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The Green Transformation of Logistics Real Estate: A Practical Guide for Owners and Investors

Subject: This report examines the increasing demand for environmentally friendly logistics real estate in Asia Pacific and provides guidance for owners and investors on how to respond to this trend.

Introduction: Growing emphasis on sustainability is influencing occupiers' real estate decisions. CBRE's June 2024 Asia Pacific Leasing Sentiment Survey highlights occupier preferences for renewable energy, energy efficiency, green certifications, and EV charging infrastructure.

#1: Renewable Energy Supply: Limited green electricity supply in Asia Pacific, due to heavy reliance on coal, makes renewable energy a top priority for occupiers. Landlords are responding by incorporating on-site solar energy generation and connecting to renewable energy grids. Government initiatives, such as mandatory solar deployment in Singapore, are accelerating adoption. Challenges include long payback periods for solar installations and the intermittent nature of solar power. Power Purchase Agreements (PPAs) offer an alternative for accessing renewable energy in markets with open electricity markets. The report includes a table summarizing business models for landlords to increase renewable energy supply, with case studies of Sabana Industrial REIT, SF REIT, and Charter Hall.

#2: Green Building Certification: Green building rating systems (LEED, CASBEE, BEAM Plus, NABERS) assess building performance and material usage. Adoption in the industrial and logistics sector is growing, but challenges remain due to the varying energy demands of different occupiers. Landlords are conducting cost-benefit analyses to prioritize green certifications for their portfolios. Goodman's Japan logistics portfolio is cited as an example of high green certification achievement.

#3: Energy Conservation: Improving energy efficiency is crucial for achieving climate goals. Real estate accounts for a significant portion of global energy demand. Strategies for reducing energy consumption include high-performance heat pumps, HVAC, insulation, green walls, and eco-friendly refrigerants. Conversion to LED lighting and the use of natural light are also important. Waste management and the use of green building materials are additional areas of focus. Goodman's green waste program and racking reuse partnership with Dexion Logistics are highlighted.

#4: Charging Infrastructure for Electric Vehicles (EVs): The electrification of delivery fleets is driving demand for on-site EV charging points in industrial and logistics buildings. Electrification is also extending to Material Handling Equipment (MHE). Landlords need to upgrade energy-related features to support increased energy demand from EVs and MHE. A table provides examples of current and target EV adoption rates for several logistics companies (DHL, SingPost, Australia Post, Flipkart, CJ Logistics).

#5: Other Initiatives: Logistics property owners need to address climate change risks by conducting asset-based climate risk assessments. Green data sharing and green lease provisions are also gaining importance, with occupiers seeking greater collaboration with landlords on environmental performance tracking. Green lease adoption varies across the region, with Japan leading in implementation.

Recommendations: Landlords and investors should evaluate green investment needs, consider disposing of older assets with limited enhancement potential, and utilize green financing for retrofitting and upgrading. Government financial support programs are also available in some markets. The report concludes with a table outlining strategies and solutions for both occupiers and landlords.

Asia Pacific Leasing Market Sentiment Index – June 2024

Subject: This brief presents findings from CBRE's leasing market sentiment survey, providing an overview of leasing activity and sentiment across the Asia Pacific region.

Leasing sentiment cools but remains in positive territory: Tenant enquiries and site inspections have moderated, particularly in the mainland China office sector. Rental outlook remains steady, with expectations for rents and incentives to remain unchanged in many markets. Space demand is holding firm for retail but softening for office, with flexible office space demand weakening in Australia and Southeast Asia. Leasing sentiment has cooled slightly in most markets but remains positive, with Japan showing strengthening sentiment driven by retail optimism. Mainland China and Hong Kong SAR are lagging, with many respondents engaged in "stay vs go" analyses or renewals.

Individual sector results: The brief includes charts illustrating site inspection and rental movement trends for the office, retail, and industrial sectors.

Expansionary demand in retail sector remains upbeat; weaker appetite for offices: Charts depict the nature of enquiries received (new setup, expansion, upgrading, relocation, renewal, downsizing, etc.) for the office, retail, and industrial sectors.

Survey Profile: The survey was conducted from May 20th to 28th, 2024, with 261 responses from CBRE leasing professionals across Asia Pacific. A chart shows the breakdown of respondents by market and sector (office, retail, industrial).

APAC Hotels & Hospitality Market Update – Hong Kong SAR

Subject: This brief provides an update on the hotel and hospitality market in Hong Kong SAR, covering tourism, performance, supply, investment, and key trends.

Executive Summary & Outlook: Hong Kong SAR's hotel performance rebounded strongly in 2023 following the removal of pandemic restrictions. The Lunar New Year holiday in February 2024 saw strong occupancy and room rates. Further operational growth is expected in 2024, driven by occupancy recovery in well-managed assets, particularly in the luxury and upscale segments. The investment market faces challenges due to high borrowing costs, but private investors are expected to drive acquisitions with a value-add and opportunistic strategy. Co-living, student accommodation, and serviced residence operators are expected to expand further.

Tourism: Inbound tourism recovered significantly in 2023, with mainland Chinese tourists accounting for the majority of arrivals. Per capita spending by tourists has increased. Full recovery of international tourism is expected by the end of 2025.

Key Tourism Infrastructure Development: The report lists key tourism infrastructure projects with their completion timelines, including the Kai Tak Development Area, 11 SKIES, the third airport runway, the West Kowloon Lyric Theatre Complex, and the expansion of the HKCEC.

Performance: Hotel performance indicators (occupancy rate, ADR, RevPAR) are presented, showing strong recovery in 2023 and early 2024. Hong Kong SAR has experienced the greatest RevPAR recovery in Asia Pacific in early 2024. ADRs in Hong Kong SAR remain relatively affordable compared to other regional markets.

Supply: New hotel supply is expected to be limited in the medium term. Most new supply is in the Upscale+ segment. A list of key hotel openings is provided.

Investment: Hotel investment transactions declined in 2023 due to elevated interest rates. Investors are exploring opportunities in co-living and student accommodation. A decline in borrowing costs is expected in mid-2024. Recent key hotel transactions are listed, along with a chart showing commercial real estate debt costs.

Key Trends: The report discusses key trends impacting the hotel market, including the introduction of a Hotel Accommodation Tax, the Top Talent Pass Scheme, and the Hong Kong Tourism Budget 2024.

Investment & Taxation Guide: This section provides information on foreign investment, property taxes, and stamp duty in Hong Kong SAR.

Q1 2024 Asia Pacific Cap Rate Survey

Subject: This report presents findings from CBRE's Q1 2024 Asia Pacific Cap Rate Survey, providing insights into investor sentiment, market performance, and cap rate trends.

Market performance and appetite: Investment recovery is delayed due to limited risk appetite and delayed rate cuts. Investment volume in Japan continues to grow despite anticipated rate hikes. A chart shows when clients expect investment activity to recover.

Investor preferences: Flight-to-quality demand continues, with hotel and residential sectors gaining interest. Charts illustrate net buying/selling intentions among clients and across different investor types (real estate funds, property companies, REITs, banks, etc.).

APAC cap rate expansion continues: Cap rates in Australia are expected to expand further, while those in Japan are projected to remain stable. More pronounced expansions are anticipated among secondary assets. Charts show weighted NAV discount/premium for REITs and Asia Pacific CRE yields.

Optimal buying window will open in H2 2024: Interest rates have peaked in most APAC economies. Investors should aim to complete acquisitions before rate cuts. A chart shows investors' views on major challenges facing real estate investment.

Investment demand by sector: Hotel and multifamily are gaining traction. Charts illustrate investor interest in different asset types and alternative sectors (real estate debt, data centers, healthcare, etc.).

Summary table of indicative cap rates: Tables present indicative cap rates for Grade A office, shopping malls, logistics, hotels, and data centers across various Asia Pacific markets.

Definitions: The report provides definitions of cap rates and related terms.

Survey Profile: The survey was conducted from April 1st to 17th, 2024, with 136 responses from CBRE Capital Markets and Valuation & Advisory Services professionals across Asia Pacific. A chart shows the percentage of respondents by market.

APAC Real Estate Chief Sustainability Officer Survey

Subject: This report presents findings from a joint survey conducted by CBRE Asia Pacific Research and the U.S. Green Building Council (USGBC) on the role of Chief Sustainability Officers (CSOs) in the real estate industry.

Introduction: Real estate plays a critical role in decarbonization. The increasing importance of ESG has led to the establishment of CSO roles to oversee sustainability initiatives.

Survey Overview: The survey was conducted from September 1st to October 20th, 2023, with respondents from various markets in Asia Pacific.

Highlight of Responses: Key findings are highlighted, including the prevalence of CSO roles, asset owners' net-zero targets, and the increasing use of green finance.

Contents: The report outlines the main sections, including the role of the CSO, obstacles to achieving net zero, the green status of commercial real estate, and conclusions and solutions.

Having a CSO or Head of ESG is seen as essential: Most landlords and investors have established designated roles for sustainability. The CSO role is relatively new, with many positions established in the past three years. Charts show the prevalence of CSO roles and when they were established.

CSOs have a broad remit to track ESG project progress and enhance transparency: The primary focus of CSOs is ESG monitoring, reporting, and project implementation. They are also responsible for fostering corporate change and aligning with ESG goals. A chart illustrates the key responsibilities of sustainability personnel.

Companies have a conservative attitude towards committing to new ESG resources: Slower economic growth has led to a cautious approach towards new ESG resources. Charts show growth plans for sustainability headcount and budget plans for ESG.

Most markets pledge to achieve net-zero emissions in 2050: Most Asia Pacific markets aim for net zero by 2050, but some larger markets have later targets. A chart shows carbon emission trends.

2050 is the main deadline for asset owners to achieve net-zero targets: About half of surveyed asset owners target 2050 for net zero, while many occupiers aim for 2030. Charts show net-zero targets and landlords' progress towards achieving them.

What is included in carbon emissions?: The report explains the scope of carbon emissions (Scope 1, 2, and 3) and their relevance to ESG reporting.

Top companies with CSOs are reporting Scope 1, 2, and 3 emissions: Despite challenges in measuring Scope 3 emissions, many landlords and investors report on all three scopes. A chart shows reporting practices for carbon emissions.

Infrastructure support & financial hurdles are major challenges: Limitations of city infrastructure, lack of policy incentives, and financial hurdles are major challenges to achieving net zero. A chart illustrates the main challenges identified by respondents.

How green is Asia Pacific's electricity grid?: The carbon intensity of Asia Pacific's electricity grid is higher than in Europe and the U.S. A chart shows carbon intensity levels for major markets.

Energy efficiency is crucial for achieving net zero: Landlords rely on energy savings to achieve net zero. A chart shows how organizations intend to achieve their net-zero targets.

Sustainability certifications in Asia Pacific: The report lists various green building rating systems used in different Asia Pacific markets.

Adoption of green certified buildings is accelerating: Asset owners are increasing the inclusion of green buildings in their portfolios. A chart shows the percentage of portfolios participating in sustainability benchmarking.

Availability of green office space lags market demand: Green building adoption varies across Asia Pacific markets. A chart shows the percentage of green-certified office stock.

Green finance has been adopted by 75% of asset owners: Green financing is used for various sustainable projects. A chart shows the areas where organizations use green finance.

Adoption of DEI is growing slowly: Diversity, Equity, and Inclusion (DEI) adoption is growing slowly, with international investors showing more focus. A chart illustrates companies' approaches towards DEI.

