Key Highlights

  • Inflation’s gradual decline towards central-bank targets should pave the way for rate cuts in 2024.
  • Peak US rates are historically a near-term positive for property values, but occupier fundamentals are still key.
  • Our base case is for more downside risks to the region’s capital values in the near term.    

Asia-Pacific economic outlook

Our economic base case is for a US soft landing with slowing growth. While there are risks, inflation should decline gradually towards central-bank targets. This should allow an increasing number of central banks to begin cutting rates in 2024. Recent central-bank communication supports this expectation. 

Among the central banks in key Asia-Pacific (APAC) markets, the Bank of Korea is expected to be one of the first to begin rate cuts. The easing in demand-side price pressures is increasingly shifting the focus towards shoring-up sluggish domestic demand and economic sentiment. 

Additional policy easing is also expected in China, given the challenges facing the economy. While the Chinese economy gained further momentum at the start of 2024, indicators in the property sector paint a mixed picture. The desire from authorities to hold the line on de-risking, and the increased focus on national security and resilience, suggests the target growth rate of 5% in 2024 could be optimistic. 

The outlook for India is more constructive and we expect further upside risks to growth. Consequently, we think the Reserve Bank of India will remain on hold during the first half of the year. We have pushed back our expectations for the timing of its first rate cut. 

While there was a dovish shift in the Reserve Bank of Australia’s (RBA) March policy statement, the labour market in Australia is still easing too gradually for the RBA’s comfort. February’s unemployment rate fell to 3.7%, which was below the RBA’s forecast of 4.2% by June. 

The Bank of Japan finally exited its era of ultra-easy monetary policy in March. But we expect limited additional tightening, as domestic inflation pressures are likely to continue easing over the coming months. 

2023 2024 2025 2026
China 5.2 4.6 4.3 4.2
Japan 1.9 0.7 1.0 1.5
India  7.7 6.2 5.7 5.4
CPI average


China 0.3 0.7 2.1 2.2
Japan 3.3 2.0 1.6 1.6
India 5.7 4.4 5.1 5.5
Policy rate (YE,%)
China 1.8 1.6 1.5 1.6
Japan -0.1 0.3 0.5 1.0
India 6.5 6.0 5.8 6.0

Source: abrdn Global Macro Research; March 2024 
Forecasts are a guide only and actual outcomes could be significantly different.


APAC real estate market overview

Market expectations for rate cuts in the US have been pushed back. A lack of clear signs of economic stress has encouraged the Federal Reserve (Fed) to exercise more caution, although it seems clear that US rates have peaked. 

Peak US rates have historically been a near-term positive for APAC markets. Capital values for commercial real estate tend to benefit, but occupier fundamentals are still key. Our base case is for more downside risks to the region’s capital values in the near term. This is especially the case for most sectors in Hong Kong, grade-A offices in Tokyo’s central business district (CBD) and logistics properties in Greater Seoul 

In the case of Greater Seoul’s logistics properties, the faster tapering of new supply could bring forward the trough in occupancy. The near-term pricing adjustment could therefore provide an attractive entry point for investors to tap the sector’s longer-term growth potential. Meanwhile, there are near-term opportunities for private-credit investors to plug funding gaps, as loans from 2021-22 are refinanced in 2024-25.

We remain positive about grade-A offices in the major business districts of Seoul. Fundamentals in the occupier market remain solid. Vacancy rates are low amid limited near-term supply and healthy leasing demand from domestic firms. Large-scale office developments are scheduled for completion from 2026 in the CBD sub-market, which should raise its vacancy rate from the current low. That said, the upcoming GTX-A rail line is expected to enhance this sub-market’s locational appeal. This opens in phases from April 2024 and will substantially reduce the commuting time to Seoul’s CBD. 

We like Japanese multifamily properties, particularly those within Tokyo’s 23 wards. The solid rebound into Tokyo post-Covid is likely to continue, which should keep vacancy rates tight and support further rental growth. Importantly, the widening rental premium based on building age supports a value-added investment strategy. A faster pace of urbanisation, coupled with below-average homeownership and an undersupply of housing, will further strengthen the sector’s longer-term occupier fundamentals. 

Outlook for risk and performance

We expect near-term capital returns to remain under pressure, despite the prospect of rate cuts in 2024. Over the longer term, our base case anticipates rates to retreat to lower levels. In fact, we expect the net effect of demographic change on interest rates to be negative up to 2030. A falling labour contribution to potential growth more than offsets upward pressure from ageing populations. Moreover, downward pressure on rates across the largest economies means the global financial system provides another check against upward pressure. We expect lower interest rates to therefore support better capital returns beyond the immediate 12-24 months. Higher property yields in the near term are therefore likely to be good opportunities for investors to pick up grade-A assets in core locations. 

Macroeconomic drivers and geopolitical developments will have a bigger impact on real estate’s near-term performance. While US rates may have peaked, geopolitical developments and their impact on supply chains remain highly fluid. These developments could affect inflation and interest rates in unexpected ways. Within APAC, Australia’s job market appears to be easing too gradually for the RBA’s comfort. There was a dovish shift in the recent statement and the historical correlation in long-term yields between the US and Australia is high. But the risk is that Australia’s rate-cutting cycle may lag that of the US, with potential implications for Australian real estate yields and capital values.

APAC total returns from March 2024