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Out of the 19 markets covered in this Asia Pacific report, 11 experienced movements in cap rates in Q1 2024.

The Asian market remains stable, without any factors driving movements in cap rates. Australia and New Zealand have driven the changes in the region, with an increase in cap rates in all the surveyed cities, particularly in the office and industrial sectors.

Key Highlights in Q1 2024

Office sector

• In Australia, after a 72% decrease in transaction volumes in 2023, the first quarter of 2024 has seen only a limited number of completed sales. Sales to date over Q1-24 have continued to indicate a softening of cap rates.
• Bangkok’s office sector has experienced a slight increase in cap rates following a rise in select prime rental rates, despite limited movement in sales transactions.
• Beijing's office has seen a noticeable decline in demand, resulting in a city-wide vacancy rate reaching double-digit year-on-year growth, currently at 20.7%. The en bloc transaction is currently driven by end-user-occupiers who prioritize suitability and affordability over vacancy and rental performance of the property. Investors remain cautious due to concerns about oversupply and declining rent, resulting in higher expectation for cap rates.
• Additional office supply in Jakarta is expected to enter the non-CBD areas, as many corporates are optimising existing office space instead of expanding or relocating. This is due to the adoption of a hybrid working model, which continues to put pressure on the rental rates and occupancy in CBD office spaces.
• Shanghai’s Grade A office market is still struggling to attract leasing demand, leading to downward pressure on rent. The upcoming supply peak in 2024 is likely to further increase pressure on the leasing market, influencing investor’s confidence and driving up cap rates.

Retail sector

• The Beijing retail sector has demonstrated stability and witnessed growth. This positive performance can be attributed to increased foot traffic and rising revenue in shopping malls, particularly during the Chinese New Year (CNY) holiday period in Q1. Shopping malls will need to remain at the forefront with distinctive features to attract consumers to achieve sustainability in the marketplace.
• Hong Kong’s retail investment sector has been primarily driven by end-users and local investors, with cap rate remaining stable. Rental performance has generally remained healthy. Investors are still cautious about purchasing retail assets, being mindful of the vacancy rate.
• The number of visitors to malls in Jakarta has grown by 15% to 20% compared to last year. Some existing brands are expanding their operations, and new brands have also entered the Indonesian market. Investors still remain cautions due to high competition from new malls entering the market.
• Shanghai’s retail sector has also benefited from the robust tourism industry during the CNY holiday. Overall, sales and leasing demand performed well in Q1. The reflection of retail leasing activities and space uptake takes time to manifest in the investment market, resulting in largely flat cap rates during this quarter.

Industrial sector

• Bangkok industrial saw upward movements in sales transactions for warehouse facilities and standard factory buildings. This was caused by strong foreign direct investment intended for large scale users of automotive supply parts (including electronic vehicles) as well as electronics. On the other hand, the rental market remained the same, with no major rental movements noticed.
• Beijing’s industrial sector is currently influenced by end-user. Neighbouring cities such as Tianjing and Langfang have witnessed a decline in rental rates and an upturn in occupancy, which has had an adverse impact on the capital city’s industrial market. The intensified competition among cities to attract tenants has driven demand to shift away from the gateway cities and further weakened investor confidence in the industrial sector.
• The industrial market in Hong Kong remains a high priority for many investors. Import (9.7%) and export (16.6%) figures were positive in the first two months of 2024, which helped keep the industrial market cap rate stable.
• Stressed by the massive new logistics supply in Shanghai, investor prospectus continued to weaken in Q1, resulting in more cautious investment sentiment and higher industrial cap rates.

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