Placemaking the focus of DEI and community initiatives: Most respondents factor DEI into corporate strategy, focusing on placemaking initiatives. A chart shows how real estate companies promote DEI and community engagement.

Balancing business aspirations and sustainability is a key concern: Balancing business aspirations with ESG priorities is a main concern. A chart shows top concerns regarding ESG.

Landlords and tenants share the same responsibility: Landlords need to align ESG strategies with tenants' sustainability goals. A chart describes responsibility initiatives regarding landlord-tenant relations.

Recommended strategies: The report recommends strategies for landlords and investors, including aligning net-zero goals with tenants, matching ESG objectives with business aspirations, and playing a greater role in policymaking.

Electric Vehicles and Real Estate: The Case of Hong Kong

Subject: This report examines the impact of electric vehicle (EV) adoption on the real estate market in Hong Kong, focusing on charging infrastructure and related trends.

Executive Summary: EVs are becoming increasingly important for achieving net-zero emissions. Property owners play a key role in facilitating the transition to green transportation. The report analyzes EV demand in Hong Kong, assesses charging infrastructure requirements, and explains the impact on the real estate market.

The need for cleaner and greener vehicles: Transportation is a major source of carbon emissions. The growing adoption of EVs is driven by concerns about climate change, government regulations, and technological advancements. A chart shows the number of EVs worldwide.

Car manufacturers' green roadmap: Major car manufacturers are implementing plans to increase EV production and sales. A chart summarizes these plans.

EV adoption in Hong Kong: EV adoption in Hong Kong is growing rapidly, driven by factors such as lower ownership costs (tax concessions), lower running costs (cheaper electricity), and a wider range of available models. Charts show the number of private cars and EVs in Hong Kong, the share of EVs in car sales and stock, estimated running costs, petrol and electricity prices, and EV registration trends.

Home-charging remains a challenge: Installing private EV chargers is challenging in Hong Kong due to the prevalence of stratified building ownership. The government is subsidizing charger installations, but progress has been slow. A chart shows the progress of the EV-charging at Home Subsidy Scheme (EHSS).

Demand and space for more public chargers: Public chargers are essential due to the limited availability of private chargers. Commercial buildings are leading in the provision of public chargers. The report discusses the distribution of public chargers across different property types. Charts show the distribution of all EV chargers and public EV chargers, the distribution of public chargers in commercial complexes, and the availability of chargers in Grade A office buildings.

Distribution of public EV chargers: The report analyzes the distribution of public EV chargers across different districts in Hong Kong. A chart shows the distribution of chargers for public access.

EVs poised for rapid and organic growth: The number of private cars in Hong Kong is projected to continue growing, albeit at a slower pace. The share of EVs is expected to increase significantly. A chart shows projected growth of EVs.

Sustained demand for public chargers: The shortage of charging facilities persists. The report estimates future demand for EV chargers and projects a potential shortage.

Aligning charging modes with real estate: The report discusses different EV charging modes (Mode 1, 2, 3, and 4) and their suitability for different property types. A chart shows public EV chargers by property type and charging speed, along with a table estimating charging times for different modes.

Minimizing risks: The report discusses different EV installation models (buy-and-own, lease, third-party charging station) for landlords and carpark owners.

Other real estate related impacts: The growth of the EV industry is expected to generate demand for various types of commercial real estate, including R&D hubs, battery recycling and storage facilities, car showrooms, and maintenance workshops. A chart shows leasing volume by EV dealers.

Technological innovation and implications: The report discusses the evolution of green automotive technology, including fuel cell vehicles, advanced biofuels, and cleaner internal combustion engines. The potential impact of wireless charging and swappable batteries is also discussed.

What does EV adoption mean for commercial landlords?: The report summarizes the implications of EV adoption for commercial landlords, emphasizing the need for charging infrastructure, the importance of aligning charging modes with different property types, and the potential for increased demand for related real estate.

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2024 Real Estate Market Outlook Mid-Year Review – Asia Pacific

Subject: This report reviews CBRE's initial 2024 market outlook for the Asia Pacific region, assessing forecast accuracy and providing updated projections.

Foreword: The foreword welcomes readers to the mid-year review and briefly summarizes key updates to the original outlook.

Overall Forecast Accuracy: The report acknowledges the accuracy of the initial forecasts and highlights key revisions.

Economy: The initial forecast predicted a soft landing for the U.S. economy and slower GDP growth in Asia Pacific. The mid-year review notes that recession fears in the U.S. have faded, leading to an upgraded GDP growth forecast for Asia Pacific. Mainland China's slow growth remains a risk. Interest rate cuts are anticipated in the U.S. and across Asia Pacific (except mainland China). The political landscape has remained stable. Charts show employment growth and interest rate outlook.

Investment: The initial forecast anticipated muted investment in H1 2024 and an uptick in H2 2024. The review notes that a full recovery has not yet materialized, and the full-year forecast has been slightly downgraded. Investors remain focused on industrial & logistics and hospitality assets. A chart shows changes to the 2024 yield forecast.

Office: The initial forecast predicted a supply boom and increasing vacancy in Asia Pacific. The review confirms the oversupply trend and record high vacancy. Cost remains a key driver for occupiers. Gross leasing volume is expected to see modest growth. Rental growth is expected to slow or stagnate in H2 2024. A chart shows H1 2024 YTD and 2024F office rental forecast.

Retail: The initial forecast anticipated weaker consumer spending and moderate rental growth. The review notes that retail sales growth has moderated, and retailers are adopting a more cautious approach. Rental recovery will be driven by prime assets. A chart shows H1 2024 YTD and 2024F retail rental forecast.

Logistics: The initial forecast predicted moderating occupier demand and increasing availability. The review confirms the demand normalization and increased vacancy. Rental growth has decelerated, and the outlook has been downgraded. A chart shows H1 2024 YTD and 2024F logistics rental forecast.

Hotels: The initial forecast anticipated a gradual recovery in airline capacity and tourism. The review notes significant growth in airline demand and improved RevPAR performance, driven by occupancy growth. Charts show airport throughflow and RevPAR changes.

2024 Asia Pacific Office Occupier Survey

Subject: This report presents findings from CBRE's 2024 Asia Pacific Office Occupier Sentiment Survey, providing insights into hybrid working, portfolio planning, workplace preferences, and the role of ESG and technology.

Key Findings: The report highlights key findings, including the importance of cost for occupiers, the growing use of unassigned seating, and the demand for flexible office space with event space.

Office utilisation rates have stabilised: Over 60% of occupiers report stable office attendance, indicating the embrace of flexible/hybrid working. A chart shows the acceptance of the current state of office attendance.

Actual attendance is aligned with company expectations: Employer expectations and employee behavior regarding office attendance are closely aligned. A chart shows office attendance expectations and actual visits.

Resetting thinking about office utilisation: The report discusses the need to rethink how office utilization is measured and interpreted, introducing three key metrics: peak, average, and trough utilization.

Region outperforms but still opportunities to optimise workplace: Asia Pacific shows higher peak office utilization rates compared to Europe and the U.S. A chart shows office utilization rates across portfolios.

Peak attendance rarely occurs on a Friday: CBRE's analysis reveals peak office attendance is concentrated mid-week. Fridays are rarely a peak day. The report discusses initiatives to boost Friday attendance. Charts show peak day trends and initiatives.

Office attendance protocols are mostly at managers' discretion: Office attendance policies and protocols have tightened, but enforcement is often at the discretion of managers. Charts show office protocol enforcement and policy enforcement protocols.

Occupier expansion still outweighs contraction: Expansionary sentiment is weaker, but occupiers are still more likely to increase space than reduce it. A chart shows occupiers' appetite for space over the next three years.

Cost remains the key factor driving renewal and relocation decisions: Cost is crucial for both lease renewals and relocations. Charts show factors influencing these decisions.

Transportation and F&B options are the top building selection criteria: Occupiers prioritize accessibility and convenience when selecting buildings. A chart shows the most sought-after building features.

Occupiers are looking to create people-centric and efficient workplaces: Enhancing employee experience and boosting productivity are top workplace priorities. A chart shows workplace priorities.

Technology and sustainability will inform future workplaces: Technology upgrades and environmental sustainability are key considerations for future workplaces. A chart shows preferences for key criteria.

Unassigned seating and collaboration space remain key trends: Occupiers are recalibrating their workplaces, with unassigned seating and collaboration spaces remaining key trends. A chart shows preferences for key office features.

Desk sharing ratios are set to rise steadily: Desk sharing ratios are increasing as companies adopt unassigned seating. A chart shows changes in staff-to-desk sharing ratios.

Workspace per employee is likely to reach an equilibrium: Workspace per employee is expected to stabilize. A chart shows preferred workspace per employee.

Companies expect to make more use of flex space: The use of flexible office space is expected to grow. Charts show current and projected use of flex space and its use by company size.

Event space remains popular; rising demand for turnkey solutions: Demand for event space within flex offices is growing, along with demand for turnkey solutions. A chart shows preferred types of flexible office space.

Over half of occupiers pledge to achieve net-zero targets: 55% of occupiers have net-zero pledges, with many aiming for 2030 or earlier. A chart shows respondents with net-zero pledges and targets, along with a list of scheduled net-zero achievement dates for various locations.

Green certified buildings remain in demand: Green building certification is a highly desirable feature. A chart shows the impact of ESG features on building selection.

AI adoption remains at an early stage: AI adoption in corporate real estate is still at an early stage. Charts show AI adoption levels and the AI transformation process.

What are the obvious use cases to apply AI in CRE?: The report discusses potential use cases for AI in corporate real estate, including summarizing documents, processing data, real-time responses, and predictive analysis.

Larger occupiers lead progress towards digitisation: Larger companies are leading in the digitization of CRE functions. A chart shows the status of digitization.

Key Takeaways: The report summarizes key takeaways for both occupiers and landlords/investors.

Survey Profile: The survey was conducted from June 6th to July 12th, 2024, with ~130 responses. Charts show the breakdown of respondents by market covered and industry.

Brownfield land resumption in the Northern Metropolis: What does it mean for industrial real estate?

Subject: This report analyzes the impact of brownfield land resumption in Hong Kong's Northern Metropolis on the industrial real estate market.

Brownfield relocation set to unlock new industrial leasing demand: The Northern Metropolis project will require the relocation of existing brownfield users, creating new demand for industrial properties.

Large-scale brownfield displacement is underway: The Northern Metropolis project will transform the northern New Territories into an I&T hub. This will involve the relocation of a significant portion of brownfield operations, creating a substantial demand for industrial space.

Measuring Hong Kong's brownfield land bank: The report discusses the distribution and resumption schedule for brownfield land in the Northern Metropolis and adjacent areas. Maps and charts illustrate the distribution of brownfield sites, the land resumption schedule, and brownfield sites resumption by development area and time batch.

The brownfield economy: Brownfield sites are commonly used for various industrial activities, including storage, workshops, and vehicle-related operations. The report analyzes the existing usage of brownfield sites and their size distribution. Charts show the existing usage and number of sites by operation type and site area. A chart also shows planning applications for brownfield usage since 2019.

Impact on current landlords and occupiers of brownfield sites: The report discusses the options available to brownfield landlords and occupiers affected by land resumption, including paying market premium for development, receiving ex-gratia compensation, utilizing short-term tenancies, relocating to other brownfield sites, and moving to purpose-built buildings. A chart summarizes these options. Charts also show the four categories of brownfield sites in rural areas and the available Category 1 and 2 sites in the Northwest and Northeast.

