Structural shifts: Can Asia Pacific living leverage its home advantage?

Investment in Asia Pacific’s¹ (APAC) living sectors is gaining traction as urban migration accelerates, supported by government initiatives backing institutional investments in multi-family housing. Now, with multiple structural changes emerging across APAC, we believe the sector is approaching a new wave of growth, creating the potential to capture outsized opportunity and returns. We look at the five key trends indicating heightened long-term demand and potential for substantial returns within the living sector.

1. Wage growth in Japan is supporting higher residential rental growth

Japan’s economic stability and low-income volatility have long underpinned its position as a leader in living sector investments in APAC, accounting for over 70% of the region’s market share. However, a fundamental shift in rental growth prospects is unfolding, driven by increased inflation, labour turnover, corporate restructuring and rising wages. This is likely to have a positive secondary impact on real estate capitalisation rates and risk premia over the medium term.

The past three years have seen widespread labour shortages and a steady climb in living costs, prompting a structural increase in labour turnover among both young and older demographics.

As a result, businesses have had to raise pay to attract and retain workers. Base pay increases have accelerated for three years in a row, to 3.7% in 2025 – the highest level since 1991². This ascending trend, alongside inflation pressures, has significantly boosted rental growth in multi-family housing. Rents in Tokyo surged by around 7% year-on-year in the first quarter of 2025, up from 6% in 2024.

This upward trajectory in wages and rental growth is expected to continue, with rental growth likely to be double the pace of growth (1-2% annually³) seen in the last two decades. The Bank of Japan anticipates a sustainable virtuous cycle between wages and prices in the medium term, spurred by changes in corporate price-setting strategies. From our perspective, Japanese multi-family assets present a compelling mix of resilient income yields and attractive rental growth prospects, making it one of the most attractive sectors in the APAC region.

“This upward trajectory in wages and rental growth is expected to continue, with rental growth likely to be double the pace of growth (1-2% annually) seen in the last two decades.”
 

Despite recent interest rate hikes and ensuing investor concern over asset values and cap rate expansion, optimism remains for stable or potentially compressed multi-family capitalisation rates. In our view, the forecasted 100-200 basis point upswing in long-term rental growth is poised to offset the estimated 100 basis point rise in interest rates⁴ and meet heightened investor return expectations.

2. The investible universe of living sector assets has expanded substantially, enabling further liquidity 

Outside Japan, the investible landscape for living sector assets in developed APAC countries – namely Japan, Australia, South Korea and Singapore – has grown significantly over the past five years, improving both liquidity and investment accessibility. 

Between 2020 and 2024, average annual investments in these sectors rose to US$10 billion, a notable increase from US$6 billion between 2012 and 2019⁵. A surge in investments is attributed to exponential growth in emerging sectors and heightened interest from institutional investors, as institutional-quality rental housing markets flourish, driven by increasing migration and supportive government policies.

“A surge in investments is attributed to exponential growth in emerging sectors and heightened interest from institutional investors, as institutional-quality rental housing markets flourish, driven by increasing migration and supportive government policies.”
 

In Australia, the Build to Rent (BTR) market is a standout, estimated to be valued at close to US$30 billion today, including projects in development. This represents a more than five-fold growth over the past five years, with expected BTR units reaching 15,000 by the end of 2025, up from 1,700 five years prior⁶.

Similarly, Australia’s purpose-built student accommodation (PBSA) sector has doubled over the last decade, exceeding 130,000 beds as of 2024⁷. However, the sector still remains far smaller than in the UK, for example, where there are over 700,000 student accommodation beds⁸. 

South Korea’s living sector is also evolving rapidly, with multi-family and ‘co-living’ developments (apartment complexes with shared amenities) gaining momentum. Following the successful launch of early schemes between 2016 and 2019, available stock has more than doubled from roughly 3,000 units in 2020 to nearly 7,000 by 2023⁹. Institutional investor interest in the sector has grown in tandem and looks poised to accelerate.

Reflecting these shifts, APAC core real estate funds have increased their portfolio allocation to residential assets from 11% to 16% in the past five years¹⁰. This evolution presents ample opportunity for further expansion, in our view, as these funds progressively reduce their exposure to office spaces, which currently constitute 35-40% of their portfolios. Comparatively, living sector assets account for 25-30% of institutional portfolios in Europe and the US, indicating considerable room for growth within APAC’s residential sector¹¹.

3. Demographic shifts are driving increasing need for rental housing in cities

Across developed APAC, demographic shifts and migration trends are driving an increasing need for enhanced social infrastructure and accessible rental housing. Birth rates have seen a long-term decline, but took a sharp dip following the pandemic. To sustain and invigorate economic growth, therefore, governments are redoubling efforts to draw a larger working age population into their cities. 

Australia, for instance, has increased its annual intake of skilled migrants by approximately 50% to combat workforce shortages¹². Meanwhile, South Korea is implementing measures to expand post-graduate work and migration avenues, including the introduction of a ’Top-Tier’ visa system¹³, aiming to attract foreign migrants (including a target of 300,000 international students by 2027).

At the same time, recent changes in US immigration policies, which have resulted in increased visa revocations and stricter enforcement policies, have prompted prospective international students to reconsider US study plans and instead explore alternatives in developed APAC markets, such as Australia.

