High interest rates, a slow recovery in mainland China and geopolitical tension weighed on the Asia Pacific real estate market in 2023, resulting in a subdued year for leasing and investment. While these concerns are set to persist into 2024, an upturn is set to commence by mid-year, leading CBRE to adopt “A Tale of Two Halves: Headwinds Followed by Recovery” as the central theme of our 2024 Asia Pacific Real Estate Market Outlook.
On the economic front, the U.S. economy is poised for a soft landing in 2024, with inflation falling and the labour market softening. Asia Pacific GDP growth is forecasted to slow to 3.5% in 2024 from last year’s 4.3%. While the recovery in mainland China remains sluggish, the coming months will see the launch of additional supportive measures to buoy economic growth.
The downward interest rate cycle in Asia Pacific is expected to commence in mid-2024 and will come on the back of easing CPI-inflation in most markets as well as widely anticipated U.S. interest rate cuts, which are set to start in May. Exceptions include Japan, where the Bank of Japan (BoJ) may raise its policy rate, although any increases are likely to be marginal and should not have much impact on investors’ borrowing costs; and mainland China, which is expected to maintain loose monetary policy.
CBRE expects an upturn in Asia Pacific real estate market in the second half of 2024, driven by private investors and corporates seeking high quality assets, according to the company’s 2024 Asia Pacific Real Estate Market Outlook.
While the U.S. economy is increasingly likely to experience a soft landing in 2024, with inflation decreasing and a less robust labour market, the Asia Pacific region maintains the strongest growth globally, primarily driven by India. CBRE expects that the downward interest rate cycle in the region will commence in mid-2024, driven by easing inflation and anticipated U.S. interest rate cuts.
“We expect real estate investment activity in Asia Pacific to recover in the second half of 2024, as investor sentiment improves with lower borrowing costs and more asset repricing,” said Dr. Henry Chin, Global Head of Investor Thought Leadership & Head of Research, Asia Pacific for CBRE.
“Flight to quality is applicable to all commercial property occupiers. While cost control remains a top priority for office occupiers, workplace optimisation and sustainability requirements are key focuses as well, driving demand for high quality premium office space in city centres and ESG-compliant buildings,” said Ada Choi, Head of Occupier Research, Asia Pacific for CBRE. “We expect solid demand from retailers with rents forecasted to bottom out in the region, while logistics rents are likely to be flat in 2024.”
CBRE’s report details the company’s 2024 Asia Pacific market outlook for multiple sectors.
Capital Markets
CBRE forecasts muted commercial real estate investment for the first half of 2024 due to limited yield expansion and high interest rates. As interest rates start to decline in the second half of 2024, investor sentiment is expected to improve, leading to increased market activity. CBRE forecasts a 5% to 10% recovery in total investment volume in Asia Pacific for 2024 compared with 2023 levels.
Office
CBRE forecasts the new Grade A office supply in Asia Pacific to reach 70 million sq. ft. in 2024, with vacancy rates peaking and hovering at all-time high of 20% over the next three years. Office demand is expected to slightly improve in 2024, with regional gross leasing volume growing by around 0 to 5% year-on-year. The tech sector is anticipated to be the strongest driver of expansionary demand, exhibiting faster revenue growth.
Retail
Although the retail sector in Asia Pacific is expected to be impacted by weaker consumer spending due to slower economic growth, retailers are set to leverage favourable market conditions to upgrade and expand. Most retail markets in the region are likely to see modest rental growth, with prime core retail properties continuing to outperform due to solid leasing demand.
Industrial & Logistics
Appetite for expansion among Asia Pacific industrial and logistics occupiers should moderate further in 2024. Leasing activity in 2024 will primarily be driven by occupiers seeking to upgrade to prime core logistics space with modern transport networks and better technology, along with compliance with sustainability requirements. The availability of space is expected to increase in 2024 due to ample development pipeline and growing sublease space, limiting opportunities for rental growth and leading to uneven vacancy distribution.
Hotels
The recovery in airline capacity remains slow in Asia Pacific, with a gradual return of mainland Chinese tourists. CBRE forecasts that hotel average daily rates (ADRs) in most markets will normalize. Occupancy growth in well-managed assets is expected to drive revenue growth. Operators demonstrating flexibility and capitalising on the upswing in tourism, particularly in Japan and Korea, are likely to benefit the most.
