How to Navigate Change in Real Estate Prices Across Asia

A market reset

One of the biggest changes in prices in Asia's real estate markets in more than ten years is happening right now. Valuations across the region are changing because of higher global interest rates, less money available, and changing demand from tenants.

In places like Hong Kong and mainland China, this has meant that office rents have gone down, rates of empty homes have increased, and fewer transactions have taken place. For instance, Hong Kong's office market has been in a long-term decline, with rents and values dropping by more than 50% since 2019. This is due to both too much supply and not enough demand.

In the same way, China's larger real estate market is still under structural pressure, with falling home prices, less investment, and major developers experiencing liquidity stress.

If you are expecting to read a story about money leaving real estate, this isn’t one. It is a story of capital repositioning due to shifting demand.

From a wide range of options to a small number of choices

Market bifurcation, not price decline, is the most important change in this cycle. Real estate performance is no longer the same across all of Asia. Instead, there is a clear line between:

• Sectors that are having trouble with their structure (like secondary office space and developments that are too heavily leveraged)

• Sectors that are supported by structures, like logistics, data centres, and prime residential areas

Studies show that investors are putting more weight on sectors and opportunities that add value and have long-term demand drivers, rather than broad-based exposure. Also, demand is becoming more picky, with a strong "flight to quality" towards high-end, well-located assets.

This is very important for private clients: the question is no longer if you should invest in real estate, but where and how.

Where the Stress Is: Office and Leveraged Assets

1. Office Markets: A Change in Structure

There is a recalibration of office real estate across Asia because of the trend towards hybrid work, too much supply in some markets and changing preferences of tenants. In Greater China, rents keep going down, and landlords are giving tenants incentives to move in. The recovery is uneven, even in markets that are getting better, like Hong Kong: core areas like Central are becoming more stable, but secondary areas are still under pressure. This makes the office market move at two speeds, with only prime assets holding their value.

Any office investments should be highly selective:

• Only look at prime Grade A properties in the main financial areas;

• Stay away from secondary locations that have too many buildings;

• Put buildings with ESG features and good tenants at the top of your list.

The current market is not one where you can invest passively; you need to actively choose and underwrite.

2. Highly Leveraged Developments: Risk of Not Having Enough Money

Higher interest rates have had a big effect on leveraged real estate structures. Developers who rely on debt financing, especially in China, have had to deal with problems with refinancing, assets losing value, and less trust in buyers. This has caused distress and forced asset sales, which have both risk for current investors and a chance to get new money.

Special situation opportunities, however, still exist, but only if certain conditions are met:

• Put money into structured credit or senior debt positions;

• Don't invest in stocks unless you have strong downside protection;

• Work with experienced operators.

This is where private credit strategies can make money while keeping risk low.

Where to Look for Opportunities: Structural Winners

Some parts of the market are under pressure, but others are getting help from long-term trends.

1. Logistics and Industrial Real Estate: Changing the Supply Chain

The "China Plus One" strategy and other changes to global supply chains have made logistics assets in Southeast Asia more in demand. Vietnam, Indonesia, and Malaysia are some of the countries that are seeing:

• More activity in manufacturing

• More and more people want warehousing and distribution

• More infrastructure for e-commerce

As global demand for goods picks up, logistics real estate is likely to gain ground, thanks to structural supply-demand imbalances. For example, many multinational companies have moved their production to Vietnam's industrial zones near Ho Chi Minh City and Hanoi, which has led to high occupancy rates.

Malaysia is also trying to become a regional logistics hub, and it is doing so because of:

• Strategic location

• Infrastructure investment

• Trade links and investment plans

Investment prospects should be focused on the best logistics assets near ports, airports, and manufacturing centres, long-term leased buildings with strong tenant agreements, and exposure through private funds or direct platforms.

This provides both stable income and structural growth.

2. Data Centres: Where Infrastructure and Real Estate Meet

In Asia, data centres are quickly becoming one of the most desirable types of real estate, because of cloud computing, growing AI use, and digitalisation. Investment in data centres is growing quickly, and investors are looking into joint ventures and platform-level opportunities to increase their exposure.

For example, Malaysia and Singapore are becoming important places for data centres. Singapore has a lot of demand (hyperscalers, banks). Malaysia provides the supply, which includes land, power, and low costs. This dynamic has led to the creation of a cross-border ecosystem that supports rapid growth.

Investments should be concentrated on operational assets with tenants who have signed contracts, the power access and regulatory environment should be carefully considered.

Data centres act more like infrastructure than regular real estate, providing long-term, stable cash flows.

3. Prime Residential: Strong in Important Markets

While the overall property market is under pressure, some cities' prime residential areas are still doing well. For example, in China, even though the overall market is weak, high-end home sales have been relatively strong.

In Asia, there is a noticeable growth of wealth in cities, as well as limited availability in prime areas. This continues to provide stable value in this segment. For example, people still place value on living in cities like Singapore, Tokyo, and parts of Bangkok, particularly in:

• High-end homes

• Branded homes

• Urban developments of high quality

Best investment opportunities emerge in prime locations where there isn't enough supply. Investment in speculative developments in secondary markets should be avoided, but residential properties that can provide value, like multi-family homes, can be considered if they are available.

This protects your capital while allowing for moderate growth.

The Repricing Opportunity: Why Timing Is Important

The current market conditions are a rare combination of factors:

1. Lower starting values

Repricing has lowered the prices of assets in many sectors, which has led to more appealing points of entry and better chances of getting a return in the future

2. Less competition

Liquidity has gotten tighter with less speculative capital and few transactions taking place. This lets disciplined investors get better terms in their deals and get better assets.

3. Demand for structure stays the same

Even though there are short-term pressures, long-term drivers are still strong:

• Urbanization

• Digitalisation

• Economic growth in the region

Real estate sectors that have structural tailwinds, like logistics and data centres, are expected to give good returns because yields have been rebased and income is growing steadily.

A More Complex Real Estate Cycle

The change in Asia's real estate prices is not a bad thing; it is a move towards a more selective, institutional market. The time of wide, unmarked exposure is over. Instead, what is important is choosing the right sector, considering the quality of assets, and structure.

For investors, the chance is in:

• Finding structural winners

• Getting in at good prices

• Being disciplined about managing risk

At Ascendant Globalcredit Group, we help private clients make sense of this changing landscape by combining income-focused strategies with access to high-quality real asset opportunities across Asia. If you want to talk about how these opportunities could fit into your portfolio, consider getting in touch with our team.