Industrial real estate in the Northern Metropolis: The report analyzes the industrial real estate market in the Northern Metropolis, highlighting the limited vacancy and the projected future supply of industrial and logistics space. The government's plans to tender industrial and logistics sites are discussed. A chart shows major future land resources for logistics-related development. A map illustrates the land resumption schedule. A chart compares industrial/logistics relocation demand and supply.

Warehouse automation as a solution: The report discusses warehouse automation as a solution to the scarcity of industrial space and rising labor costs. It highlights the benefits of automation and the challenges in implementing it.

The need for high-specification industrial buildings: The report discusses the growing demand for high-specification industrial buildings with advanced features to accommodate emerging industries and high-value users.

Hong Kong logistics market outlook: The report provides an outlook for the Hong Kong logistics market, discussing the transformation of the import/export market, the growth of e-commerce, and Hong Kong's role as a logistics gateway in the GBA.

Conclusion: The report concludes that the Northern Metropolis project will exacerbate the shortage of industrial space in Hong Kong, creating both challenges and opportunities for the market. It emphasizes the need for innovative solutions such as warehouse automation and the importance of upgrading building specifications to meet future demand.

2024 Asia Pacific Real Estate Market Outlook - Hong Kong S.A.R.

Subject: This report provides an outlook for the Hong Kong real estate market in 2024, covering the economy, investment, office, retail, and industrial & logistics sectors.

Executive Summary: The report summarizes market performance in 2023 (improved leasing but downbeat investment) and provides an outlook for 2024 (stronger deal flow due to interest rate cuts).

Economy: The Hong Kong economy saw a mild recovery in 2023, driven by inbound tourism and domestic consumption. Challenges are expected to persist in 2024, but interest rate cuts could provide tailwinds. Charts show private consumption expenditure, retail sales growth, labor market conditions, trade flows, economic momentum, interest rates, capital availability, and stock market performance.

Investment: Investment appetite weakened in 2023 due to rising financing costs. A mild recovery is expected in 2024 as the cost of capital declines. Charts show top investment transactions, investment momentum, investor type, investment objectives, capital values, yields, and interest rates and carry.

Office: The office market saw a mild improvement in leasing activity in 2023, but vacancy continued to rise. Rents are projected to decline further in 2024, despite a potential improvement in deal flow. Charts show top leasing transactions, new leasing volume, source of demand, office vacancy, office supply, and office rental trends.

Retail: Business growth lagged retailers' expectations in 2023, but leasing demand remained healthy. Moderate consumption growth is expected to support healthy demand and moderate rental increases in 2024. Charts show top leasing transactions, new leasing volume, source of demand, high-street shop vacancy, retail supply, and high-street shop rental trends.

Industrial & Logistics: Low vacancy capped the rental correction in 2023 despite slower leasing momentum. Emerging sectors are expected to boost leasing demand in 2024. Warehouse rents are projected to contract slightly. Charts show top leasing transactions, new leasing volume, source of demand, warehouse vacancy, warehouse supply, and warehouse rental trends.

 

“Q2 2024 APAC Retail Trends” by CBRE highlights the key trends, leasing activities, and market outlook across the retail sector in Asia Pacific for the second quarter of 2024. It examines the retail landscape in mainland China, Korea, and Vietnam, focusing on consumer behaviour, brand expansion, leasing trends, and the overall state of the retail market.

 

1. Key Trends

 

    •    Mainland China: Despite a generally subdued market sentiment, optimism is building for an eventual recovery. Many major brands are seizing the opportunity to optimise their store networks in this tenant-favoured market, focusing on securing flagship stores in prominent locations.

    •    Korea: The retail market remains strong, driven by a solid rebound in international visitor arrivals. The availability of prime retail space remains tight, particularly in emerging commercial districts, where competition for pop-up store locations is high.

    •    Vietnam: Foreign brands, especially from mainland China, continue to expand into Vietnam, driving strong demand for prime retail space in Ho Chi Minh City and Hanoi. However, the lack of high-quality supply remains a challenge.

 

2. Mainland China Market Overview

 

    •    State of the Market: Retailers in luxury and food & beverage (F&B) sectors have seen a decline in sales since the beginning of the year, though niche brands and new F&B concepts are still performing well. Shanghai remains somewhat insulated from the downturn, while Shenzhen and Guangzhou have benefitted from increased visitors from Hong Kong.

    •    Leasing Activity: Retailers are cautious, with some local brands cancelling plans for flagship stores due to budget constraints. However, niche brands and selected domestic lifestyle retailers are expanding aggressively, focusing on leaner store networks with prominent flagship stores.

    •    Emerging Trends: Retailers are focusing on a streamlined approach, aiming to operate fewer stores, each serving multiple purposes such as sales, marketing, and omnichannel services. This is leading to a preference for large, high-visibility locations.

    •    Outlook: Optimism for recovery is building, driven by accumulated consumer savings during the pandemic and supportive government policies. Retailers are encouraged to take advantage of attractive leasing terms and bold opportunities to secure prime locations.

 

3. Korea Market Overview

 

    •    State of the Market: The solid rebound in international visitors, despite high interest rates and inflation, has sustained leasing demand in major retail districts. Competition for prime retail space remains fierce, with domestic and global brands seeking to expand.

    •    Leasing Activity: Cosmetics and beauty brands are particularly aggressive in expanding, targeting both domestic and foreign consumers. International F&B brands are also entering the market, focusing on prime office arcades in business districts. Pop-up store demand is growing across emerging prime locations like Seongsu and Hannam.

    •    Emerging Trends: Luxury brands are adapting to slower sales by targeting younger shoppers with trendy fashion and sports brands as tenants. Retailers across various categories are also increasing their demand for short-term pop-up stores.

    •    Outlook: Retail market players should act quickly to secure prime locations as competition intensifies. Proper planning and market insights are crucial, with a lead time of at least a year recommended for securing optimal retail spaces.

 

4. Vietnam Market Overview

 

    •    State of the Market: Despite some retailers reporting slower sales compared to 2023, Vietnam continues to attract strong interest from international brands, especially in F&B, cosmetics, fashion, and lifestyle sectors. Prime locations in Ho Chi Minh City and Hanoi are in high demand, but the limited supply of quality retail space poses a challenge.

    •    Leasing Activity: Retailers with existing presences in central business districts (CBDs) are exploring fringe CBD areas or second-tier districts. Prime ground-floor units in core shopping centres have seen rental growth of 15-20% per annum, driven by new-to-market retailers. High street leasing demand remains strong.

    •    Emerging Trends: Shopping malls are undergoing renovations to accommodate new entrants and create a more memorable experience for shoppers. There is rising demand from Chinese retailers, especially in the F&B and lifestyle segments.

    •    Outlook: While Vietnam remains a landlords’ market, property owners should collaborate with retailers for long-term growth. Flexible leasing strategies, such as offering turnover-based rent, are advised. Retailers planning to enter Vietnam should carefully study the market for at least 18 months before committing to a space.

 

Conclusion and Outlook for H2 2024

 

    •    Retail Leasing Demand: Leasing demand in the APAC region remains strong, particularly in Korea and Vietnam. Despite some market challenges, key retail markets continue to attract international brands looking to expand or establish flagship stores.

    •    Optimism for Recovery in China: The retail market in mainland China is expected to recover, supported by government policies and consumer savings. Retailers are advised to secure prime locations while favourable lease terms are available.

    •    Growing Competition for Prime Space: As competition for prime retail space intensifies, particularly in Korea and Vietnam, both landlords and retailers need to be proactive in securing high-quality sites. Pop-up store demand will continue to grow, especially in emerging prime districts.

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“Q2 2024 APAC Office Trends” by CBRE provides an analysis of the office leasing and investment markets across the Asia Pacific region during the second quarter of 2024. It highlights key market trends, sector performance, and the outlook for the office sector across major markets including India, mainland China, and Korea.

 

1. Key Trends

 

    •    India’s Strong Performance: India continues to be a standout performer in the region, driven by robust demand from domestic firms and multinational corporations in sectors like tech, healthcare, and financial services. Leasing volumes remain strong, with major cities like Bangalore and Mumbai leading the way.

    •    Cost-Saving in Mainland China: Market sentiment in mainland China remains subdued despite an increase in enquiries and site inspections. Occupiers are focusing on cost-saving strategies, including downgrading or relocating to buildings with lower rents. Landlords are responding by cutting rents and offering incentives.

    •    Limited Availability and Rising Rents in Korea: Demand in Korea has weakened, largely due to rising office rents and elevated capital expenditure (CapEx) for relocations and fit-outs. This has led to more tenants renewing their leases rather than relocating, contributing to prolonged lease negotiations.

 

2. India Market Overview

 

    •    State of the Market: India’s office market saw 64 million square feet of gross absorption in 2023, close to pre-pandemic levels. Demand remains high, supported by the country’s large talent pool and growing offshoring and outsourcing industries.

    •    Leasing Activity: Tech companies and financial services continue to drive demand, with firms expanding across both major hubs and smaller markets. Additionally, there has been an uptick in demand from healthcare and international retailers.

    •    Emerging Trends: Larger occupiers looking for spaces above 500,000 square feet are committing to buildings under construction due to limited ready-to-move-in options.

    •    Outlook: Occupiers are increasingly prioritising sustainability, access to public transport, and amenities in office space selection. India’s office pipeline for 2024 is expected to reach 57.7 million square feet, sustaining robust leasing activity.

 

3. Mainland China Market Overview

 

    •    State of the Market: While enquiries and site inspections increased in early 2024, the overall market sentiment remains weak. Tenant requirements are generally small, and cost-saving continues to be the dominant strategy for occupiers.

    •    Transaction Activity: Recent transactions include a major expansion by a domestic mobile manufacturer in Beijing and a relocation by an international healthcare company in Shanghai.

    •    Emerging Trends: ESG adoption is accelerating among both domestic and international developers, although some local developers continue to lag behind. Firms in the finance and energy sectors are leading the way in ESG initiatives.

    •    Outlook: Leasing volume in mainland China is expected to remain stable in the second half of 2024, with most activity focused on small relocations and upgrades. Landlords will need to offer more than just rent reductions, such as CapEx subsidies and “Space as a Service” (SaaS) models, to attract tenants.

 

4. Korea Market Overview

 

    •    State of the Market: Office demand in Korea has weakened compared to six months ago, driven by strong rental growth and high CapEx requirements for relocations. Most tenants are choosing to renew leases rather than move to new spaces.

    •    Transaction Activity: Domestic firms have been more active than international firms, with many relocating to emerging business districts to lower occupancy costs. Tech and gaming sectors remain key drivers of demand, particularly in the Gangnam Business District (GBD).

    •    Emerging Trends: Decentralised districts like Magok are struggling to attract tenants to new office properties due to concerns about the area’s nascent status. Some large-scale developments in the central business district (CBD) may face delays due to a tight financing environment and slow pre-leasing activity.

    •    Outlook: Tenants with leases expiring in 2025 are advised to secure three-to-five-year renewal terms, allowing them flexibility to reassess options when new supply comes online around 2029.

 

5. Regional Outlook

 

    •    Six-Month Forecast:

    •    India: Leasing activity is expected to remain robust as the pipeline of new office space keeps pace with demand.

    •    Mainland China: Upgrades and small relocations will dominate leasing activity, with landlords offering more incentives to attract tenants.

    •    Korea: The demand for office space is likely to remain weak, with limited new supply expected in the short term, and long-term vacancy risks increasing.

