Asian REITs face further downside risks as rising interest rates and limited exposure to structurally growing property sectors continue to weigh on performance, according to Julius Baer.

The Swiss private bank remains cautious on the asset class after Asian REITs recorded a 9.4% loss in US dollar total return terms over the first nine months of 2026, underperforming broader equity and bond markets.

Jen-Ai Chua, equity research analyst for Asia at the bank, said the combination of higher borrowing costs, a stronger US dollar and inflationary pressures could prolong the sector’s weakness.

“In the near term, risks from energy and food inflation mean that higher interest rates will continue to pose challenges for the Asian REITs,” Chua said.

Government bond yields rose between 30 and 70 basis points during the third quarter across key Asian markets, contributing to widespread losses.

Japanese REITs were the hardest hit, declining 12.6% over the nine-month period, followed by REITs in Australia at 9.4%, Hong Kong at 9% and Singapore at 8.3%.

The contrast with the US market has been striking. Despite a 6% correction in the third quarter following the Federal Reserve’s first rate increase in three years, US REITs delivered positive total returns of 10.5% year-to-date.

More pain ahead

Julius Baer expects monetary tightening to remain a significant headwind for Asian property trusts.

Japanese policy rates could climb by as much as 100 basis points to 2.25% by the third quarter of 2027, while Singapore and Hong Kong could see increases of around 25 basis points.

Australia is the exception, with rates projected to decline by that time, although this follows four central bank hikes during 2026.

Beyond monetary policy, however, Chua believes the composition of Asian REIT portfolios represents a more fundamental challenge.

Unlike their US counterparts, she said Asian REITs remain heavily concentrated in traditional property segments, including offices, retail and hospitality, rather than sectors benefiting from long-term structural demand.

Missing the structural growth story

In the US, data centres account for 13.4% of the REIT index, while healthcare and residential properties represent 22.4% and 11.8%, respectively.

By comparison, diversified REITs, typically associated with traditional property sectors, account for 41% of Singapore’s index, 50% of Japan’s and 27% of Australia’s, against just 2% in the US.

“The deficit of exposure to sectors with structurally high growth rates means that unlike REITs in the US, REITs in Asia will have less of a buffer against volatility in the macro environment,” Chua said.

Artificial intelligence (AI) could further widen this divide. While data centres are emerging as major beneficiaries of AI investment, office demand could face longer-term pressure if automation reduces employment growth in financial services, consulting and other traditional occupier industries.

There are signs of change, including new data centre REITs in Singapore and Goodman Group’s expansion into the sector.

However, Chua cautioned that the transition would be gradual. “Building exposure to these new drivers of growth is ongoing, as reflected by the emergence of new data centre REITs in Singapore and the pivot undertaken by players in the logistics space, including Goodman Group, towards data centre expansion. However, this will take time.”

For now, Julius Baer expects Asian REITs to remain particularly vulnerable to shifts in interest rate expectations.