Insights

Focus shifts to local living and logistics sectors

03 September 2025

James Kemp, Macquarie Asset Management’s Head of APAC Real Estate, explains why structural trends in Asia-Pacific real estate markets still matter.

 

Widespread economic uncertainty and interest rate hikes have created concern for real estate investors across the region, but Asia-Pacific’s long-term real estate fundamentals remain intact. Despite short-term shocks from covid and tariffs, the region’s underlying growth dynamics point to a bright future if you know where to look, says James Kemp, Head of Asia-Pacific Real Estate with Macquarie Asset Management.

What trends and opportunities are currently shaping investment strategy in the APAC real estate sector?

Our current strategy focuses on real estate investment opportunities in the living, logistics, data center and private credit sectors across the APAC region, with an emphasis on Australia and Japan. We employ a tailor-made strategy that seeks to leverage our firm's deep experience in investing in operating companies (OpCos) and investing in particular sectors and markets.

Our investment strategy is underpinned by structural trends such as the imbalance in residential markets, the evolving housing demand, the shortfall of modern logistics facilities to meet shifting supply chain requirements, the need for data center capabilities to optimize logistics land and the growing demand for alternative lending to support residential development. We believe these trends are deeply rooted and expect them to continue through various macroeconomic and real estate cycles.

We also see more cyclical trends that can generate investment opportunities. There has been asset repricing and a resetting of vendor expectations at a time when liquidity remains limited in some markets. We see attractive buying opportunities in sectors that we expect will become more crowded with buyers as we move further through the market recovery.

Finally, we expect that the living and logistics sectors across APAC will continue to attract disproportionate capital through this cycle. Real estate investors are increasingly recognizing the value of localized real estate expertise which can provide enhanced access to real estate opportunities. OpCos which operate with local teams and are sector specialists with strong underlying real estate capabilities should therefore be well positioned to scale and create value more rapidly during this period.

Local: Residential Kensington apartments, Victoria, Australia.

Which countries are currently offering the most compelling opportunities, and what are the risk factors limiting investment in those markets?

Over many cycles, we have seen developed markets lead the recovery coming out of downswings, and at present, we think this is true of Australia and Japan. We see a buying window with the potential to find opportunities in these markets that can deliver strong risk-adjusted returns without needing to take emerging market risk.

In Australia, asset price adjustments have created compelling opportunities in the living and logistics sectors. However, it’s important to be highly selective and prioritize assets where vendors are motivated and flexible on acquisition terms and pricing. We remain particularly focused on deals with a clear path to value creation through asset management initiatives. At the same time, we remain cautious about state-level tax policies, which can increase friction costs for foreign capital, potentially impacting returns and overall market liquidity.

In Japan, we see real estate opportunities stemming from OpCo-controlled landbanks, where historical cost bases support current underwriting. We are cautious about market pricing for new projects. We see a tight general contractor environment, which affects both pricing and availability. This has implications not just for construction cost inflation, but also for project delivery timelines.

In addition, the cost of capital in the Japanese market is evolving , with interest rate concerns now tied to wage growth and domestic consumption rather than earlier-cycle pressures from imported inflation and a weakening yen. We are monitoring monetary policy closely. Whilst we have confidence in domestic buyers continuing to be active through any interest rate cycle, sentiment from foreign capital has the potential to weaken market liquidity and relax the downward pressure on cap rates.

How have shifts in sector allocation within APAC real estate changed the requirements for successful returns?

For the past 10 years, we have observed a significant reallocation of capital away from traditional sectors like retail and gateway office toward the living and logistics sectors. Unlike gateway office and retail, which benefit from transparency and the ability to be underwritten and managed remotely, living and logistics demand a deep understanding of local market dynamics.

These sectors are less geographically tied to central business districts or well-established retail hubs, and the lack of readily available, transparent data makes investment decision-making more complex. From post-GFC to Covid, international managers could act as allocators across major office and retail markets and more easily achieve market beta-style returns, but we believe current investment into living and logistics requires far more specialized, localized expertise to drive performance.

Returns from these sectors can be volatile, even when the broader geographic and sector thesis from a macro perspective is correct. We have seen evidence of this in recent years, particularly in Japanese logistics and in Australian living, most notably on the build-to-rent side. While both sectors have performed very well on average, there are examples of where that hasn’t been the case and a lack of on-the-ground experience may have come into play. This underscores the importance of local expertise in navigating the nuanced challenges and opportunities within these sectors.

UIB Konan Phase II logistics facility, Greater Osaka, Japan.

Which sectors and geographies are currently seeing the strongest investor focus, and what strategies can managers utilize to improve access to deals?

We believe our OpCo / PropCo investment strategy is well positioned in the current cycle. Through the OpCo we seek to gain enhanced access to real estate opportunities in sectors that can be difficult to penetrate. By building OpCos with real estate capability in sectors of high investor demand, we aim to generate attractive risk-adjusted returns beyond traditional real estate asset performance through the value creation in the OpCos. Our APAC investment focus is on the living and logistics sectors, which have seen increasing investor focus in recent years.

Geographically, we primarily focus on the developed markets of Australia and Japan, where we have deep local experience and established teams. This local presence supports both sourcing and execution.

We believe our experience in identifying, scaling and exiting OpCos in a way that fosters their continued growth while creating wealth for founders has enhanced our access to founders and potential partners. We seek to be highly selective by leveraging this expanded access. This strategy has seen senior leaders from previous OpCos we have worked with returning to us as founders of their own OpCos, which we see as an endorsement of the support we can provide to OpCos in achieving growth and success.


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This article was first published by PERE in September 2025 and is reproduced here with permission.

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