 

 “Q2 2024 APAC Investment Trends” by CBRE outlines the investment landscape in the Asia Pacific region, with a focus on market activity, emerging trends, and opportunities across major markets such as mainland China, Singapore, and India. The report highlights how different sectors, including office, retail, hospitality, and industrial properties, are performing in terms of investment volume, capital flow, and investor sentiment.

 

1. Key Trends

 

    •    Economic Recovery in Mainland China: Economic recovery in mainland China has been mixed, leading to caution among investors. Transactions are mainly concentrated on smaller assets, particularly in the retail and office sectors, sized between 100-500 million RMB. Discounted assets are expected to drive more investment in the coming months, with a focus on prime properties.

    •    Singapore’s Improving Sentiment: Investment sentiment in Singapore has improved compared to six months ago. Value-add capital has become more active since the start of 2024, and retail and hospitality properties are expected to present more opportunities, supported by strong fundamentals.

    •    India’s Buoyant Market: India’s investment market continues to thrive, with strong consumption driving performance in the retail sector. Office investment demand has picked up, supported by domestic funds and Singaporean capital. The logistics sector in India is also seeing increased attention, with substantial capital targeting this asset class.

 

2. Mainland China Market Overview

 

    •    State of the Market: Investors remain cautious due to mixed signals about the domestic economy’s recovery. Transactions focused on smaller assets, primarily in the 100-500 million RMB range, as investors are hesitant to take on high leverage. Cash-rich buyers, including private companies and energy firms, are the most active in the market.

    •    Emerging Trends: Industrial and logistics properties continue to be the most popular asset classes, supported by stable demand. Rental housing demand in Beijing is high, but Shanghai’s market is nearing saturation, leading some owners to seek exit opportunities.

    •    Outlook: Investors are encouraged to negotiate with highly leveraged sellers to secure discounted prime assets. They are advised to avoid high leverage due to potential risks of weaker rents and interest rate costs.

 

3. Singapore Market Overview

 

    •    State of the Market: While investment conditions remain challenging, sentiment has improved. Recent activity by value-add funds has increased, although risk appetite among banks is mixed. A key transaction involved the sale of the Mapletree Anson office building for 775 million SGD (approximately 575 million USD) at a 3.8% yield.

    •    Emerging Trends: Investors are showing increased interest in hospitality, living, and retail sectors. The hospitality market is expected to see more transactions in the coming months, but growth in occupancy and average daily rates (ADRs) may moderate.

    •    Outlook: Retail and hospitality properties are expected to present more opportunities, while the office sector will likely attract cautious interest due to the trend of remote working. Discounted office properties may entice buyers as market fundamentals remain resilient.

 

4. India Market Overview

 

    •    State of the Market: India’s investment market remains upbeat, driven by strong consumption and high savings rates, which are supporting retail performance and residential sales in major cities. Foreign funds are focused on tier I cities, while domestic investors are targeting tier II locations.

    •    Transaction Activity: Office investment demand is strong, with North American and Singaporean capital driving deals. Institutional capital is returning to the office sector, with domestic office funds actively raising and deploying capital. Logistics remains a popular asset class, aligning with global trends.

    •    Emerging Trends: Data centre operators are assessing land prices, power availability, and connectivity to optimise their investments. Despite strong fundamentals, there is a shortage of development equity in the hospitality and branded residences sectors.

    •    Outlook: Office and retail sectors are expected to present attractive opportunities in the second half of 2024, while residential properties will continue to appeal to investors, particularly in the home builder space. Investors should consider acquiring core assets before expected interest rate cuts drive yield compression.

 

5. Investment Sentiment and Outlook

 

    •    Mainland China: Investors are urged to be selective, focusing on prime assets and discounted properties. Negotiating favourable terms with highly leveraged sellers could result in portfolio expansion at a discount.

    •    Singapore: Retail and hospitality sectors offer solid investment opportunities in the near term, driven by improving fundamentals. Value-add investors are becoming more active, although office demand remains muted.

    •    India: Office and logistics sectors are expected to remain buoyant, driven by strong domestic demand and foreign capital inflows. Residential development continues to offer strong returns, particularly in high-demand cities.

 

Conclusion

 

The Q2 2024 APAC Investment Trends report by CBRE highlights the varied performance of investment markets across Asia Pacific. Mainland China continues to see cautious activity focused on smaller assets, while Singapore’s improving sentiment supports growth in retail and hospitality. India remains a standout market with robust activity across multiple sectors, particularly in office, retail, and logistics.

 

“Q2 2024 APAC Industrial & Logistics Trends” by CBRE outlines key trends, market dynamics, and forecasts in the Asia Pacific industrial and logistics sectors during the second quarter of 2024. It provides insights into leasing activity, occupier demand, vacancy rates, rental performance, and emerging trends across key markets in the region such as Australia, Japan, and Vietnam.

 

1. Overview and Key Trends

 

    •    Occupier Demand: After a cautious start to the year, occupier demand in Australia and Japan picked up during Q2 2024, driven by improved economic conditions and increased transaction activity. Markets like Vietnam continued to attract manufacturers, particularly in the electronics and automotive sectors.

    •    Leasing Activity: Occupiers in Australia displayed a more cautious approach at the start of 2024 due to sharp rental increases and new supply. However, demand picked up in Q2, with more transactions expected over the next three to six months.

    •    Vietnam: The Vietnamese market remains positive, supported by the government’s success in improving trade ties. Manufacturers from China are increasingly expanding in Vietnam, both in the northern and southern regions, driven by rising land prices in prime industrial locations and improving infrastructure in the south.

 

2. Australia Market Trends

 

    •    State of the Market: Australian cities along the Eastern seaboard recorded the tightest logistics vacancy globally, with vacancy rates below 1% in most major areas.

    •    Transaction Activity: After years of expansion, 3PL (third-party logistics) operators are less inclined to take on additional space. E-commerce platforms, particularly those from Asia, are increasing their leasing activity in Australia, primarily for smaller spaces.

    •    Demand Drivers: The food sector is seeing increased activity, driven by rising immigration and organic population growth. Owners are adapting to market changes by offering customisations like cool rooms and better warehouse office specifications.

    •    Outlook:

    •    Owners: Focus should be on improving relationships with tenants and offering flexibility to meet fluctuating market needs. Owners are increasingly appointing agents to market space, and capital contributions for fit-outs are becoming more common.

    •    Occupiers: Occupiers should plan 18 months in advance when searching for new sites.

 

3. Japan Market Trends

 

    •    State of the Market: Logistics demand in Japan held steady in regional cities, with landlords seeking to lease space quickly amid rising vacancy rates. E-commerce demand has recovered, although it remains weaker compared to the previous year.

    •    Transaction Activity: Activity has been concentrated in regional areas, including Kumamoto, where semiconductor manufacturers such as TSMC are opening new facilities.

    •    Emerging Trends: New regulations on truck driver overtime limits are expected to constrain delivery lead times but will spur the expansion of logistics networks, increasing demand for logistics facilities located between major hubs.

    •    Outlook:

    •    High-demand Markets: Tenants in areas with low vacancy (e.g., Greater Osaka) should begin negotiations early due to high competition for space.

    •    Well-supplied Markets: Owners in markets like Greater Nagoya will need to offer attractive leasing terms to secure tenants.

 

4. Vietnam Market Trends

 

    •    State of the Market: Vietnam’s market remains positive, driven by strong demand for factory space, particularly from electronics and automotive industries. Manufacturers from China continue to expand their operations in both northern and southern Vietnam, benefiting from improving infrastructure and skilled labour availability.

    •    Transaction Activity: 3PL operators in Vietnam are consolidating their warehouse portfolios and are exploring sale-leaseback opportunities to go asset-light. Demand for warehouse space is mainly from manufacturers, retailers, and international e-commerce platforms.

    •    Emerging Trends: Developers are building industrial parks near new infrastructure projects, such as the new airport east of Ho Chi Minh City. Some warehouse landlords are offering incentives, including CapEx contributions, to attract tenants.

    •    Outlook:

    •    Occupiers: Tenants in Grade A warehouses should plan lease renewals six to eight months before lease expiry to avoid relocating to non-prime locations with cheaper rents.

    •    Developers: It is advised to delay new warehouse construction until occupancy levels in existing facilities improve.

 

5. Summary and Key Takeaways

 

    •    Industrial Leasing and Demand: Across the region, leasing activity in the industrial and logistics sectors is showing signs of recovery, especially in markets like Australia and Japan. Occupier demand is driven by 3PL, manufacturing, and e-commerce sectors, although some markets face rising vacancy rates and tenant caution due to high rents.

    •    Supply and Vacancy: Vacancy rates remain low in key markets like Australia and Japan, but rising vacancy is a concern in some parts of Japan and Vietnam. Industrial landlords are becoming more flexible, offering incentives and customisations to attract tenants.

    •    Outlook for H2 2024: Leasing activity is expected to increase across most markets in the next six months, with a focus on high-demand locations. Occupiers are advised to start planning and negotiating early, especially in low-vacancy markets like Australia and Greater Osaka.

“Q2 2024 APAC Figures” by CBRE provides a comprehensive analysis of the Asia Pacific commercial real estate markets across various sectors including office, retail, logistics, and investment. The report details key trends, challenges, and forecasts for the region’s economies and real estate markets during the second quarter of 2024.

 

1. Executive Summary

 

    •    GDP Growth: The Asia Pacific region (APAC) saw a GDP growth of 3.9% in 2024, with a forecast of 4.0% for 2025.

    •    Net Employment Outlook: Employment prospects in the region improved by 21.3% in Q2 2024 and are projected to grow by 18.7% in Q3 2024.

    •    Industrial Production: Industrial output grew by 3.6% in 2024, with further growth of 4.1% expected in 2025.

 

2. Office Sector

 

    •    Leasing Activity: India and Tokyo saw stronger-than-expected leasing activity, driving Grade A office absorption to 11.8 million square feet in Q2 2024, up by 21% year on year.

    •    Vacancy Rates: APAC office vacancy rates rose to a record high of 19%, driven by 14.9 million square feet of new supply, including significant completions in Singapore and Bangkok. Vacancy rates are expected to remain elevated with more new supply coming online in H2 2024.

    •    Rental Performance: Rents declined by 0.2% quarter-on-quarter, with mainland China seeing the steepest declines. Mumbai and Seoul showed the strongest rental growth in the premium office segment.

    •    Capital Values: The APAC Office Capital Value Index dropped by 3.2% quarter-on-quarter, driven by declining rents and yield expansion, particularly in Greater China.

 

3. Retail Sector

 

    •    Sales and Leasing Trends: Retail sales growth slowed in Q2 2024 as consumer confidence weakened, particularly in luxury segments. Tourist volumes improved, although mainland Chinese arrivals remained below pre-pandemic levels. Retailers remain selective in leasing, focusing on prime locations in Japan and Korea.

    •    Vacancy Rates: Vacancy levels stabilised across most major markets, with flexible leasing terms being adopted in mainland China. Vacancy rates in prime shopping areas remained tight.

    •    Rents and Capital Values: Retail rents increased by 0.4% quarter-on-quarter, supported by solid demand in high-end retail segments in cities like Tokyo and Singapore. Retail capital values fell by 1.8%, with significant declines in mainland China and the Pacific region.

 

4. Logistics Sector

 

    •    Demand and Leasing: Logistics demand continued to fade from its pandemic-era highs, with occupiers preferring renewals over relocations due to high rents and fit-out costs. Demand from third-party logistics (3PL) providers and e-commerce platforms slowed, particularly in China, but remained stable in manufacturing hubs.

