Asia Pacific Real Estate Outlook Shifts Due to Delayed Rate Cuts: CBRE

Asia Pacific – July 30, 2024 – A rebound of Asia Pacific’s commercial real estate investment activity remains on hold due to delayed interest rate cuts and continuous repricing activity, according to CBRE’s 2024 Asia Pacific Real Estate Market Outlook Mid-Year Review.

Nevertheless, CBRE expects 2024 investment volume to increase slightly to 3%. A key variable will be Japan, where cross-border capital has waned a bit as investors look for markets with higher return potential.

“While investors continue to focus on active markets such as Japan and India, repricing in countries like Australia, New Zealand and Korea are largely done, so there are revival interests in both markets,” said Dr. Henry Chin, Global Head of Investor Thought Leadership & Head of Research, Asia Pacific for CBRE. “We expect further repricing activities in Mainland China, Singapore and Hong Kong SAR in order to see an uptick in investors’ interest.”

Meanwhile, Vietnam's robust fundamentals, including 6.4% GDP growth, 14.5% YoY export growth, stabilized inflation at 4%, 8.8 million inbound visitors in H1 '24, a young and expanding population of 100 million, among others, signify that despite global uncertainties, the market remains resilient. Lawrence Lennon, Director of Capital Market, CBRE Vietnam, commented: “For investors, the key lies in strategizing according to the current stage of each key sector in the North, Central, and Southern regions of Vietnam, while adapting to the broader structural shifts unfolding worldwide. We're continue to see strong apetite among foreign investors to enter the market, with focus in particular on the industrial & logistics space (heating on the back of the trade war), the hospitality market as the world re-opens post pandemic, and the core asset classes driven by the country's unique supply & demand dynamics.”

Office & Occupier

The office market continues to be impacted by the level of supply, leading to a high regional vacancy rate of 19% in the first half of 2024. Market leaders are Japan and India as both have shown robust leasing activity, driving a steady increase in regional gross leasing volume year-on-year. Mainland China’s slow recovery, characterized by cost controls and lease renewals, has offset this positive performance. CBRE continues to expect at most 5% gross leasing volume growth for 2024.

Vietnam has been experiencing a similar trend, witnessing a rise in Grade A spaces from 2023 to the present. Given the softer demand, older buildings or those with high vacancy rates are providing more attractive incentives, such as extended rent-free periods or fit-out allowances.

“Cost remains a key factor in renewal and relocation decisions. High fit-out costs have led many occupiers to renew leases, while some are opting for relocations to achieve cost savings and re-outfit space to enhance workplace experience,” said Ada Choi, Head of Occupier Research & Head of Data Intelligence and Management, Research, Asia Pacific, for CBRE. “The flight to quality will continue as occupiers seek premium spaces in prime locations.”

Retail

The key retail sectors such as food & beverage and sport goods are among those expanding their footprints. While vacancy rates in prime shopping precincts have fallen back to pre-pandemic levels, some retailers are expected to rein in their expansion plans now that they’ve rebuilt their store networks following pandemic-era closures.

The HCMC and Hanoi CBDs reported record double-digit growth in H1 2024 – the strongest of any market – due to the absence of space capable of accommodating demand from the growing number of international brands.

Logistics

In APAC region, the logistics demand normalised faster than expected in H1 2024, with lease renewals favored over relocations due to high rents and fit-out costs. Despite a slight improvement in leasing activity in the second half of the year, full-year leasing volume is expected to be down from 2023. 

In Vietnam, the average occupancy of ready-built warehouse has been improved. Despite this, due to a robust influx of new supply, rental growth has remained modest at a rate of 2-3% annually.

Hotels

Except for the Maldives, the region’s hotel markets have seen year-over-year increases in Revenue per Available Room performance as of June 2024 year-to-date. Average Daily Rates have remained stable, driven by an 80 basis points increase in average occupancy levels, as airline travel rebounds.

In Vietnam, the hotel market showed positive signs, with both Hanoi and Ho Chi Minh City recording higher RevPark compared to the same period last year.

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