The battle to rein in inflation has continued through 2024 and while price increases are now under control across much of Europe and North America, allowing central banks to cut rates multiple times, the picture is more varied across the Asia Pacific region. Importantly, the majority of economies in the region have taken meaningful steps forward in combatting inflation, with current levels well down from their peak. Consequently, the easing cycle is underway though Asia Pacific is lagging other regions. Less than half of the region’s central banks have cut rates and for the most part they have totalled 50bps or less compared to three cuts totalling 110bps in Europe. In part this reflects central banks not wanting to move in advance of the U.S. Federal Reserve due to foreign exchange pressures, but it also reflects that inflation remains stubbornly inflated in certain parts of the region.

Figure 1: CPI (%change y-o-y)

^{Source: Various central banks, Cushman & Wakefield}

In general, emerging markets still have the most work left to do against inflation, with recent data in India pointing to a reacceleration in pricing increases. Food pricing has been the main challenge, though energy pricing also remains volatile. Cooling inflation has been more consistent in the region’s developed economies, though again there is some variation in central bank responses. The Bank of Korea was one of the first to cut within the region. The People’s Bank of China has also been cutting rates through 2024, but this was more to stimulate economic activity than in response to tamed inflation. Headline inflation in Australia is now within target levels, primarily due to a raft of federal and state government rebates, but core inflation is still outside of the central bank’s target band of 2% to 3% and so the easing cycle has now been pushed into 2025. Lastly, to uphold price stability, the Bank of Japan has signalled measured policy rate increases, primarily to counteract rising inflation trending above its peers mostly due to the weakening yen. However, the rising risk of subdued domestic consumption and substantial government debt is likely to constrain the scale and speed of these rate hikes, offering some reassurance to long-term CRE investors.

Together this paints a mixed picture for the current state of play, but the outlook for the most part is towards more accommodative monetary policy across the region. Further interest rate cuts are expected through the year ahead and possibly into 2026. The timing and magnitude of these cuts will continue to vary and be dictated by a mixture of local, regional and global economic conditions.

Figure 2: Forecast central bank monetary policy rates

^{Source: Moody’s Analytics (December vintage baseline forecast), Cushman & Wakefield}

Despite the variance in inflation and interest rate trajectories, there is stability in regional growth. At the headline level, the Asia Pacific economy is forecast to grow at 3.8% in 2024 and 3.7% in 2025.  Beneath this regional average, ongoing strength is forecast across India and most of the South East Asian economies. India has been the fastest growing major economy in the world over the past 18 months, which is forecast to continue into 2025 with growth of 6.4%. Similarly, Vietnam, the Philippines, Malaysia and Indonesia are all expected to growth at around 5% or more for the year, a tick slower relative to 2024 but still healthy. If the economy follows this script, the level of growth is consistent with the Asia Pacific region absorbing approximately 75msf of office space in the year ahead.

The regions’ advanced economies have experienced a difficult year to date. However, they continue to work through their respective headwinds, which should yield stronger growth in 2025. In Australia this means taming the last of inflation, which can allow the Reserve Bank to pivot and become more accommodative. Japan's economy is rebounding from the temporary disruption caused by the Noto Peninsula earthquake, with stronger-than-expected net population inflows into major cities driving a cyclical upswing. Recent commentary from the central bank has also provided a slightly upbeat assessment on the outlook with the assumption of continued real wage growth extending beyond 2025. Singapore and South Korea are both reliant upon stronger demand for exports. Singapore is expected to be the greater beneficiary of the two as demand for high-end semiconductors from South Korea slows to a more sustainable pace. A common trait across all advanced economies is that the jobs market remains resilient, providing support for stronger growth in the year ahead.

The Chinese economy has been buffeted by headwinds stemming from a weak residential market over the past 24 months, though these have been somewhat offset by export demand in key sub-sectors including electric vehicles, batteries and solar panels. A raft of stimulus measures have been announced through H2 2024 to support the residential sector and help boost consumer confidence. If these prove successful, they should provide a floor for the economy to return to stronger growth.

Figure 3: Real GDP growth outlook

^{Source: Moody’s Analytics (December vintage baseline forecast), Cushman & Wakefield}

Following the recent elections in the U.S., former President Trump will become the 47th President of the United States on Inauguration Day, January 20, 2025. The Republican party will take control of the White House and Congress. At the current time of writing, wide-ranging policies affecting the wider macro-economic environment have been floated during the election campaign including regulatory conditions, fiscal (spending and tax) policy, trade policy, and immigration policy. The details associated with these policies largely remain unknown at this stage and that many of the policy changes have the potential to exert offsetting forces on macroeconomic growth and inflation, means that there is no easy, or clear-cut diagnosis of their impacts¹.

From a regional perspective, the looming potential of greater trade tariffs has arguably attracted greatest attention given that Asia Pacific exports are mostly directed to the U.S. and help drive the region’s growth. It is worth noting that Trump had promised 35% tariffs on Mexico and 45% tariffs on China during the 2016 campaign—commitments that ultimately never materialized.

The downside risks to the Asia Pacific outlook as it relates to trade are not insignificant. Depending on how trade policy shapes, there are certainly scenarios that could negatively impact economic growth and business confidence next year. That said, it’s worth noting that many of Trump’s policies are similar to what was put forward in his first term, and during that time, Asia Pacific’s property sector proved to be remarkably resilient. In fact, Asia Pacific’s office vacancy rates hovered in the 12% range, demand for space remained healthy, and rental rates continued to appreciate. On the capital markets, sales volumes achieved record levels in 2019 as yields drifted lower. Although it remains unclear if Trump will take more of a surgical approach to tariffs versus something closer to the severe approach he espoused on the campaign trail, only time will tell.

The recent appreciation of the U.S. dollar is also a concern for some Asian currencies which have come under renewed depreciation pressures. If this pressure continues, then it could further delay the rate cutting cycle given central banks would need to hold rates higher for longer. However, this is not a certainty given Trump’s preference for lower interest rates.

Ultimately there is undeniable uncertainty on potential policy formation and its impacts around the world. With that we recommend prudent caution and to develop a strong framework for contextualising policy changes as and when they are formally announced. Accordingly, we will continue to carefully hone our outlook as President-elect Trump and his advisors provide more post-election and post-inauguration guidance to the markets and as policy changes take shape.