These dynamics highlight a pressing requirement for APAC cities to adapt quickly, incorporating comprehensive planning and development to support this demographic evolution and the resulting socio-economic demands. As such, the strategic expansion of social infrastructure and rental housing in these regions is not just a necessary response but an opportunity to enhance urban vitality and sustainably capture long-term growth potential.

“These dynamics highlight a pressing requirement for APAC cities to adapt quickly, incorporating comprehensive planning and development to support demographic evolution and the resulting socio-economic demands.”

4. New healthcare breakthroughs are likely to increase sustained demand for senior living

Developed APAC economies, already distinguished by the world’s longest life expectancies, are poised for further longevity gains driven by remarkable healthcare advancements. This shift is igniting sustained demand for housing tailored to the needs of an expanding demographic of healthy, active seniors. 

Exemplifying these advancements, the UK’s National Health Service (NHS) has initiated the world’s first cancer vaccine trial, reflecting the potential impact of innovative healthcare solutions. Meanwhile, Singapore’s amendments to healthcare superannuation contributions signal confidence in deploying personalised cancer gene therapies.

An anticipated leap in life expectancies is set to unlock new investment avenues within the region’s embryonic senior living sector, in our view. This is further supported by new structural demand resulting from fewer people living with offspring compared to a century ago, given lower birth rates.

“An anticipated leap in life expectancies is set to unlock new investment avenues within the region’s embryonic senior living sector, in our view.”

5. Elevated macroeconomic uncertainty is prompting greater diversification of portfolios

Since April 2025, fluctuating policy signals from the US government have spurred investors to explore diversification strategies to mitigate potential risks. Rather than relying solely on equities and bonds, portfolio diversification is increasingly focusing on real estate, infrastructure and commodities. Moreover, investors are considering reducing their regional, country and currency¹⁴ concentrations to safeguard against uncertainties.

Global institutional real estate investors are disproportionately invested in US real estate. Despite only 38% of income-generating real estate being situated in the Americas, North America commands 65% of assets under management in the MSCI Global Property Fund Annual Index. This disparity suggests potential benefits in shifting focus to emerging regions such as APAC.

“Despite only 38% of income-generating real estate being situated in the Americas, North America commands 65% of assets under management in the MSCI Global Property Fund Annual Index. This disparity suggests potential benefits in shifting focus to emerging regions such as APAC.”
 

Capital flows into APAC real estate from investors headquartered outside the region continued to strengthen in Q1 2025, and on a four-quarter rolling view, their share of total investment rose to 20%, the highest level since 2020¹⁵. 

Much of this influx stems from North American investors, who have been actively repositioning into the APAC markets in recent quarters. As these flows persist, we expect investments into the APAC living sector to continue gaining momentum, presenting promising opportunities for diversification and growth beyond traditional US-centric investments.

Targeting a new wave of growth

As APAC living sectors approach a new wave of growth, tapping into structural changes at an early stage could offer attractive risk-adjusted return potential, as well as diversification benefits, particularly amid current global economic volatility. 

Japan presents a robust investment opportunity with its stability and potential for enhanced rental growth. Meanwhile, emerging markets like Australia and South Korea, along with promising subsectors such as senior living, are evolving to offer substantial investability. 

As these markets mature and diversify, the investment potential within the region’s living sector is becoming increasingly compelling, providing strategic opportunities for investors seeking stability and growth across APAC.
 

¹ This consists of markets such as Japan, Australia, Singapore, Hong Kong and South Korea.
² Rengo, as of May 2025.
³ PMA, as of April 2025. 
⁴ Japanese government bond yields have increased by 100 basis points since 2022. The Bank of Japan has raised its policy interest rate by 50 basis points since March 2024 as inflation and wages started to grow. While policy rate increases could be slower in 2025 due to higher uncertainty around US tariffs and global trade policies, the central bank continues to signal its intention to raise the policy interest rate by a further 25-50 basis points over the next few years as inflation meets its 2% target.
⁵ Real Capital Analytics, as of January 2025.
⁶ Ernst and Young Research, as of February 2025.
⁷ Property Council of Australia, ‘Urbis Student Accommodation Benchmarks created in partnership with the Student Accommodation Council’, (propertycouncil.com.au), November 2024.
⁸ Cushman & Wakefield, ‘Student Accommodation’, (cushmanwakefield.com).
⁹ Simon Smith, ‘Seoul Co-living 1H/2024’, (savills.com.sg), June 2024. 
¹⁰ ANREV, as of May 2025. 
¹¹ MSCI, as of May 2025.
¹² Permanent skilled migration planning levels have increased from 89,063 in 2020-21 to 132,200 for 2024-25. Source: Australian Government, Department of Home Affairs, ‘Migration Program planning levels’, (immi.homeaffairs.gov.au), as of October 2024.
¹³ This visa, aimed at highly skilled international professionals in advanced industries like biotechnology, semiconductors and secondary batteries, offers a long-term residency visa and allows for easy access to permanent residency after three years. Source: Jung Min-ho, ‘Korea to introduce 'top-tier visa' to attract tech experts’, (koreatimes.co.kr), March 2025.
¹⁴ One of the factors that contributed to the growth in US trade deficits in the last two decades has been the strength of the US dollar due to its dominance and function as a reserve currency. Since April 2025, investors have sold off US Treasury bonds and assets. As trade tariffs and global portfolios adjust, the strength of the USD to Asia currencies may become weaker in the coming years, relative to history.
¹⁵ MSCI, as of May 2025.