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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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