German asset manager DWS has released its Asia Pacific real estate outlook for 2026, highlighting a positive stance.

DWS believes that the outlook for real estate in the Asia Pacific region remains positive, underpinned by a resurgence in regional investment volumes, easing monetary conditions and generally favourable rental growth prospects.

Now that trade deals between the US and its trading partners have been concluded – including those in APAC – the chief investment officer's (CIO) view is that the worst of the trade war is behind us, and global economic growth will pick up.

Meanwhile, DWS believes that the rapid rate-cutting cycle that many investors were previously expecting looks increasingly unlikely. “Still, current market expectations are for policy rates in Australia and South Korea to ease by another 25 to 30 basis points by the end of 2026, which should underpin improving real estate liquidity and valuations,” DWS said. “Meanwhile the Bank of Japan (BOJ) is expected to slowly continue the process of interest rate normalisation, which could result in a minor rate hike up to 1 per cent in six to 12 months.”

DWS expects demand-supply fundamentals to strengthen in the coming years as elevated construction costs continue to constrain new supply, particularly for logistics and offices, with vacancies likely to tighten further in core locations.

“Prime logistics and offices across key gateway cities in Australia, Japan, South Korea and Singapore may offer good entry points amid an upward rental cycle and recovering capital values,” DWS said.

Investment strategy
Given the scarcity of existing assets outside Japan, DWS said the living sector in Asia Pacific is still significantly underinvested, with transaction volumes since 2020 accounting for 7 per cent of overall volumes, a relatively small figure compared with Europe (25 per cent) and the US (42 per cent). “The sector looks attractive owing to structurally lower vacancy levels and current tailwinds underpinning housing needs including better affordability for renters compared to home ownership costs, given the surge of housing prices and high price-to-income ratios across many major cities in the region,” DWS continued.

“The living sector benefiting from positive urban demographics shifts underpins potential opportunities in Australia (Built-to-Rent) and Japan multi-family apartments, as well as alternative formats including co-living,” DWS said. Australia BTR remains one of the firm’s top picks.

DWS believes that underlying fundamentals appear supportive enough to potentially sustain annual rental growth up to 5 per cent over the short to medium term, which could underpin investment returns, with supportive government legislation to improve market liquidity and an institutionalisation of the sector.

The firm said Japan’s multi-family apartment is the only mature institutional residential market in APAC. The resurgence in inflationary pressures has been accompanied by strong wage growth, with labour unions having set wage growth targets of 5 per cent for 2026. Meanwhile, demand for multi-family apartments has been driven by rising migration flows to major city centres, especially in Tokyo and Osaka, while aspiring home buyers are increasingly priced out of home ownership. House prices hit record levels with resale condominium prices in Tokyo and Osaka increasing 32 per cent year-on-year and 18 per cent year-on-year in October 2025.

“Given Japan’s positioning as a global tourist destination in Asia Pacific, inbound tourism plays a critical role in the living and hospitality sectors,” DWS continued. “With overseas visitor arrivals of 37 million in 2024 (potentially hitting over 40 million in 2025 – nearly one-third of Japan’s population – this has underpinned strong performance in hotels where the average daily room rate (ADR) for hotels in Tokyo and Osaka has nearly doubled compared with pre-Covid levels, prompting many visitors to seek alternative, short to mid-term housing solutions.

With co-living also gaining traction across APAC, DWS believes that other countries, including South Korea and Singapore, could present potential investment opportunities, given rising demand from increasing single-person households, international students and young professionals as well as a shifting preference to renting as housing prices surged. This is especially evident in South Korea, where renters in certain housing types other than apartments are increasingly opting for monthly rental transactions and away from the traditional lump sum deposits.

APAC logistics
The logistics sector remains one of DWS’s top picks. Despite higher US tariffs, there appears to be support from intraregional trade which accounts for more than half of both exports and imports. Meanwhile demand for modern warehousing remains underpinned by strong e-commerce growth, upgrading demand away from older obsolete warehouses and increased nearshoring practices amid the low availability of good quality warehouses. Combined with expected constraints in future supply, aggregate demand is set to outpace supply in coming years. DWS tends to prefer assets located in regional transport hubs or urban infill markets close to a population catchment catering to domestic demand.

Seoul logistics is considered one of the firm’s top targets. Meanwhile, Australian logistics continue to experience a period of normalisation, which has led to an increase in vacancy and incentives. Investors may want to consider ‘infill’ locations around growing population catchments and key arterial roads, and the cold storage market which remains under-supplied.

With income yields currently at attractive levels of around 5.0 per cent to 5.5 per cent, DWS expects potential entry opportunities in Greater Seoul, Sydney, Brisbane over the next six to 12 months, with potential for cap rate compression as monetary conditions ease. DWS also likes prime logistics in Japan (Tokyo, Osaka) with rental growth expectations and limited cap rate expansion potentially driving capital value growth. Logistics assets in Singapore also appear attractive given the city nation’s regional trade hub status and relatively high logistics income yields (6.5 per cent) for 30-year leasehold assets, though capital upside may be more limited due to the shorter lease tenor.

APAC office sector
“In Asia Pacific, high office utilisation levels continue to underpin occupier demand, particularly in Japan and South Korea,” DWS said. “With a limited supply pipeline across most core locations, office vacancy rates in Tokyo, Seoul and Osaka are expected to remain low, in stark contrast to the high vacancy levels observed in the US.”

In Japan, DWS expects Tokyo and Osaka’s office market to continue performing well, underpinned by sustained strong rental growth and low borrowing costs. However, with prime stock tightly held by major landlords and tight yields below 3 per cent, DWS favours the Grade B space where rental growth has generally kept pace with the Grade A segment over the past 10 years.

While Seoul’s office vacancy has risen recently, vacancies in new Grade A developments (completed after 2020) remain tight at 1 per cent to 2 per cent, highlighting flight to quality trends. DWS expects a combination of rental growth and yield compression to drive office returns. Investors could consider looking at high quality offices located in the core business districts (CBD, Gangnam) while avoiding the east CBD fringe which could see significant incoming supply over the next few years.

In Australia, net absorption for premium grade assets has been steadily positive; at the same time demand for secondary grade buildings has continued to contract. DWS favours Sydney and Brisbane CBD offices for their stronger occupier profile and a limited supply pipeline. With incentive levels forecast to decline, both markets could experience strong rental growth (on an effective basis) over the next few years. Investors could consider premium or Grade A assets within the centrally located financial core submarket in Sydney, with a lower vacancy and stronger tenant demand profile.

Across these office markets, DWS favours high grade office assets in core locations with strong transportation links, particularly developments with ESG credentials and amenities which appeal to the younger Millennials and Gen Z.