Why Osaka, Bengaluru and Johor are overlooked drivers of Asia property

Every quarter, MSCI publishes a ranking of the most actively traded cities in Asia’s commercial property investment market. As recently as 2022, the most widely traded metropolises included major capitals such as Tokyo and Seoul, as well as leading cities such as Shanghai and Sydney. Fast forward to 2024 and the ranking was more diverse. Chiba, the prefecture just east of Tokyo, and Osaka, Japan’s third-biggest city, were among the top 10 for the whole of last year. Moreover, in the first quarter of this year, Incheon, South Korea’s third-largest city, was the 10th-most widely traded market, while Hyderabad, one of India’s largest cities, took the 13th spot last year. There are several factors at work. One of them is the increase in development and investment activity in less mature property sectors. Industrial and logistics real estate, including data centres, accounted for 35 per cent of transactions of income-producing properties in the Asia-Pacific region last year. The growth of the sector has reshaped the region’s commercial property landscape, helping put regional and less-established markets on the map as demand for warehouses and digital infrastructure intensifies. The development of a professionally managed rental housing sector – which is in its infancy outside Japan – will have a similar effect. A more important factor, however, is the breadth, depth and increasing sophistication of Asia’s real estate industry, especially in the biggest economies where large urban centres are plentiful. To spot the big themes and trends in Asian property, it is important to look beyond the most widely traded cities. A good example is Bengaluru. It is widely known that India is the engine of leasing activity in Asia’s office market. Less appreciated, however, is the extent to which Bengaluru, which has long been the country’s technology hub, is fuelling this growth. An insightful report by Colliers on June 19 looked at 15 “high activity” micro markets – districts experiencing consistently strong demand and high levels of supply – across India’s seven biggest cities. It found that these sub-markets collectively accounted for 65 per cent of grade A office demand and 76 per cent of supply in the seven cities since 2020. Moreover, four of them were in Bengaluru. Just one of these micro markets, called the Outer Ring Road, accounted for almost 12 per cent of the overall office stock in the seven cities, with two others bringing Bengaluru’s share of the total stock to 21 per cent. The Outer Ring Road also had the biggest percentage of leasing demand from global capability centres – tech and research facilities used by multinational companies that have become the main drivers of leasing activity in India – and accounted for the highest share of green-certified office stock among the seven cities. Leasing and investment activity outside Asia’s leading capital cities is also a prominent theme in Japan’s real estate market. The focus on Tokyo – far and away the most widely traded city in Asia’s commercial property investment market – has overshadowed the growth of the property sector in Osaka, home to one of the country’s biggest ports and a major tourist hotspot. Few would have predicted that the wider metropolitan area of Osaka, which is currently hosting the World Expo, would account for as much as 22 per cent of investment transactions in Japan in 2024. That is up from 13 per cent in 2022 and only 5 percentage points below the share of Tokyo’s central business district, according to data from JLL. In fact, the share of foreign investment in Osaka last year was slightly higher than in Tokyo. This is mainly because of the surge in overseas tourism, fuelled by the cheap yen. Hotels accounted for 34 per cent of investment activity in Greater Osaka in 2024, compared with 10 per cent in Greater Tokyo. Just as Bengaluru is one of the key drivers of office leasing activity in Asia, Osaka is a magnet for hotel investment. The voracious demand for digital infrastructure in Asia further underscores the importance of looking beyond the region’s top gateway cities. According to Cushman & Wakefield, Melbourne, Guangzhou, Mumbai and Osaka are among the 10 most established markets for data centres in the Asia-Pacific region. More strikingly, Johor, the Malaysian state bordering Singapore, is ranked fourth and has the second-largest amount of capacity under construction among the region’s most developed data centre markets. Malaysia, a crucial battleground in the rapidly intensifying tech competition between the United States and China, is much more than a data centre hub. It is one of the biggest beneficiaries of the artificial intelligence (AI) boom. According to SemiAnalysis, a research firm specialising in semiconductors, Johor has become the world’s second-largest AI hub. The partnership between software giant Oracle and ByteDance, TikTok’s Chinese owner, is turbocharging digital infrastructure investment in the state, showing how geopolitics is playing out in unexpected ways in unexpected locations. To be sure, the leading cities that dominate real estate investment and development activity in Asia are not losing their appeal. Tokyo, Seoul, Sydney, Shanghai and Singapore were consistently the most liquid markets in the past several years and were still the most actively traded cities in the first quarter of this year. Yet when it comes to some of the big themes in Asian property – the dominance of offices in investment activity, the growth of tourism and the development of digital infrastructure – a more diverse group of cities is at the forefront of leasing and investment activity.

Why Osaka, Bengaluru and Johor are overlooked drivers of Asia property

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}To spot the big themes and trends in Asian property, look beyond the most widely traded cities and see the market’s true breadth and depth

To spot the big themes and trends in Asian property, look beyond the most widely traded cities and see the market’s true breadth and depth