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The climate impact of the real estate sector cannot be understated, with buildings contributing nearly 40% of global carbon emissions. Asia, home to over half of the world’s urban population, plays a critical role in this equation, with the region’s emissions projected to increase as urbanization and development accelerate. 

With approximately 70 billion square meters of real estate expected to be developed in Asia over the next two decades, the region has the potential to not only reduce emissions but to set new standards in sustainable urban planning and construction.

Key Decarbonization Strategies for Asia:

1. Limiting Urban Sprawl: Urban expansion in Asia has often led to low-density developments, resulting in higher emissions due to increased infrastructure demands. Cities can mitigate these impacts by focusing on high-density, mixed-use developments, creating efficient urban spaces that minimize transportation needs and reduce the overall carbon footprint.
   
   
2. Sustainable Construction Practices: The materials and processes used in construction have a significant carbon impact. By adopting innovative materials and techniques, such as using greener concrete mixes, and integrating supplementary cementitious materials, developers can dramatically cut emissions. For example, certain concrete mixes can reduce carbon emissions by up to 40% compared to traditional materials.
   
   
3. Carbon Capture and Storage: Emerging carbon capture technologies offer promising solutions to reduce emissions from the manufacturing of construction materials. Though still in early stages, these technologies have the potential to significantly cut emissions if adopted at scale.
   
   
4. Advanced Data and AI Solutions: Accurate data tracking is essential for effective emissions management. Technologies that integrate data from utility bills, smart meters, and Building Management Systems enable real-time tracking and smarter energy management, reducing emissions tied to building operations.

 

A Path Forward for a Sustainable Asia

The decarbonization of Asia’s built environment represents both a challenge and a $47 trillion economic opportunity, driven by the need to align with global climate goals while catering to the unique demands of the region. Achieving this requires a targeted approach, one that equips developers, investors, and policymakers with strategies that balance sustainability with Asia’s rapid growth.

 To dive deeper into these strategies, download the whitepaper “From Concrete to Carbon Neutral: Decarbonizing Asia’s Built Environment”.

 

 

 

 

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October was a difficult month for Asian Real Estate (RE) securities and REITs. We mentioned in last month’s update that we expected volatility given the upcoming elections in both the US and Japan, along with recent economic data that had reduced expectations of more aggressive Fed interest rate cuts. Expectations of a Trump victory were clearly anticipated in equity, fixed income, currency, and crypto markets. The Asian RE universe fell by more than 7% in USD, with much of the weakness coming from exchange rates. Back in 2016, Asian RE Securities and REITs suffered after Trump’s surprise victory, initially falling by 6% in the weeks after the election and significantly trailing the SPX, which rose over that same period. However, the sector rallied by nearly 10% from the start of 2017 until mid-year when Trump officially took office and subsequently rose by 15.5% in 2017. Given the outcome was less of a surprise this time around, we believe the market had somewhat priced in a Trump victory already.

While the risks of accelerating inflation due to pro-cyclical policies are a concern, there are other forces that will help contain inflation, such as rising productivity; and while tariffs may spike US inflation initially, they are likely to hurt the economy and some US companies due to higher input costs and potential retaliation from trading partners. China is cautious in unleashing additional stimuli until Trump takes office, which has led to additional disappointment in the region. While it is hard to estimate the full potential impact on rates and Asian growth from Trump’s anticipated policies, the sector performance in October was worse than in the months after Trump’s 2016 surprise victory. Therefore, we are hopeful that we will see some bottoming soon given the sharp decline in stocks and forecasted recovery in DPUs going into 2025 and 2026.

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India's education sector, forecast to reach a market size of USD 313 billion by FY2029-30, is experiencing rapid growth, driven by a robust economy, burgeoning population and urbanisation, rising per capita incomes, and conducive government policies.

The country’s comprehensive education system is characterised by its scale and breadth, with 1.49 million K-12 schools educating approximately 265 million students. Additionally, its higher education sector is among the largest globally, encompassing nearly 59,000 institutions and enrolling an estimated 43 million students.

As a cornerstone of economic development, India's education sector has garnered substantial interest from both public and private stakeholders. The government's commitment to education, as evidenced by the significant budgetary allocation over the years, is expected to foster further growth. Moreover, the sector has witnessed significant foreign direct investment (FDI) equity inflows of USD 9.5 billion since 2000.

