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With the Asia Pacific hotel market continuing to undergo structural change, hotel owners and operators are fine-tuning operational and branding strategies. Increased labour and utilities costs, limited new supply, and the prolonged peak of the interest rate cycle are among the driving factors.

Our latest report explores the key trends shaping the Hotels & Hospitality sector in Asia Pacific, including an analysis of the current market landscape, the latest activities of the major operators, asset management and investment trends, and ESG considerations.

Key trends:

  • Operators keep daily rates high as a result of limited supply, elevated demand and rising labour costs.
  • Major global operators continue to expand rapidly across Asia Pacific, with an increased emphasis on lifestyle brands.
  • Investment remains robust despite debt-related headwinds, and investors maintain preference for upscale+ assets with rebranding opportunities.
  • Adoption of sustainability and ESG initiatives continues; hotels with strong ESG initiatives are set to outperform.
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In the real estate market, the living sectors have become a dominant force, commanding the largest share of global transaction volumes last year. Investments in multifamily, Build-to-Rent (BTR), student accommodation, co-living, and senior living have grown. Countries like Japan, China, and Australia are leading this growth, although challenges such as escalating construction costs and regulatory complexities remain. The living sector’s resilience and potential for stable returns continue to attract significant investor interest, setting the stage for opportunities in the coming decade.

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Stay ahead of the curve with APREA’s exclusive monthly update tracking the performance of China REITs.

APREA C-REITs Roundup provides the latest info and developments in C-REITs. Available for APREA members only, this important resource is your key to navigating the landscape of C-REITs.

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Asian Real Estate Securities continue to oscillate in 2024 as rates expectations drive performance of REITs, Developers, and Asian currencies. One positive note is that globally fund managers are said to be the most underweight the real estate sector they have been since 2009, a year when entering the sector delivered several consecutive years of strong absolute and relative performance. Despite increases in yields and hawkish comments from Fed officials, the corrections have been shallow and on low volumes. MSCI changes which resulted in the deletion of several Asian REITs from their index had been an overhang and that was removed at month-end, enabling us to potentially see some improvements after well-flagged deletions led to underperformance as passive funds were sellers. We added to positions that were impacted as a result of these changes. Sentiment in the near term will likely be dictated by US employment data to be released at the end of the first week of June. Last month’s report showed an increase in the unemployment rate so any continuation of this trend may shift rate expectations yet again which would be positive for Asian REITs and currencies. Large discretionary consumer companies in the US have noted that lower-income consumers have been notably weaker, possibly as pandemic savings have been run down and higher costs crimp disposable income. Results and guidance behind us, the drivers for REITs and Developers are likely to be macro, but we could also start to see some uptick in corporate activity and buyback announcements.

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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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The Inclusive Cities Barometer evaluates the inclusiveness of 44 EMEA cities and 35 APAC cities, based on just under 9,000 data points, 110 metrics across 4 dimensions and 12 subdimensions.

The cities represented in the Barometer are at varying stages of their journey towards more inclusive and vibrant urban environments. Instead of ranking cities by performance, our Barometer measures their progress relative to these starting points, highlighting exemplary successes and providing actionable roadmap for improvement.

Through the Inclusive Cities Barometer, we aim to guide and inspire real estate industry stakeholders towards creating more inclusive and socially sustainable urban environments. Access the hub to find out:

  • What is urban inclusion and how we can quantify it
  • How your city is performing
  • The pathways to inclusive cities
  • The role of real estate in driving social value in the built environment
  • How to drive social value across the real estate lifecycle
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CBRE’s latest leasing market sentiment index reveals that leasing sentiment in most major Asia Pacific markets cooled but stayed in positive territory:

  • The lower level of tenant enquiries and site visits was mainly contributed by the mainland China office sector. Other markets, particularly India and Japan, continue to record robust enquiries from the retail sector.
  • While expansionary retail demand is supporting market activity, office space demand has softened since the previous survey. Demand for flexible office space weakened, especially in Australia and Southeast Asian markets.
  • Following the trend witnessed in the previous quarter, half of respondents anticipate rents and incentives to remain unchanged. Respondents in Japan held the most positive views regarding the office and retail rental outlook, while those in Greater China expected further declines in office rents.
  • Mainland China and Hong Kong SAR remain laggards in leasing sentiment, with around 40% of respondents in the former currently engaged in “stay vs go” analysis or renewal exercises, indicating low intentions to expand.
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Please find below the rebalancing results (effective 24 June 2024 start of trading) for the:

  • GPR/APREA Investable 100 Index
  • GPR/APREA Investable REIT 100 Index
  • GPR/APREA Composite Index
  • GPR/APREA Composite REIT Index (indicated with an asterisk)

GPR/APREA Investable 100 Index

INCLUSIONS

CHNShimao Group Holdings Ltd
JPNMitsubishi Estate Logistics REIT Investment Corporation
MYSUEM Sunrise Bhd
TWNCathay Real Estate Development Co Ltd
TWNHuaku Development Co Ltd
TWNKindom Development Co Ltd
TWNYungshin Construction & Development Co

EXCLUSIONS

AUSCharter Hall Long WALE REIT
CHNAgile Group Holdings Limited
CHNKWG Group Holding Limited
CHNPowerlong Real Estate Holdings Limited
JPNJapan Logistics Fund
THAAP Thailand PCL

GPR/APREA Investable REIT 100 Index

INCLUSIONS

AUSCharter Hall Group
INDEmbassy Office Parks REIT
JPNTosei REIT Investment Corporation

EXCLUSIONS

CHNYuexiu REIT
JPNSankei Real Estate Inc. 
THACPN Retail Growth Leasehold REIT

GPR/APREA Composite Index

INCLUSIONS

AUSAVJennings Ltd
IDNPT Maha Properti Indonesia Tbk
MYSConsolidated Bhd
TWNWe & Win Development Co Ltd

EXCLUSIONS

None

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With the Asia Pacific commercial real estate market sitting at the top of the interest rate hike cycle, attention continues to focus upon the sizable volume of outstanding senior loans due to mature; a situation which could lead to a substantial funding gap in the coming years.

CBRE estimates that there is US$257 billion of outstanding senior commercial real estate debt in Asia Pacific, leading to a projected funding gap of US$8.4 billion between 2024-2026.

CBRE expects a funding gap to arise in markets where there is still some degree of capital value decline expected over the next three years. By total volume, Australia will have the biggest funding gap (US$4.6 bln) between 2024-26, followed by mainland China (US$2.9 bln).

The gap will be highly concentrated in the office sector, with CBRE expecting some further repricing over the remainder of 2024.

This report explores the commercial real estate debt market in Asia Pacific and the factors underpinning the debt funding gap in the region, including the markets and sectors that are likely to face the biggest gap, and implications for investors.

This report was originally published in https://www.cbre.com/insights/reports/the-debt-funding-gap-for-asia-pacific-real-estate/

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