stamp Duty rates of between 4 per cent and 16 per cent, as well as longer holding periods (from three to four years) for all residential properties purchased from 4 July 2025. Meanwhile, Tokyo’s Chiyoda Ward proposed4 in July 2025 to implement anti-speculation measures on the residential sector.
In September 2025, the South Korean authorities introduced measures including strengthening LTV ratio, restrict loans to private housing business entities and tighten rules on the maximum jeonse loan amount for one-house owners in the Seoul metropolitan and/or speculation regulated areas. The higher taxation rates and tighter LTVs may put up new impediments to investors entering the market’s living sector, and may also temper the inbound cross-border capital flows going forward
What do we expect?
Firmer footing as we enter 2026, but on a cautious gait
Figure 2: World Uncertainty Index* (Global, GDP Weighted Average)
Source: Ahir, H, N Bloom, and D Furceri (2022), “World Uncertainty Index”, NBER Working Paper, HSBC Asset Management, as of November 2025.
*The WUI is computed by counting the percent of word “uncertain” (or its variant) in the Economist Intelligence Unit country reports. The WUI is then rescaled by multiplying by 1,000,000. A higher number means higher uncertainty and vice versa.
- Looking ahead, we are cautiously hopeful for more positive developments in 2026, taking into account the lower interest rates amid easing monetary policies and improving liquidity across most regional markets. Global uncertainty, while remaining elevated, has moderated in recent months and this may have a positive spin on investor and occupier sentiment to some extent
- Some of the salient regional trends we expect to see in the year ahead:
- Continued “recentralisation” and renewed focus on a flight to quality for offices, as trade tensions ease, new economy sectors grow and physical office attendance improve
- Sustained focus on capital recycling, especially among institutional investors and this will help stimulate more private market investment activity and liquidity
- Shift up in gear for investments into the living sector given its potentially attractive demand-supply fundamentals, though capital is likely to start delving deeper into more alternative and operational-based subsectors, as well as “living” markets where there is higher market scalability and further runway for growth
- Further growth in the C-REIT market (which improves the exit environment), especially with the expanded asset scope to include Grade A office and urban renewal projects after the National Development and Reform Commission added two new categories and lifted the number of qualified sectors to 15 in Q4 2025. According to HSBC Global Investment Research, the penetration rate of commercial C-REITs in China is only 0.1 per cent vs 5.1 per cent in 36 countries on average as of 2024, and it is estimated that it could reach RMB1.6 to 2.1 trillion if the penetration rate was to rise to 4 per cent to 5 per cent
- Stronger private wealth capital flows into real estate – according to JLL, this class of investor is becoming one of the most active participants in real estate, and expect their participation to continue to increase via direct investment in property and operators, indirect investment in private real estate funds, as well as taking other positions in the capital stack. APAC is forecast to lead global financial wealth expansion, with projected growth of about 9 per cent annually from 2024 to 2029, ahead of North America (4 per cent) and Western Europe (5 per cent) according to the Boston Consulting Group (BCG). It also expects Switzerland, Hong Kong and Singapore to capture nearly two-thirds of all new cross-border wealth over the period
The views expressed above were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target.
Source: HSBC Asset Management, December 2025
1 Colliers also reported there was about HKD 3.2bn (USD 412mn) in student dormitory-related deals transacted in the first nine months of 2025, nearly doubling 2024 levels and accounting for 15 per cent of property investments above HK$100 million.
2 The Shanghai Composite Index crossed 4,000 in November 2025, a post-COVID high.
3 According to Cushman & Wakefield, China’s REIT market expanding its market value by approximately 85 per cent last year, securing a position among the top three REIT markets in Asia for the first time in 2024.
4 According to Bloomberg, the proposal includes a request for real estate developers to implement restrictions that prohibit the resale of condominiums for five years after purchase. Additionally, the ward has asked that buyers be prohibited from acquiring multiple units within the same property. Chiyoda Ward is not the only entity seeking to address the issue. The ward has also requested that the national and Tokyo metropolitan governments implement measures to curb property reselling, such as increasing taxes on such transactions.
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