    •    Vacancy and Rents: Vacancy rates rose across the region, with cities like Beijing and Shanghai experiencing decade-high vacancy levels. Rents in the logistics sector dipped by 0.3%, led by declines in Greater China.

    •    Capital Values: The APAC Logistics Capital Value Index fell by 2.9% quarter-on-quarter, driven by weakening investor sentiment and falling rents in major Chinese cities.

 

5. Investment Activity

 

    •    Investment Volume: Commercial real estate investment volume in APAC fell by 19% quarter-on-quarter to US$22 billion in Q2 2024, largely due to declines in industrial investment. Delays in expected interest rate cuts and a “wait-and-see” attitude among investors contributed to the decline.

    •    Cross-border Investment: Cross-border investment volume grew by 43% quarter-on-quarter and 7% year-on-year, with increased activity in Australia and India.

    •    Yields: Yields continued to expand, particularly in Australia and mainland China, where negative rental growth and distressed sales contributed to the trend. Yield expansion is expected to continue in H2 2024, especially as interest rates are anticipated to decrease.

 

6. Economic and Monetary Policy

 

    •    Export-driven Economies: Export-oriented economies in APAC, such as Japan and Korea, benefitted from strong demand for electronic goods, supported by a resilient U.S. economy and a stronger U.S. dollar.

    •    Monetary Policy Outlook: The U.S. Federal Reserve is expected to begin cutting interest rates in September 2024, with similar moves anticipated by central banks in APAC, except for the Reserve Bank of Australia, which is forecasted to delay cuts until Q1 2025.

 

7. Sector Outlook

 

    •    Office: Flight to quality is expected to remain a dominant theme, with demand focused on high-quality, well-located office space. Leasing volume is likely to stabilise, though mainland China is projected to continue struggling with supply-demand imbalances.

    •    Retail: Retailers are expected to adopt a more cautious approach to expansion, focusing on prime locations. Leasing activity will be strongest in Japan, while mainland China will lag due to continued economic uncertainty.

    •    Logistics: Leasing activity is expected to improve slightly in H2 2024, but cost control and operational efficiency will remain priorities for occupiers. Logistics rents will stay under pressure, with increased incentives and rent-free periods becoming more common.

    •    Investment: Investment activity is forecast to increase by 0%-3% year-on-year in 2024, driven by repricing in Australia and rising investor interest in India. Mainland China and Japan will be key to the region’s overall investment recovery.

 

“Identifying Prospects in a New Era of Economic Growth” by CBRE focuses on Hong Kong’s economic resilience as it navigates external headwinds and internal transformations. It highlights the opportunities and challenges for businesses and investors as Hong Kong adapts to its evolving economic landscape, marked by a shift from a traditional services economy to a hybrid economy that incorporates both financial and technological industries.

 

1. Economic Overview

 

    •    Resilience Amidst Challenges: Despite facing external pressures such as geopolitical tensions between China and the U.S., and internal issues like higher operating costs, Hong Kong’s economy continues to recover from the impact of prolonged social unrest and the COVID-19 pandemic.

    •    GDP Growth: Hong Kong’s real GDP grew by 3.2% year on year in 2023, almost fully reversing the 3.7% contraction seen in 2022. In the first quarter of 2024, GDP grew by another 2.7% year on year, driven by the reopening of the city’s borders and the return of economic activities.

 

2. Key Economic Trends

 

    •    Local Consumption: Local consumption grew by 7.3% year on year in 2023, reaching 1,956 billion Hong Kong dollars in real terms, which is comparable to pre-pandemic levels. This recovery was tempered by a decline in tourist revenue, which remains below pre-pandemic levels, with total tourist arrivals at 41 million compared to the 65 million recorded in 2018.

    •    Tourism and Consumption: Mainland Chinese tourists, who make up the majority of visitors, are now spending more prudently. Despite this, tourism continues to recover slowly, with authorities promoting investment and tourism initiatives to support long-term growth.

 

3. Market Challenges

 

    •    Interest Rates and Investment: High interest rates have suppressed investment demand, negatively impacting property and equity values. This has led businesses to adopt cost-saving measures. However, public sector investment and policy support from the central government are expected to provide momentum for recovery.

    •    Oversupply in the Office Sector: The office sector faces an oversupply issue, requiring property owners to adapt and integrate more flexibility into their offerings. This includes flexible leasing strategies to meet the evolving needs of tenants, as well as incorporating ESG (Environmental, Social, and Governance) features into properties to attract occupiers.

 

4. The Impact of Tourism and Travel

 

    •    Outbound Travel and Domestic Consumption: Hong Kong residents’ strong demand for outbound travel, buoyed by the strength of the Hong Kong dollar, has led to an increase in spending abroad. However, this has not significantly impacted domestic consumption, which remains strong.

    •    Inbound Tourism: While tourism from mainland China is expected to rise further, international tourists are now contributing more to overall visitor spending. Government-led initiatives, such as the Mega Arts and Cultural Events Fund, aim to boost tourism and drive per capita spending in the city.

 

5. Real Estate and Investment Opportunities

 

    •    Sector Growth: The long-term outlook for Hong Kong’s economy is positive, with growth expected in several key areas:

    •    Financial Services: Hong Kong remains a leading financial hub, with initiatives like Stock Connect and Swap Connect enhancing its role as a conduit between China and the global market.

    •    Infrastructure Projects: Large-scale infrastructure projects, such as the Northern Metropolis and Kau Yi Chau reclamation projects, will support long-term property demand and foster innovation and technology-driven growth.

    •    Talent Attraction: Talent admission schemes are expected to bolster Hong Kong’s population and boost demand for services, housing, and consumption.

    •    New Trading Partners: As Hong Kong strengthens its ties with ASEAN and Belt and Road Initiative (BRI) countries, its role as a trading and logistics hub will expand, creating further growth opportunities in the long run.

 

6. Long-Term Outlook

 

    •    High-Calibre Talent and Population Growth: Recent talent admission and immigration schemes are expected to drive population growth and increase the demand for housing and services in Hong Kong. The influx of high-earning individuals will further support economic growth.

    •    Innovation and Technology (I&T): Hong Kong’s transformation into an I&T hub, focusing on sectors such as AI, robotics, and smart city development, will attract global tech companies and foster economic competitiveness.

    •    Cultural and Financial Hubs: The city’s commitment to becoming a global arts and cultural centre, coupled with its existing status as a financial hub, will continue to draw investment and support long-term economic growth.

 

Conclusion

 

Hong Kong’s recovery is well underway, supported by both public and private sector investments. While challenges such as geopolitical tensions and high operating costs persist, the city’s strategic initiatives, infrastructural developments, and transformation into an I&T-driven economy offer significant long-term opportunities for growth. Hong Kong remains a leading international business and financial hub, with a promising outlook for real estate demand and investment.

 “Fed Makes First of Several Expected Rate Cuts” by CBRE provides an analysis of the Federal Reserve’s decision to lower the federal funds rate in September 2024, marking the first of several anticipated rate cuts. The report highlights the broader economic implications of this monetary policy change and its impact on inflation, GDP growth, and commercial real estate markets.

 

1. Executive Summary

 

    •    Rate Cut Overview: The Federal Reserve reduced the federal funds rate by 50 basis points (bps), bringing it to a range of 4.75% to 5.00%. The Fed signaled plans for two additional rate cuts in 2024 and four more in 2025.

    •    Reasons for the Cut: The rate reduction reflects the Fed’s response to a softening labour market and increased confidence that inflation will trend towards its 2% target. The inflation outlook for 2024 was revised down to 2.3% from 2.6%, while GDP growth was reduced to 2.0% from 2.1%.

    •    Balance Sheet Reduction: The Fed also indicated that it would continue reducing the size of its balance sheet, which remains part of its broader monetary policy strategy.

    •    CBRE Forecasts:

    •    CBRE expects the Fed to cut rates by an additional 25 bps in November and December, followed by 125 bps in cuts next year.

    •    The 10-year Treasury yield is projected to remain below 4% at the end of 2024 and remain in the mid-3% range throughout 2025 as the Fed eases monetary policy.

 

2. Economic Impact and Real Estate Outlook

 

    •    Investment Activity: The rate cuts, coupled with lower bond yields, are expected to boost commercial real estate investment. CBRE forecasts a 5% increase in annual investment activity for 2024, with further acceleration in 2025 as financing conditions become more favourable.

    •    Soft Landing: Despite a slowdown in job growth, CBRE believes the economy will avoid a recession, achieving a “soft landing.” This scenario is expected to sustain occupier confidence, bolstering demand for space across various commercial property sectors.

 

3. Fed’s Inflation and Growth Projections

 

    •    Inflation Forecasts: The Fed revised its inflation outlook for 2024 down to 2.3%, aligning with expectations that inflation will continue to decrease toward its 2% target. This supports the Fed’s decision to begin reducing rates while maintaining a focus on curbing inflation.

    •    GDP Growth Forecast: The Fed also revised its GDP growth forecast for 2024 to 2.0%, reflecting slower economic expansion amid the cooling labour market.

 

4. The Bottom Line

 

    •    Real Estate Benefits: Lower rates and bond yields are set to strengthen the investment climate for commercial real estate. CBRE predicts increased asset values and enhanced investor confidence as borrowing costs decline.

    •    Market Resilience: Demand for high-quality commercial properties is expected to remain resilient, particularly in sectors such as industrial, multifamily, and prime office spaces, as occupier demand stays strong.

    •    Conclusion: The Fed’s decision marks a significant shift in monetary policy, providing opportunities for real estate investors to capitalise on improving conditions. The focus remains on navigating the transition carefully, balancing interest rate cuts with inflation control and economic stability.

 

“ESG Beyond E: Strengthening Social and Governance Standards in Hong Kong’s Workplaces” by CBRE explores the growing emphasis on ESG (Environmental, Social, and Governance) principles in the workplace, with a particular focus on social and governance factors, alongside environmental sustainability. It outlines how ESG practices are becoming central to workplace strategies, highlighting the evolution of office spaces in Hong Kong, and the increasing importance of health, wellness, diversity, and transparency in modern corporate environments.

 

1. Executive Summary

 

    •    ESG in the Corporate Agenda: ESG principles, especially environmental concerns, are now a priority for many companies. The built environment, particularly workplaces, plays a key role in achieving corporate ESG goals.

    •    Net-zero Targets: Many companies are setting net-zero emissions targets. As real estate is a major contributor to carbon footprints, green building initiatives are pivotal to these goals.

    •    Social and Governance Elements: While environmental elements are more established, attention is increasingly turning towards social and governance aspects, particularly within corporate real estate.

 

2. The Evolution of Workplaces

 

    •    Generational Shifts in Office Design: CBRE outlines the evolution of workplaces from traditional cubicle-based offices (Workplace 1.0) to the current flexible and hybrid models (Workplace 4.0).

    •    Workplace 1.0 (Pre-2000s): Focused on privacy and hierarchy, with individual cubicles and separate offices for senior staff.

    •    Workplace 2.0 (2000s): Saw the adoption of long benches and open layouts to foster communication.

    •    Workplace 3.0 (2010s): Focused on activity-based working (ABW), with shared spaces, collaborative zones, and paperless operations.

    •    Workplace 4.0 (Pandemic Era to Present): Emphasises flexibility and hybrid working, integrating remote work with in-office collaboration and prioritising employee wellness.

 

3. ESG in Hong Kong’s Workplaces

 

    •    Why Office-based Work Remains Popular in Hong Kong: Cultural and environmental factors in Hong Kong drive high levels of office attendance compared to other global cities.