While these developments are encouraging, achieving the ambitious objectives outlined in the National Education Policy 2020 necessitates a further strategic increase in budgetary expenditure - a gradual increase in education spending from 2.7% of the country’s GDP in FY2023-24 to the targeted 6% is imperative to ensure the sector's sustained progress.

Notably, India’s education sector prioritises social good over profit generation, involving a combination of ‘not-for-profit' activities and ‘for-profit’ administration. Private entities play a significant role by contributing through various business models, encompassing infrastructure and facilities development, strategic investments for expansion, or the provision of management and administrative services.

As the sector grows, there is a corresponding need to strengthen educational infrastructure across the country, presenting significant opportunities for real estate developers and investors.

CBRE India conducted a real estate opportunity assessment to evaluate the additional space requirement of K-12 and higher education institutions that can accommodate the projected growth in student enrolment in India. Our real estate opportunity assessment for India’s education sector indicates an estimated 4+ billion sq. ft. of additional space requirement by 2034-35.

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The US Central Bank has lowered interest rates by half a percent for the first time in four years. Some markets across the Asia Pacific region have followed suit or are planning to do so in the coming quarter.

In Q3 2024, the office sector experienced the most movements in cap rates in the region, with 8 out of 18 cities covered in this report reporting changes.

Key Highlights in Q3 2024 

Office sector

• Australia has experienced an uptick in transaction activity, indicating a potential softening of yields.
• In Bangkok, the office sector has seen stable cap rates quarter over quarter. However, the growing supply of Grade A developments, coupled with limited new market entrants, may exert downward pressure on occupancy levels in the near term.
• Major cities in China, including Beijing and Shanghai experiencing a surge of new supply entering the market, which is putting pressure on rents and occupancy rates. The lack of substantial en bloc deals, often key indicators of market confidence, reinforces a prevailing sense of cautious among sentiment.
• Hong Kong’s high vacancy rates are presenting challenges for the office leasing market, leading to a decline in Grade A office rents and capital values. Cap rates have slightly decompressed, with investors remaining cautious regarding office assets.
• In India, technology occupiers are actively driving investment from both institutional and individual investors, significantly increasing capital flow into the office sector. Bengaluru recorded historic absorption in the past quarter, contributing to rental growth.
• Seoul is expected to remain a landlord-favored market due to limited supply despite, despite a slowdown in leasing activity.
• Prime office values should continue to be supported by healthy rents and lower interest rates, highlighting the stability of asset prices in Singapore.

Retail sector

• Retail spending in Auckland has stabilised and is expected to recover, supported by cuts to both interest and taxation rates.
• In Bangkok, the retail market remains stable, with both rent and occupancy rates unchanged and likely to stay consistent through the end of the year.
• Bengaluru’s organised retail segment has seen limited transactions driven by institutional capital, resulting in stable cap rates. There is a noticeable increase in demand for high street retail space within the city.
• In Hong Kong, high street shop rents beginning to show signs of recovery as tourism picks up at a faster pace, although local consumers' outbound spending has somewhat restrained the rebound in retail sales. The cap rate has expanded as rental growth increases from a low base, with select retail asset sales during the quarter offering attractive yields for investors.
• Metro Manila is witnessing numerous renovations and expansions of malls, contributing to a rise in retail vacancy rates from 15% in 2023 to 17% in 2024. Rents remain stable and property values are expected to follow suit.
• Leasing activity in Grade A malls in Mumbai has remained robust, as retailers anticipated a boost in average transaction duration (ATD) during the upcoming festive season. Despite the increased supply in the city and limited capital chasing deals in this asset class, cap rates are expected to remain within the current range.

Industrial sector

• Cap rates for the industrial sector in Auckland are stabilising after a lengthy easing cycle. Development activity has slowed, which is expected to limit the increase in vacancy rates observed throughout 2024.
• In Bengaluru, investor sentiment in the industrial asset class has remained largely unchanged, reflected in the stability of the cap rate across the overall market.
• Hong Kong has experienced low transactions volumes; however, investment activity surged quarter-over-quarter due to a notable high-quality logistics transaction in Q3 – the LiFung Centre.
• In Jakarta, industrial demand is primarily driven by the automotive sector, data centers, and modern warehouses catering to E-commerce, Fast-moving consumer goods (FMCG) and logistics. This growth has been consistent with minimal variation.
• Seoul’s industrial investment activity has improved, alleviating concerns about oversupply in the market.

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