“Asia-Pacific continues to be a powerhouse of growth, creating investment opportunities in value-add strategies,” notes Rachael Rothman, head of hotels research & data analytics at CBRE. “Potential risks include geopolitical factors affecting travel, currency fluctuations, and inflationary pressures across the globe.”
Tariffs weigh on outlook
Although the region’s leading nations including China and Japan, are expected to negotiate with Donald Trump on the sizeable US trade tariffs affecting the region, the broader view for 2025 is that their imposition will still have a negative impact on APAC’s economic health.
“While there is room for negotiation and potentially retaliation, the high levels of tariffs cannot be ignored,” says Selena Ling, chief economist and head of global markets research and strategy at OCBC, a financial services business based in Singapore. “We have reduced our 2025 GDP growth forecasts for the region and added higher magnitudes of rate cuts to buttress growth.”
Yet with Japan and China respectively the largest two foreign holders of US government debt, both may have a degree of leverage in talks with Trump’s administration. Japan’s finance minister Katsunobu Kato recently announced on Japanese television that while treasury holdings “exist as a card… whether we choose to use it or not would be a separate decision.”
Policymakers at the Bank of Japan cut their economic growth and inflation forecasts at the start of May, citing heightened economic uncertainty stemming from the tariffs. The bank now expects gross domestic product growth of 0.4 per cent to 0.6 per cent in 2025, much lower than the prior forecast of 0.9 percent to 1.1 percent.
Despite the tariff headlines and market watchers scaling down GDP expectations, hospitality investors are expected to continue targeting the region, with most forecasters still expecting a deal uplift on last year. Japan remains the hottest focus after accounting for more than US$4.5 billion of the region’s hotel deals last year, around 35 per cent of APAC’s hospitality trades. JLL suggests that Japan could even reach US$5 billion of hospitality deals in 2025 in the light of the yen’s ongoing weakness.
Japanese activity
Perhaps unsurprisingly, Japan has been the preferred destination for most hospitality capital in the first quarter of 2025, including a US$1.6 billion play by Brookfield Asset Management. ORIX JREIT recently swooped on the 428-key Hotel Universal Port Vita, Osaka for JPY 35 billion from sponsor ORIX Corporation, representing around JPY 81.8 million per key. The property is one of seven hotels flagged by Universal Studios Japan in the country and stands next to the Hotel Universal Port, also owned by ORIX. Completed in 2018, the 14-storey property currently generates a fixed rent of JPY 40 million, plus a variable component.
Singapore’s hotels-focused Far East Hospitality Trust made its maiden deal in Japan and its first outside of the island state in February, picking up the freehold of the Four Points by Sheraton Nagoya, Chubu International Airport for JPY 6.0 billion, a 23 per cent discount on valuation. The property is situated in Greater Nagoya, the third largest metropolitan area in Japan, and is strategically positioned within walking distance of the airport’s terminal. It is also close to Aichi Sky Expo4, Japan’s fourth largest exhibition centre, spanning 60,000 square metres of event space. Far East H-Trust used the occasion of the deal to announce that the investment strategy of the trust will be expanded to include a global scope and other adjacent lodging asset classes. While maintaining Singapore as a core focus, the firm said it wanted to “to diversify its geographical footprint and mitigate potential concentration risks”.
Investor confidence
Another investment firm which remains committed to the region is PGIM Real Estate, the property arm of Prudential Financial’s asset manager. The firm has already spent some US$900 million on Asian real estate in the first quarter alone and predicts a total regional investment of some US$2 billion this year. Targets include hospitality and data centres in Japan, with the investor revealing that it has already bought a Japanese hotel this year which it considers ripe for repositioning.
Says David Fassbender, deputy head of APAC: “One outcome of the tariffs being imposed is clearly that trade will be redirected. How that plays out in individual markets – there are negative and positive scenarios.” He confirms that in terms of investments, the firm remains “on track for this year, even if transaction activity could potentially slow down”.
Other capital deployed so far this year has targeted the popular markets of South Korea and Australia. KB Asset Management has inked a deal for the 342-key Four Points by Sheraton Josun, Seoul Station from Australia’s Macquarie Group for KRW170 billion. The hotel includes a restaurant, convenience store and a gym and is leased to Korea’s Josun Hotels & Resorts until 2035.
Australia’s Ark Capital Partners has snapped up the brand new 191-key Melbourne Place Hotel in partnership with Myanmar’s Lead Global for A$150 million. The deal for the boutique hotel, which includes three F&B outlets, seeds a new hotel fund which is being launched by the investment duo.
Investors eyeing the buoyant Australian market are likely to be further cheered by forecasts predicting a swathe of interest rate cuts this year. The National Australia Bank (NAB) recently suggested that the Reserve Bank of Australia (RBA) could table as many as five rate cuts this financial year with inflation targets now within reach. NBA has called cuts in May, July, August, November and February, which would be good news for market liquidity and the earnings and distribution of listed real estate companies in the region. It would also contribute to the further stability of asset prices.
“Over the next six months, we expect a notable surge in property transactions as investors regain confidence and actively pursue new acquisitions,” says Leon Alaban, Savills Australia’s head of hotels. “Those who exercised patience during the market’s recalibration phase are now ready to deploy capital, and hospitality assets are high on their priority list.”
Concludes Rothman: “Investor sentiment is expected to remain strong in 2025, driven by prospects of lower interest rates, occupancy growth, and limited supply. Cross-border capital should remain focused on Japan, driven by lower debt costs and a weak Yen, as well as Australia, Southeast Asia, and Korea. A notable shift toward upscale and upper midscale products involving value-add strategies is expected.”
By Isobel Lee