    •    Small Living Spaces: With limited space at home, many employees prefer working from the office.

    •    Efficient Public Transport: The city’s extensive and efficient transport system, particularly the MTR, encourages office attendance.

    •    Office Design and Employee Well-being: Green, flexible, and wellness-centric office designs are increasingly important in retaining talent and enhancing productivity.

 

4. Implementing Workplace ESG

 

    •    Environmental Goals: Reducing greenhouse gas emissions remains a core focus of ESG, with strategies including leasing green buildings, promoting paperless offices, and implementing recycling and energy-efficient technologies.

    •    Green Building Certifications: Certifications like WELL, LEED, and BEAM Plus are essential markers of environmental sustainability.

    •    Energy and Water Efficiency: Offices should implement motion-sensing systems, dual-flush toilets, automatic taps, and LED lighting to reduce resource use.

    •    Social Goals: Workplace wellness, inclusivity, and mental health are increasingly important in ESG frameworks. Flexible work arrangements, ergonomic designs, and collaborative spaces are key strategies.

    •    Governance Goals: Effective corporate governance is critical for ESG success. Companies should establish clear benchmarks, appoint ESG officers, and maintain transparency with stakeholders.

 

5. Mapping Green Building Demand in Hong Kong

 

    •    Green Building Adoption: As of mid-2023, about 30% of Hong Kong’s Grade A office buildings are green-certified. Single-owned buildings, particularly in the core areas of Central, Wan Chai, and Causeway Bay, lead the way in green building adoption.

    •    Retrofitting Older Buildings: While newly built offices tend to meet green standards, retrofitting older buildings is becoming increasingly common to meet ESG goals.

    •    Upcoming Supply: The pipeline for new office buildings shows a strong focus on green certification, with 70% of new developments between 2023 and 2025 expected to meet green standards.

 

6. Challenges and Opportunities in Green Building

 

    •    Retrofitting Challenges: Retrofitting older buildings to meet green standards requires significant time and capital expenditure (CapEx). However, failing to do so may result in a ‘brown discount,’ where non-green buildings are less competitive.

    •    Regulatory Push for ESG: Regulations are tightening, with large corporations and listed companies required to disclose ESG performance. This is expected to drive more companies to adopt green office spaces, particularly those in the finance and legal sectors.

 

7. Governance and Social Responsibility

 

    •    Social Aspects: Companies are focusing on creating inclusive, healthy, and safe workplaces by offering wellness programs, flexible work arrangements, and ergonomic office designs. There is growing attention on diversity, equity, and inclusion (DE&I), with companies designing spaces to accommodate older workers and those with disabilities.

    •    Governance Frameworks: Corporate governance within ESG involves setting benchmarks, enhancing transparency, and promoting accountability. Leadership involvement is critical to driving successful ESG initiatives.

 

8. Green Leasing Practices

 

    •    Green Leases: Green leases, which include clauses requiring both landlords and tenants to adopt sustainable practices, are expected to gain popularity in Hong Kong.

    •    Benefits of Green Leases: These leases can help improve transparency, reduce operating costs, and highlight the commitment to sustainability, which may lead to preferential loan terms.

    •    Alternative Practices: For landlords and tenants not ready to commit to green leases, side letters and memorandums of understanding (MOUs) are alternatives to promote ESG initiatives.

 

9. Case Study: CBRE’s Hong Kong Office

 

    •    Workplace Transformation: CBRE’s office relocation to One Pacific Place exemplifies the shift towards ESG-friendly, collaborative, and wellness-focused workplaces.

    •    WELL Certification: The office was awarded a Gold Rating under the WELL V2 Pilot Certification for features such as air quality monitoring, ergonomic workstations, and a wellness room.

    •    Employee Engagement: CBRE fostered a collaborative culture by involving staff in the design process through surveys, workshops, and townhalls.

 

Conclusion and Recommendations

 

    •    Future of ESG in Workplaces: The trend towards integrating ESG in workplace strategies is expected to continue, with a focus on achieving net-zero emissions, accommodating flexible work, and promoting employee well-being.

    •    The 3A’s of Future Workplace Strategies:

    •    Achieving net-zero emissions goals.

    •    Accommodating flexible working.

    •    Addressing employee health and wellness.

    •    The 3L’s for Transformation:

    •    Landlord-tenant collaboration.

    •    Leadership endorsement.

    •    Leading-edge property technology (proptech).

​

 

“Asia Pacific Investment Strategies 2024: Structural vs. Cyclical Opportunities” by CBRE offers insights into the evolving real estate market across the Asia Pacific region, focusing on the challenges and opportunities that arise from the current economic conditions. The report explores key investment strategies for real estate in the region, distinguishing between cyclical and structural opportunities, and highlighting how investors can navigate the shifting landscape amidst rising interest rates, changing demand, and ESG considerations.

 

1. Executive Summary and Outlook

 

    •    Interest Rate Cycle: The Asia Pacific commercial real estate market is currently at the peak of the interest rate hike cycle (excluding Japan). Asset repricing is beginning to materialise, presenting opportunities for investors to acquire discounted assets in specific markets and sectors expected to rebound in the medium term.

    •    Key Investment Areas:

    •    Offices: Markets such as Australia, Korea, and India offer attractive entry points in 2024, with positive rental growth prospects. Core office assets with strong Environmental, Social, and Governance (ESG) credentials are increasingly sought after.

    •    Industrial & Logistics: Locations with high manufacturing demand, such as Southeast Asia, India, and regional areas of Japan, are expected to outperform.

    •    Retail: Core retail locations in Vietnam and Hong Kong SAR are experiencing renewed demand, with improved rental outlooks.

    •    Living Sector: Strong demand continues, especially in established markets like Japan. Investors are advised to focus on markets with supply shortages, such as Australia and Hong Kong SAR, for build-to-rent or student accommodation projects.

    •    Credit Strategies: Bridge loans and development finance in Australia and Korea present cyclical opportunities. Meanwhile, distressed loans in mainland China offer significant discounts for opportunistic investors.

 

2. Office Sector

 

    •    Cyclical Opportunities:

    •    Australia, Korea, and India: Attractive entry points in markets with positive rental growth prospects. Investors are advised to consider offices in Sydney, Seoul, and Indian cities.

    •    Realising Returns in Korea: Owners in Seoul should consider selling ahead of the anticipated increase in supply in 2026, as rental growth is expected to normalise.

    •    Structural Opportunities:

    •    Prime Assets in Core Locations: Prime office buildings in core locations are outperforming, with demand concentrated on top-quality assets offering ESG features, such as green certifications and easy access to amenities and public transport.

    •    Repricing in Core Assets: Repricing in markets like Australia, Korea, and New Zealand is creating buying opportunities, with significant discounts available for core office assets.

 

3. Industrial and Logistics Sector

 

    •    Cyclical Opportunities:

    •    Development in Manufacturing Hubs: Investors should consider logistics development in areas with growing manufacturing occupier demand, such as Southeast Asia and India, though these regions may carry higher development risks.

    •    Asset Disposals in Australia: Owners of secondary industrial assets in Australia are advised to consider realising returns as rental growth slows.

    •    Structural Opportunities:

    •    Modern Facilities in Core Locations: Occupiers increasingly favour modern logistics facilities with features like high ceilings, loading bays, and renewable energy. Facilities near urban markets or major consumer hubs are preferred.

    •    ESG Focus: Occupiers are prioritising green warehouses equipped with renewable energy sources and EV charging stations. Investors should enhance ESG credentials to future-proof their portfolios.

 

4. Retail Sector

 

    •    Cyclical Opportunities:

    •    Tourism Recovery: The recovery in tourism is driving demand for retail assets in prime locations, with markets like Japan, Singapore, and Hong Kong SAR showing strong leasing activity.

    •    Core CBD Locations: Retailers are securing prime central business district (CBD) locations before rental rates start to rise, especially as leasing demand shifts back from suburban areas to core urban locations.

    •    Structural Opportunities:

    •    Experiential Retail: Larger retail spaces, especially in the luxury and food & beverage (F&B) sectors, are being sought after to accommodate experiential designs and omnichannel retail initiatives. Locations with strong public transport access are in high demand.

 

5. Living Sector

 

    •    Cyclical Opportunities:

    •    Build-to-Rent and Build-to-Sell: Investors should target markets with significant supply and demand imbalances, such as Australia, for developing build-to-rent or build-to-sell residential properties.

    •    Structural Opportunities:

    •    Co-living and Student Accommodation: Co-living and Purpose-Built Student Accommodation (PBSA) assets are in high demand in markets like Australia, Singapore, and Hong Kong SAR due to immigration and the growing student population.

 

6. Credit Strategies and Data Centres

 

    •    Cyclical Opportunities in Credit:

    •    Bridge Loans and Distressed Opportunities: Markets like Australia and Korea offer opportunities in private credit, particularly in bridge loans and development finance. Distressed loans in mainland China, particularly in the office and residential sectors, present significant discounts.

    •    Structural Opportunities in Data Centres:

    •    Hyperscale Data Centre Demand: Hyperscale data centres are growing in markets like Japan and Southeast Asia. Investors should focus on markets with robust power availability and invest in projects that support the rising demand for AI and data processing.

    •    Power Demand: Data centre development is expected to drive a 160% increase in power demand globally between 2023 and 2030, creating opportunities for land acquisition and partnerships in emerging markets like Indonesia, Malaysia, and Thailand.

 

7. Conclusion and Key Takeaways

 

    •    Attractive Buying Opportunities: The repricing of assets in the office, industrial, and retail sectors is creating attractive buying opportunities, particularly in core locations.

    •    Focus on ESG: Investors should prioritise assets with strong ESG credentials, as occupiers increasingly focus on green buildings and sustainable real estate strategies.

    •    Risk Management: With uncertainty around interest rates and economic conditions, investors should adopt a cautious approach, focusing on markets and sectors where structural demand drivers remain robust.

“Asia Pacific Data Centre Trends Q1 2024” by CBRE provides an in-depth analysis of the current trends, developments, and investment opportunities within the data centre markets across key regions in the Asia Pacific (APAC). The report covers major markets such as Australia, Hong Kong SAR, Japan, Singapore, India, and Korea. It explores the drivers behind demand, supply growth, investment trends, and the evolving role of data centres in the digital economy.

 

1. Capital Markets Insights

 

    •    Investment Demand: Investor demand for data centres remains robust, but the lack of available stock for sale continues to hinder deal flow. High interest rates weighed on total investment volume, which fell by 26% year-on-year to 1.1 billion U.S. dollars in 2023.

    •    Major Markets: Japan is the leading market, with the most active development pipeline. Significant deals in 2023 include TIS Inc.’s acquisition of a data centre in Shinagawa for 528.8 million U.S. dollars and the sale of a Blackstone-owned property in Osaka for 359.7 million U.S. dollars.

    •    Emerging Markets: In markets like Indonesia, Malaysia, and Thailand, activity is more focused on development, with investors acquiring land and forming joint ventures. Recent partnerships include GDS with the Indonesia Investment Authority and Keppel’s joint venture with Mitsui Fudosan.

    •    2024 Outlook: Investment volumes are expected to recover, driven by deals in Japan, while other markets may see limited activity. Investors are cautious about operational risks, particularly the potential for power outages and their impact on brand reputation.

 

2. Australia

 

    •    Occupier Market: There is strong demand from corporates, especially as legacy data centres become outdated. Many Australian companies are following trends seen in the U.S. and Europe, shifting from in-house models to colocation and cloud services.

