Asia-Pacific logistics to stay resilient

Prices for Australian assets were the first to adjust in the last hiking cycle, with prime logistic cap rates along the Eastern Seaboard expanded by over 130 basis points since 2022. The sector’s fundamentals have also reset in 2025, as effective rents softened amid normalising demand while the supply of new spaces lifted incentives. However, following a year of calibration, baseline tenant demand is anticipated to strengthen in 2026, driven by an increase in retail activity and a strong infrastructure pipeline. A renewed focus on automation and last-mile networks is also expected to underpin 3PL demand.

Amid a lower construction pipeline, vacancy levels are likely to shrink. Although the central bank’s recent tightening in response to sticky inflation may keep funding costs elevated, yields are still poised to firm in the near term. However, across submarkets, this will diverge. Established hotspots with lower construction and vacancy such as Sydney South, Melbourne South and Brisbane’s Trade Coast are likely to lead yield compression, reflecting their stronger rental resilience and deeper occupier pools, widening the gap with other submarkets.

Although investments have pulled back amid ample new supply, transaction yields in Tokyo have remained largely stable for most of 2025. Despite a rapid expansion in the 10-year government bond yield in the last quarter, yields have not expanded as risk premiums tightened. While there is potential for moderate yield expansion in the near term, robust investment demand in key cities, sectors, and sub-markets will limit this to some extent.

Acquisitions in 2026 are already bouncing back on expectations of a future tightening of new supply balance and the subsequent boost in occupancy rates and rent levels. Regulatory reform is also set to reinforce the sector’s long-term fundamentals. Starting April 2026, designated firms are mandated to appoint an executive-level logistics chief to develop long-term supply chain strategies. We believe this will no doubt deepen demand for high-specs modern logistics facilities across the country.

While deals have largely held up in Australia and Japan, for logistics, 2025 belonged to South Korea. Average spreads, which turned negative in 2022, have widened to over 200 basis points in 2025 amid an aggressive easing cycle. With domestic capital hamstrung by tighter project financing conditions, foreign investors have capitalized on emerging opportunities in the prime logistics market, actively targeting discounted stabilized dry logistics facilities. Cross-border capital accounted for over 70% of transactions to hit US$3.2 billion, which is about a third of the region’s cross-border logistics investment volumes.

Values will remain supported by asset quality, rising automation, and a constrained development pipeline. At the same time, tighter development regulations, continued financing constraints, and the scarcity of well-located land are expected to restrain new approvals for prime logistics assets. With policy rates likely to hold at 2.5% for now, yields are largely expected to remain stable in 2026.

However, the region’s logistics story is not just about repricing. Despite rising interest rates, prices for Southeast Asian and Indian assets have been largely stable. While South Korea is the region’s capital rotation story, the broader structural reconfiguration of supply chains is playing out most visibly in the region’s emerging markets.

Heightened tariff uncertainty has accelerated ‘China+n’ strategies, with occupiers exploring split logistics footprints across Southeast Asia and India to hedge cross-border tariff risks. Rising costs in the Chinese mainland have further underpinned this shift, with businesses leveraging these regions’ favourable demographics, skilled labour, and improving infrastructure. Southeast Asia remains well-positioned to benefit from this global trade rebalancing.

As manufacturers diversify their supply chains, emerging Southeast Asia has become the preferred alternative. In the second half of 2025, Maersk opened its largest Asia-Pacific contract logistics facility, spanning 180,000 sqm, near Kuala Lumpur. Chinese investments in Indonesia have also expanded, notably in the Electric Vehicle ecosystem. Manufacturing and logistics demand in Indonesia and Vietnam is expected to grow by up to 20% over the next three years, as companies increasingly prioritise building resilient regional supply chains rather than reacting to short-term tariff fluctuations.

India is also positioning itself as an alternative manufacturing hub, particularly in electronics and automotive, supported by the government’s “Make in India” initiative. The demand profile of the warehousing market has shifted over the past few years, with the manufacturing sector emerging as the major driver of demand, surpassing 3PL and e-commerce.

Policy initiatives, such as the Production-Linked Incentive scheme, continued to underpin this transition. Against this macroeconomic backdrop, the manufacturing sector drove the bulk of growth, accounting for a massive 47% of total leasing volumes. Warehouse leases across its eight major markets rose 55% year-on-year to 3.2 million sqm in 2025, with demand concentrated in Pune and Chennai, underscoring broad-based demand diversification.

Except for the Chinese mainland and Hong Kong markets, the logistics repricing cycle in the region is largely over. Still, with the Middle East crisis evolving, a flare-up of inflation as the conflict drags on has sparked concerns of another downcycle. However, barring a major oil supply shock, the constrained development pipeline is likely to limit any significant downward pressure on prices. In emerging Southeast Asian markets, broad-based yield expansion is unlikely given the shortage of prime stock.

Notably, this time, prices have not been driven up by speculative demand, as seen during the pandemic. Occupiers are now much more disciplined, as supply-chain activity remains real and demand-led. The next stage of APAC logistics returns will hinge on specifications, with automation, sustainability retrofits and operational efficiencies dictating rental resilience.

The shift toward an ‘Asia for Asia’ model, where over 65% of supply chain investment decisions are now driven by intra-Asian consumption, will further underpin fundamentals. Container carriers have reportedly expanded intra-Asian capacity through 2025, with Chinese operators among the most active, reflecting manufacturers’ push to establish overseas production bases amid continued trade tensions.

Although logistics rent is likely to grow at just about 2% in 2026, investors will remain keen on the region’s long-term prospects. Clear signs of stabilization are evident, with fundamentals remaining resilient. For the region, logistics is predominantly a structural, multi-year strategic shift, and not just a cyclical growth market. This is also reflected in prime logistics cap rates—the ratio of a property’s income to its value—which are beginning to stabilize or compress across most APAC markets, signalling firmer pricing and sustained investor demand following the recent repricing cycle.