Market Outlook

High interest rates, a slow recovery in mainland China and geopolitical tension weighed on the Asia Pacific real estate market in 2023. While these concerns are set to persist into 2024, CBRE expects an upturn to commence by mid-year.

From an economic perspective, the U.S. economy is poised for a soft landing in 2024, and the downward interest rate cycle in Asia Pacific is expected to commence mid-year.

The office market will continue to witness a supply boom and occupiers will leverage the higher availability to drive flight to quality and workplace optimisation. Prime office and green space will see growing demand.   

In the retail space, despite a cautious approach to CapEx and store network planning, retailers are poised to capitalise on favourable market conditions to upgrade and expand.

Logistics occupiers’ appetite for expansion is expected to moderate further, and occupiers will give closer scrutiny to real estate plans and capital expenditure.

Expectations are that while hotel ADRs should normalise in most markets, occupancy growth in well-managed assets should drive revenue growth.

Commercial real estate investment is expected to remain muted in H1 2024. However, H2 2024 will see an uptick in investment activity on the back of re-pricing and interest rate cuts.

This report was originally published in https://www.cbre.com/insights/books/asia-pacific-real-estate-market-outlook-2024

Cushman & Wakefield’s 2024 Asia Pacific Office Outlook provides supply, demand, vacancy and rent data forecasts for cities in Australia, China, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

REGIONAL OVERVIEW

Key Messages:

• Inflation, though largely improved, remains above target bands in most markets across the region; a ‘higher for longer’ interest rate scenario is anticipated.
• Asia Pacific economic growth is expected to slow but to remain in positive territory (3.5% to 4.0% real average annual growth) in 2024.
• Despite a weaker economic outlook, regional office demand is forecast to reach pre-pandemic levels in 2024—but above average levels of new supply will drive vacancy higher.
• Rental growth is forecast to remain flat in 2024 before slowly accelerating from 2025.
• Newer, high-quality buildings are likely to outperform given the ongoing flight to quality.

Against a volatile economic backdrop, the Asia Pacific office market remains steadfast and continues to grow. Approximately 50 million square feet (msf) of Grade A office stock was absorbed across the region’s top 25 cities during the first nine months of 2023, with a further 12 msf expected in the final quarter. Annual office demand in 2023, forecast at 62 msf, is an 11% improvement on last year’s 55 msf.

New supply in 2023 will total 109 msf, outstripping demand and causing vacancy to tick upwards to 17.6% from 16.1% in 2022. Rental growth has subsequently slowed and is likely to be down around 0.5% on a weighted average basis.

The outlook remains broadly skewed to the positive. Demand is forecast to increase to 83 msf in 2024 and to 87 msf in 2025, which would match pre-pandemic performance. However, waves of new supply are also expected, with nearly 235 msf of completions forecast over the next two years to place further upward pressure on vacancy, which is now expected to peak at 18.4% in 2024 and then hold steady through 2025. This will keep downward pressure on rents which are likely to remain flat in 2024, at the weighted regional average level, before slowly accelerating from 2025. Accordingly, the window of opportunity remains open for occupiers over the near term.

The year 2023 was an especially tough one for real estate. Declines in asset valuations, which had begun in the second half of 2022 in many markets, proliferated across a broader range of markets through the rest of 2023. Transaction volume also continued to fall through the year, with dealmaking often paralyzed by the standoff between potential buyers and sellers on pricing.

Investors will be hoping for a better 2024, where we find a floor in pricing that will return the market to more-normal levels of activity. When and how that happens remain to be seen. It may be through increased distress forcing sellers onto the market. Or we might eventually see interest rates start to fall, returning confidence to potential buyers. Whatever the details of exactly when and how we reach that point, the sudden market movements we’ve seen over the last 12 to 18 months have shifted the playing field. Investors are reassessing their real-estate allocations and strategies to mitigate significant risks but also exploit opportunities posed by this market dislocation.

Globally, inflation appears to be stabilising, and interest rates have possibly reached their peak, suggesting a potential soft landing for the global economy. However, several risks persist, including geopolitical tensions, economic downturns due to tighter credit conditions, and the possibility of a resurgence in inflation triggered by unexpected spikes in oil prices.

Our latest paper explores the impact on the Singapore office, industrial, retail, private residential, hotels, and investment markets.