Commercial real estate investment in the Asia Pacific region is set to become significantly more selective in the second half of 2026. While the broader economic outlook has improved, higher interest rates and geopolitical uncertainties are reshaping how investors allocate capital. This shift marks a move away from broad exposure toward concentrated bets on specific markets and asset classes. The change reflects a cautious approach as buyers weigh in on rental growth prospects against rising financing costs.
Economic Upgrades Meet Tightening Monetary Policy
CBRE has raised its full-year economic growth forecast for the Asia Pacific region from 3.9% to 4.3%. The firm cites robust demand for artificial intelligence-related products and semiconductors as the primary driver for this upward revision. However, Australia stands out as a notable exception to this regional trend. Its growth forecast was downgraded due to the impact of rising interest rates on the domestic economy.
Several key markets, including Australia, South Korea, and India, entered rate-hike cycles during the first half of the year. There is potential for further increases in the second half, which could pressure borrowing costs for developers and investors. Commercial real estate investment across the region rose 27% year on year in the first half of 2026. Yet, the firm expects transaction momentum to moderate as the year progresses.
Investors are now concentrating on markets that offer stronger rental growth prospects. Tokyo, Sydney, and Brisbane are highlighted as key destinations for this focused capital. Yield expansion is now expected across most major sectors in Australia and Hong Kong SAR, as well as in the Greater Seoul logistics sector. Singapore remains a distinct outlier, with the firm upgrading its outlook due to stronger capital market conditions and sustained investor demand.
Office Markets Prioritize Quality and Prime Space
Office markets in major gateway cities continued to experience tight supply during the first half of the year. A persistent “flight to quality” demand pattern remained evident across the region. Most mature markets delivered stronger-than-expected rental growth, prompting upward revisions to full-year forecasts. However, this growth is expected to moderate as the second half unfolds.
Tokyo is forecast to deliver another year of double-digit rental growth. In Hong Kong SAR, the office recovery has exceeded expectations as financial-sector demand strengthens. Meanwhile, rental declines in Shanghai’s core districts are expected to stabilize as new supply tightens. This divergence highlights how location and sector-specific demand are driving performance more than regional averages.
For office occupiers and investors, the practical implication is a widening gap between top-tier assets and the rest of the market. Properties that cannot demonstrate strong tenant retention or high rental yields may struggle to attract capital in a tighter credit environment. This suggests that transaction activity will likely remain concentrated in a smaller number of high-performing cities rather than spreading evenly across the region.
Logistics and Retail Show Diverging Trends
Logistics demand remained resilient, but a widening performance gap emerged between prime and secondary properties. Occupiers are expected to continue favoring modern, well-located facilities. This trend is particularly pronounced in supply-heavy markets such as mainland China, Australia, and India. A shrinking regional supply pipeline from 2027 should provide further support for rental rates.
CBRE upgraded the rental outlook for Greater Tokyo on the back of broad-based domestic demand. The firm maintained a mixed view for India and Australia, citing softer expansion demand and supply pressure, respectively. Rental forecasts for mainland China and Hong Kong SAR were lowered as vacancy levels remain high and occupier sentiment turns more cautious.
In the retail sector, limited new supply and strong demand for prime space supported rental growth across most markets in the first half. This trend is expected to continue in the second half. New-to-market Asian brands and experiential concepts are anticipated to support demand. Tokyo’s Ginza district saw its rental outlook upgraded due to tight availability of quality space.
India’s core markets are still recording rental growth, though at a modest pace. Uneven labour market conditions are expected to weigh on performance in Australia. Hong Kong SAR and Taiwan face weaker rental prospects because of softer non-core leasing demand and pressure on retailer profitability. The hotel sector saw rising average daily rates lift RevPAR across Asia Pacific during the first half.
Occupancy remained uneven due to lower flight capacity and higher fuel costs. Vietnam and South Korea outperformed on strong visitor arrivals, while the Maldives was affected by disruptions to Middle East aviation routes. Hotel average daily rates are expected to continue rising as higher construction costs constrain new supply. Events and concerts are also expected to become increasingly important in generating demand spikes and supporting hotel performance during traditionally weaker periods.