    •    Supply and Vacancy: New supply is largely pre-contracted due to ongoing demand, with a focus on Sydney and Melbourne. Long construction lead times, driven by shortages of critical components, are expected to constrain supply and push prices higher.

    •    Investment Trends: Data centres remain a sought-after asset class, with legacy enterprise centres continuing to transact. Recent investments by Australian super funds, such as AustralianSuper’s 1.6 billion U.S. dollar stake in Vantage EMEA, demonstrate the sector’s appeal.

 

3. Hong Kong SAR

 

    •    Occupier Market: Supply has slightly outpaced demand, leading to increased vacancy rates from 25% in 2023 to around 30% in the first half of 2024. Mainland Chinese firms and multinational hyperscalers are driving recent absorption.

    •    Supply and Vacancy: The market is experiencing a peak in supply, with over 100 megawatts of new capacity coming online in 2023. However, demand remains strong, particularly from IT service providers.

    •    Investment Trends: Interest remains high, but investment activity has slowed due to limited stock. Investors are exploring older industrial buildings for retrofitting, while new land availability is not expected until 2028.

 

4. Japan

 

    •    Occupier Market: The first half of 2023 saw strong demand from cloud providers in Osaka, followed by AI-related demand in Tokyo. Hyperscalers remain a key driver of demand, with new facilities planned in regions like Hokkaido due to their access to renewable energy.

    •    Supply and Vacancy: Japan’s new data centre supply is expected to peak in 2025-2026, with around 1,300 megawatts of capacity being introduced. Some operators have pre-leased space, while others are offering lower rates to attract tenants.

    •    Investment Trends: Developers and investors are responding to AI demand by securing sites in Tokyo. Higher power and construction costs are pushing cap rates down, with transactions in 2023 averaging around 4%.

 

5. Singapore

 

    •    Occupier Market: Demand is being driven by enterprises relocating from older data centres to newer facilities. However, the limited supply has driven pricing up, especially for the hyperscale segment.

    •    Supply and Vacancy: The market has limited new capacity coming online, with only 80 megawatts of capacity allocated in 2023. Enterprise colocation prices are expected to remain stable in 2024.

    •    Investment Trends: Singapore’s tight market has led investors to explore neighbouring markets like Johor Bahru in Malaysia, where pricing is approximately half that of Singapore’s.

 

6. India

 

    •    Occupier Market: 2023 saw a quiet start, but leasing activity picked up in the fourth quarter, with deals expected to close in 2024. Hyperscaler demand is rising, particularly for AI-related workloads.

    •    Supply and Vacancy: Mumbai remains India’s top data centre market, while Chennai is gaining traction due to its connectivity to Southeast Asia. Colocation capacity has doubled over the last 18 months.

    •    Investment Trends: Global investors are keen to enter the Indian market, with many forming joint ventures with local operators. Government incentives have helped ensure reliable power supply for new data centres.

 

7. Korea

 

    •    Occupier Market: Local conglomerates, particularly in the AI and electric vehicle sectors, are driving demand. Cloud service providers, including AWS, are also expanding.

    •    Supply and Vacancy: Korea is seeing a rise in new data centre completions, with five to six new facilities expected annually from 2024-2025. However, most of this capacity has been pre-leased, leaving little for enterprise users.

    •    Investment Trends: The scarcity of available sites and aggressive pricing from vendors continue to challenge the investment market. Public opposition to new developments is also growing, particularly in areas near residential zones.

 

8. Key Trends to Watch

 

    •    Renewable Energy and Sustainability: Data centre operators are increasingly focused on renewable power, particularly in locations where large-scale renewable projects are underway. This is expected to drive future developments in areas like Perth, Australia.

    •    AI and Power Demand: AI-related workloads are driving demand for data centres, especially in Japan and Korea. However, the power requirements for AI workloads are significantly higher, making power availability a critical factor in site selection.

    •    Labour Shortages: Several markets, including Japan and Korea, face significant challenges due to labour shortages, which could impact data centre construction and operation.

 

Conclusion

 

The Asia Pacific Data Centre Trends Q1 2024 report highlights the rapid growth of the data centre sector across key APAC markets, driven by increasing demand for cloud services, AI, and colocation. While investment activity remains constrained by high interest rates and a lack of available stock, the sector’s long-term fundamentals are strong. New developments and the push for sustainability will continue to shape the market in the coming years.

 

“Adaptive Spaces: Starting a Conversation about Flex Space, Optionality, and Property Value” by CBRE delves into the evolving trends in office leasing and the growing demand for flexibility in office space across the Asia Pacific region. It focuses on the impact of flexible workspaces, optionality in lease terms, and how these trends influence office building valuations.

 

1. Introduction

 

    •    Traditional Leasing Model: Historically, the development and leasing of office buildings have relied on long-term commitments, often between five to ten years or more. This model has been favoured by lenders and investors due to the stable and predictable income streams it offers.

    •    Changing Demand: Recently, demand for office space has become less predictable. Companies are increasingly adopting flexible working models, resulting in fluctuating headcounts and rapidly changing office space requirements. This shift is causing occupiers to reassess their long-term leasing strategies.

 

2. Evolving Occupier Needs

 

    •    Flexible Space Demand: Occupiers are rethinking their space needs as they adopt hybrid working and focus on creating more appealing offices for their employees. As a result, there is a growing reluctance to commit to long-term leases for office space that may end up being too large or too small as business needs evolve.

    •    Economic Uncertainty: Unpredictable economic conditions further emphasize the need for flexibility. Occupiers are increasingly seeking flexible lease terms and preferring flex space, which allows them to avoid upfront capital expenditure (CapEx) on office fit-outs, converting CapEx into operational expenses (OpEx).

    •    Portfolio Flexibility: More than half of respondents in CBRE’s 2023 Asia Pacific Occupier Survey believe that their portfolios are under-allocated to flexible office space and intend to increase their use of flex space in the near future.

 

3. Impact on Office Valuations

 

    •    Variable Income Streams: The inclusion of flex space in office buildings can affect the building’s valuation due to variable income streams. Flex space operators may not always have tenants, and the valuation may depend on whether these operators are paying fixed rents or following a revenue/profit-sharing model.

    •    Risk Management: Valuers need to account for the risk of allocating too much of a building’s space to flex operations. If large portions of the building remain vacant, this could negatively impact the overall valuation of the property.

    •    Lease Optionality: The growing trend of occupiers seeking shorter lease terms with options to review after two or three years adds volatility to income streams. Increased tenant turnover, rent voids, and reletting costs will also influence how office buildings are valued.

    •    New Valuation Approaches: One possible solution is to value the flex space component of an office building similarly to a hotel, where operating income is factored into the valuation. A higher capitalisation rate may be applied to reflect the increased risk associated with flex space revenue.

 

4. Challenges in Valuation

 

    •    Lack of Comparable Evidence: One of the key challenges in valuing office buildings with substantial flex space allocations is the lack of comparable sales data. Traditional property valuations tend to focus on historical data, making it difficult to account for forward-looking projections or flexible lease structures.

    •    Increasing CapEx: Landlords are investing more in amenities such as food and beverage (F&B) facilities, cycle racks, and technology (e.g., tenant experience apps) to attract tenants. Valuations will need to account for these additional costs, which landlords are incurring to meet the demands of modern office users.

 

5. The Future of Office Valuations

 

    •    Changes in Income Generation: As more office buildings incorporate flexible spaces and amenities, the way income is generated will fundamentally change. For example, building owners may charge membership fees for access to flex spaces, which could generate higher net operating income (NOI) than traditional leases, provided that occupancy remains high.

    •    Risk-Adjusted Returns: In the coming years, property valuations are likely to feature higher vacancy allowances and higher capitalisation rates, reflecting the increased uncertainty and risk associated with income streams from flexible space.

 

6. Conclusion

 

The growing demand for flexible office space, optionality in lease terms, and additional amenities is prompting the need for new valuation approaches. While solutions are not yet fully established, now is the time to begin discussions about how office buildings with substantial allocations to flex space should be valued. Building owners are increasingly open to the idea of being cost-neutral on certain portions of the building (such as flex space) if it helps generate more rent from the rest of the property.

 

Contacts

 

The report is authored by key experts at CBRE, including:

 

    •    Henry Chin, Ph.D – Global Head of Investor Thought Leadership, Head of Research, Asia Pacific.

    •    Ada Choi, CFA – Head of Occupier Research and Data Intelligence, Asia Pacific.

    •    Danny Mohr – Head of International Valuations, Asia Pacific.

    •    Sidharth Dhawan – Head of Alternatives, Asia Pacific.

“Flight to Quality in the Asia Pacific Office Market” by CBRE provides an extensive analysis of the ongoing shift in office leasing preferences across the Asia Pacific region, highlighting the growing trend of occupiers moving towards higher quality office spaces, referred to as “flight to quality.” This trend is influenced by a range of factors including employee preferences, ESG (Environmental, Social, and Governance) requirements, cost considerations, and the availability of prime office spaces.

 

1. Overview

 

    •    Flight to Quality: Office occupiers in Asia Pacific are increasingly opting for higher quality office spaces, moving from lower-grade offices or non-green buildings to newly constructed Grade A or prime office spaces. Occupiers are prioritising locations with better building specifications, higher environmental standards, and advanced amenities to enhance employee experience and workplace performance.

    •    Key Drivers: Demand for green buildings, core locations, and workplace transformation are driving this shift. Occupiers are leveraging the opportunity to upgrade while negotiating favourable terms in tenant-favoured markets.

 

2. Occupier Trends

 

    •    Relocation Trends: According to CBRE’s Asia Pacific Leasing Sentiment Index, 31% of occupiers are relocating to higher quality office spaces, prioritising location and asset quality over size. Many are consolidating space, focusing on better offices while reducing overall office footprints.

    •    Key Markets: Japan, Singapore, and Australia have seen the strongest demand for core office locations, with relocation driven by a combination of cost-saving opportunities, ESG goals, and employee preferences for improved workspace environments.

    •    “Stay vs. Go” Decisions: Companies are increasingly conducting “stay vs. go” studies, evaluating whether to renew leases or relocate. Over 60% of companies have renewed leases to avoid capital expenditure (CapEx) or because landlords offered lower rents. Cost remains the primary factor, but location and asset quality also play significant roles in markets like India and Australia.

 

3. Impact on Asset Quality and Location

 

    •    Upgrade to Green Buildings: “Flight to green” is a significant aspect of this trend. Many relocations involve moving into green-certified buildings, particularly in markets like Australia and Singapore, where green building adoption is high. Approximately 60% of new Grade A office leases in Greater China and India in 2023 involved green buildings.

    •    Flight to Core: In mature markets like Japan, Singapore, and Australia, leasing transactions have predominantly occurred in prime office buildings located in core areas with excellent public transport access. However, decentralised areas in Greater China and India remain appealing due to new office developments with high-quality facilities.

 

4. Office Availability and Leasing Activity

 

    •    Increased Vacancy: Many markets, particularly in mainland China and Southeast Asia, have experienced a significant rise in vacancy rates due to oversupply, which has facilitated the flight to quality trend. New supply, both in core and decentralised locations, has allowed occupiers to move to higher quality spaces.

    •    Vacancy Rates: Prime office buildings have significantly lower vacancy rates compared to general Grade A offices. As of Q1 2024, prime office vacancy was around 7%, well below the 19% vacancy rate for general Grade A offices. Markets like Singapore and Seoul, where office availability is tight, have seen less distinction between prime and Grade A vacancies.

