Capital Markets

Asia Pacific has emerged as a dominant source and destination for global capital. Singapore, Hong Kong, China and Japan were among the top ten sources of global cross border capital in H2 2023. Notably, Singapore and Hong Kong were the second and thirds biggest sources of global cross border capital respectively.

Japan, China, Australia and Singapore were among the top ten destinations for global cross border capital in H2 2023.

Asia Pacific performed best in 2023, with investment volumes reaching 91% of their 10-year average. While North America reached 68%, the Europe, Middle East and Africa (EMEA) region reached just over half (52%) of its 10-year average. In 2023, global investment volumes were among the lowest since the global financial crisis with overall investment volumes at 75% of the 10-year average.

The region’s performance was backed by a significant pick-up in investment activities in Q4, primarily in December, signalling the region’s strong potential for recovery in the year ahead. Colliers’ global report highlighted that the forecasts for 2024 and 2025 present Asia Pacific’s strong growth story.

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There are signs that interest rates have peaked in some markets in APAC with expectation on more market activities and a gradual recovery in 2024.

The APAC real estate sector was experiencing a low transaction environment in Q4 2023. Owners, investors, and occupiers remained cautious about real estate investments with a lot longer due diligent process. However, the signs of peak interest rate in some APAC markets are resulting a more positive sentiment towards investments in 2024.

Key Highlights in Q4 2023:

Office Sector

• Transaction volume continued to be low across all major Australian office markets. The sales that have begun to complete are predominantly secondary grade assets with value-add potential. These sales are primarily being undertaken by syndicates. These transactions require a significant amount of time to complete due diligence and raise the required capital. The further interest rate rise that occurred in November 2023 continues to put pressure on capitalisation rates. The number of assets being listed and subsequently withdrawn due to pricing disconnect between vendors and purchasers suggests that there is still further cap rate softening to come in 2024.
• The rental rates for office segment have increased slightly in some micro markets of Bengaluru. This improvement was attributed to the commencement of the Mass Rapid Transit System and the overall improvement in connectivity. However, property values have not moved in tandem due to low transaction volume. As a result, the cap rates on the higher end of the range have decreased.
• No en-bloc office sales were transacted in Jakarta last quarter. Office assets along with the new phase of the public light rail transit have triggered investor interest. A huge supply is expected to enter the market. Corporate users have started looking for newly built offices either acquiring the whole building or leasing more space for expansion purposes.
• Office demand in Manila remains lethargic and there is an increase in supply pressure with new office buildings coming onto the market.

Retail Sector

• Retail has been experiencing a consistently low transaction environment for Australia as the market recalibrates based on the increased interest rate environment. Consumer confidence appears to be falling, impacting non-discretionary spending. We expect further cap rate softening into Q1 and Q2 2024 as the price differences between vendor and purchases expectations continues.
• In Bangkok, there were no significant retail transactions in the past quarter to evidence value movements. Retail rents have increased following the opening of some premium malls in core locations, which has pushed the cap rates up slightly. However, the rise in rental value for those premium stock is still yet to be seen whether it will establish a continuing upward trend in the immediate term.
• In the fourth quarter, rental rates in prime areas in Beijing and Shanghai have shown improvements. This upturn can be attributed to the resurgence of consumer engagement in these areas. Despite the overall growth in total retail sales, it will take some time for rental rates to fully adjust and align with the improved consumption. Property owners and landlords are taking a cautious approach to rental growth, allowing adequate time for rents to align with evolving consumption patterns and market condition.
• The retail occupancy and rental performance in Hong Kong have generally remained healthy, thanks to robust domestic consumption. However, investors exhibit caution towards the retail sector due to its high vacancy rate.

Industrial Sector

• Australian industrial market drove the movement in the industrial sector in this survey. The current rental levels are expected to peak in 2024 as a result of tenants’ gross occupancy costs hitting their limit. Nonetheless, vacancy rates are still low across Western Sydney, prime industrial area, which should see rents hold at current levels throughout 2024. However, incentive levels are starting to creep upwards.
• The transactions concluded in Q4 have resulted similar cap rates as the last quarter in Jakarta. Major logistic players have been observed looking for land or joint venture partners.
• The industrial cap rates remained flat owing to stabilization of yields and asset values as sustained demand from the third party logistic (3PL) players, eCommerce and fast-moving consumer goods (FMCG) sectors is countered by new supply in Mumba

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Asia Pacific Trends Q3 2023 features in-depth and up-to-date data and insights on the Office, Retail, Industrial & Logistics and Investment markets across the region. Key trends include:

Office:

• Leasing demand remains weak as occupiers stay cautious
• Mainland China, India and Tokyo account for bulk of activity
• Transactions take longer to close due to slow approvals
• Non-banking financial and tech firms drive demand
• Most markets set to remain in favour of tenants

Retail:

• Retail sales moderate but travel demand continues to provide strong tailwinds
• Retailers stay in expansion mode; Location remains key as demand focuses on prime locations
• Consumer demand for unique experiences drives leasing for non-traditional retail space
• Japan remains most upbeat market thanks to strong tourist inflows
• Leasing demand projected to remain robust in coming quarters

Industrial & Logistics:

• Slowing regional economy continues to weigh on leasing activity
• Strong demand from ecommerce platforms and stable activity from 3PLs
• Supply pipeline remains significant
• Investment volume holds steady in the first three quarters of the year
• Leasing and investment volume forecasted to soften

Investment:

• Sentiment remains weak despite slight uptick in investment volume
• Re-pricing continues to constrain purchasing activity
• Retail and hotel assets witness stronger deal flow
• Japan remains most upbeat market
• Investment to stay subdued amid high interest rate environment

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CBRE professionals in Asia Pacific observe that investor risk appetite remains low amid a delayed recovery in investment activity. A majority of respondents expect a recovery from Q2 2024 onwards, amid limited expectations of interest rate cuts in the first half of 2024.

Selling pressure persists across most of the region, with the primary exception of India which is receiving increased buying interest from investors. Most investors – excluding private investors and institutional investors/LPs – also have higher intentions to sell than in Q1 2023.

The survey reveals that the price gap is widening for assets with strong fundamentals, such as multifamily, institutional-grade modern logistics facilities, prime shopping malls, cold storage and data centres.

While institutional-grade logistics remains the most popular sector for investors, interest in retail has increased. Slow re-pricing is prompting investors to seek alternative or niche sectors, with real estate debt strategies gaining traction among alternatives.

Cap rates are set to expand across Asia Pacific, reflecting a prolonged high interest rate environment, and as re-pricing lags behind the US and Europe.

This report was originally published in https://www.cbre.com/insights/figures/asia-pacific-cap-rate-survey-2023-q3

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