 

5. Rental Trends

 

    •    Resilience of Prime Rents: Prime office rents have been more resilient compared to Grade A office rents, which have seen a more substantial decline since the start of the pandemic. While Grade A rents have fallen by 7.1% since Q4 2019, prime office rents have only dropped by 2.1%.

    •    Widening Gap: The gap between prime and Grade A rents widened in 2023 as prime offices saw rental recovery while Grade A offices continued to face pressure from high vacancy. Landlords of prime buildings have been able to adopt a firm stance on rent negotiations, while those with non-prime portfolios have had to be more accommodative.

    •    Rental Growth by Market: Markets such as Brisbane, Auckland, and Taipei have recorded the strongest rental growth for prime office spaces over the past three years, while markets like Singapore and Seoul have seen more modest growth due to high base rents and limited product differentiation.

 

6. New Supply and ESG Considerations

 

    •    New Office Supply: Over 60 million square feet of new office stock is expected to be delivered annually across Asia Pacific in the coming years, with the majority being Grade A standard. However, only a small portion of this will be in core areas, ensuring that prime buildings with features such as green certification and large floorplates remain in demand.

    •    Green Building Adoption: The percentage of green buildings varies significantly by market, with higher green building adoption in markets like Tokyo and Seoul. The scarcity of green-certified prime office buildings will continue to drive up demand for these spaces.

 

7. Recommendations for Occupiers and Landlords

 

    •    Occupier Strategies:

    •    Review Office Portfolios: Regularly assess office portfolios to ensure that spaces align with employee preferences and facilitate talent attraction and retention.

    •    Workplace Transformation: Adopt flexible workspaces that promote collaboration and wellbeing. Focus on modern, high-performance workplaces to support new ways of working.

    •    Pre-leasing Strategy: Engage in pre-leasing for prime spaces early, as these buildings are often tightly held.

    •    Landlord Strategies:

    •    Commit to New Projects Selectively: Invest in developing futureproof buildings with ESG features that meet tenant demand for high-quality spaces.

    •    Asset Enhancement Initiatives: Consider upgrading older buildings to include modern amenities such as wellness features, smart technology, and flexible spaces to remain competitive.

    •    Prioritise Occupancy: In oversupplied markets, prioritise securing tenants in older office portfolios by offering attractive lease terms.

 

Conclusion

 

The “Flight to Quality in the Asia Pacific Office Market” report illustrates that the shift towards higher quality office spaces is driven by a combination of cost savings, ESG goals, and workplace transformation needs. Prime office buildings are outperforming general Grade A offices in terms of occupancy and rental growth, particularly in core locations. Both occupiers and landlords are advised to strategically navigate this evolving landscape, focusing on green building adoption, employee wellbeing, and proactive leasing strategies to remain competitive.

“Asia Pacific Living Sector: Case for Investment” by CBRE presents a comprehensive analysis of the living sector’s growth potential in Asia Pacific. It focuses on various subtypes, including multifamily housing, student housing, co-living, serviced apartments, and senior living, while also highlighting the key trends driving investment in this sector.

 

1. Introduction

 

    •    Investor Sentiment: Multifamily housing has become the most sought-after asset class in the Asia Pacific region. The shift is driven by the weakening investor preferences for office and logistics sectors due to cyclical and structural challenges such as hybrid working, slow global economic growth, and elevated interest rates.

    •    Growth Potential: The living sector in Asia Pacific is in its nascent stage, representing just 6% of the region’s commercial real estate investment volumes, compared to 27% in Europe and 44% in the U.S. This indicates significant room for growth, particularly as the sector evolves to offer more investible rental housing stock.

 

2. Key Markets for Living Sector Investment

 

    •    Japan, Australia, and Mainland China: These three countries are the largest markets for living sector investment in the region.

    •    Japan: Boasts the most mature multifamily market, with institutional capital and foreign investors playing a significant role. The country is also seeing strong demand for senior living facilities due to its ageing population.

    •    Australia: The Build-to-Rent (BTR) market is gaining traction, driven by population growth and housing shortages.

    •    Mainland China: The institutionalisation of the rental housing market is expanding, supported by government policies and urbanisation.

 

3. Diverse Living Sector Subtypes

 

    •    Multifamily/Rental Housing: The most common subtype, particularly mature in Japan. In other countries, like Australia and mainland China, the sector is growing through BTR facilities.

    •    Serviced Apartments: Popular in markets with large expatriate populations, providing furnished units with flexible leases and additional services.

    •    Co-living: Gaining attention in markets like Singapore and Hong Kong SAR, where young professionals seek affordable housing with communal features.

    •    Student Housing: Driven by the influx of international students, particularly in Australia and Hong Kong SAR.

    •    Senior Living: Demand is increasing, though this sector faces regulatory challenges in some markets.

 

4. Demand Drivers

 

    •    Urbanisation and Migration: Asia Pacific’s mobile population, including expatriates and domestic migrant workers, is a key driver of demand for rental housing. Cities like Singapore, Hong Kong, and major Chinese cities are witnessing increased rental demand due to urban migration.

    •    Low Homeownership Affordability: In high-cost cities like Hong Kong, Singapore, and mainland China, many potential homebuyers are turning to the rental market due to the high cost of homeownership relative to income levels.

    •    Single-Person Households: The rise of single-person and dual-income households is shaping future demand, particularly for smaller, more affordable residential units near city centres.

 

5. Investment Characteristics

 

    •    Inflation Hedge: Rental housing is an effective hedge against inflation due to its shorter lease tenures compared to other property types. In the long run, rental growth has generally outpaced inflation in Asia Pacific markets, making it a stable investment.

    •    Yield Spreads: Japan’s multifamily sector offers attractive yield spreads, particularly in comparison to office and retail properties. Despite marginally rising interest rates, Japanese multifamily assets maintain strong investor demand.

 

6. Market-Specific Analysis

 

    •    Japan: The country’s multifamily sector continues to attract investors due to its stability and higher yields compared to other asset classes. The rise in single-person households and dual-income families also boosts demand for rental units.

    •    Australia: The residential supply is nearing decade lows, and vacancy rates are expected to tighten further. The BTR sector is growing, although tight yield spreads and high construction costs may deter some investors.

    •    Mainland China: Rental housing demand is forecast to grow to 97 million units by 2030. Major rental operators are keeping occupancy rates above 90%, despite general market sluggishness.

    •    Hong Kong SAR: The post-pandemic influx of non-local professionals and students has boosted demand for rental housing, particularly co-living spaces. Hotel conversions are a popular strategy for investors seeking to enter the market.

    •    Singapore: Co-living and serviced apartments are in demand as the expatriate and student populations recover. Mergers and acquisitions (M&A) and repurposing of underperforming commercial properties are common strategies for expanding the living sector.

 

7. Conclusion

 

    •    Growth Opportunities: The living sector in Asia Pacific is poised for significant growth, particularly in multifamily, student housing, and co-living. Investors must tailor their strategies to each market’s unique dynamics, considering factors such as yield spreads, demographic trends, and government policies.

    •    Investment Strategies: Investors are advised to focus on direct acquisitions in Japan’s multifamily sector, BTR opportunities in Australia and mainland China, and hotel conversions in Hong Kong SAR for co-living and student housing.

 

 

“APAC Hotels & Hospitality Market Update: Hong Kong SAR - March 2024” by CBRE provides a detailed analysis of the hotel and hospitality market in Hong Kong Special Administrative Region (SAR). It examines key trends, performance metrics, supply forecasts, and investment activities in the sector, highlighting the strong recovery in tourism and hotel performance following the removal of pandemic restrictions.

 

1. Executive Summary & Outlook

 

    •    Market Rebound: Hong Kong’s hotel sector experienced a significant rebound in 2023, largely driven by the lifting of pandemic restrictions and the return of global travellers, particularly from mainland China.

    •    Lunar New Year 2024: During the eight-day holiday, average hotel occupancy reached 93.4%, with room rates at 1,715 Hong Kong dollars, matching or exceeding pre-pandemic levels from 2019.

    •    Tourism Recovery: Mainland Chinese visitors accounted for over 79% of all inbound arrivals in the past year. The Hong Kong hotel market is expected to continue recovering through 2024, especially in the luxury and upscale segments.

    •    Investment Outlook: Hotel investment remains subdued due to high borrowing costs, but private investors are showing interest in value-add and opportunistic acquisitions. The expected decline in borrowing costs by mid-2024 is anticipated to boost investment activity.

    •    Co-living and Serviced Residences: The co-living and serviced residence sectors are poised for expansion, fuelled by asset shortages in the living sector and the introduction of Hong Kong’s Top Talent Pass Scheme (TTPS).

 

2. Tourism

 

    •    Tourist Arrivals: Tourism saw strong recovery in 2023, with approximately 34 million arrivals, surpassing initial forecasts.

    •    Lunar New Year Surge: Over 1.46 million tourists, including 1.25 million mainland Chinese, visited Hong Kong during the Lunar New Year holiday in 2024, exceeding 2018 figures.

    •    Per Capita Spending: Overnight visitor spending reached 8,212 Hong Kong dollars, with hotels generating 29.2 million Hong Kong dollars in revenue, similar to 2019 levels.

    •    Future Projections: The Hong Kong Tourism Board (HKTB) expects international tourism to fully recover by 2025, with air capacity expected to return to normal by the end of 2024.

 

3. Key Tourism Infrastructure Developments

 

Several key infrastructure projects will enhance Hong Kong’s tourism landscape:

 

    •    Kai Tak Development: Completion of this area will include a new sports park with a 50,000-seat stadium, facilities for water sports, and other event spaces.

    •    11 Skies Mall (Phase 2): Set to open, this development will add 25.4 million square feet of retail and experiential entertainment space.

    •    Third Airport Runway: The new runway at Hong Kong International Airport is expected to be fully operational by 2025, increasing passenger and cargo capacity.

    •    Convention and Exhibition Centre Expansion: Phase 1 of the Hong Kong Convention and Exhibition Centre (HKCEC) expansion is planned, with further redevelopments in Wan Chai.

 

4. Hotel Performance

 

    •    Occupancy and Room Rates: The Lunar New Year holiday in 2024 saw an occupancy rate of 93.4%, and average room rates were 6% higher than in 2019. The strong performance extended throughout January 2024, with RevPAR (Revenue per Available Room) reaching 1% above 2019 levels.

    •    Top Performing Areas: Yaumatei and Mong Kok recorded the highest occupancy rates at 94%, followed by the New Territories (89%) and Tsim Sha Tsui (88%).

    •    RevPAR Growth: Hong Kong led the Asia Pacific region in RevPAR growth in early 2024, outpacing markets like Tokyo and Singapore.

 

5. Hotel Supply

 

    •    Limited New Supply: Between 2024 and 2027, approximately 2,515 new hotel rooms will be added, accounting for 3.1% of the total market size.

    •    Upscale Developments: Most new supply will be in the upscale and upper-upscale segments, including brands like Kimpton and Ascott.

    •    Key Openings: Notable upcoming hotel projects include the Mondrian Hong Kong (324 rooms), Kimpton Hong Kong Mariners Club (492 rooms), and Motto Hong Kong Soho (274 rooms).

 

6. Investment Trends

 

    •    Investment Decline: Hotel investment transactions in Hong Kong totalled 947 million U.S. dollars in 2023, down from 1.072 billion U.S. dollars in 2022. High interest rates continue to weigh on investment activity.

    •    Key Deals: Significant transactions include the sale of Kimberley Hotel for 3.4 billion Hong Kong dollars and the sale of Grand City Hotel for 2 billion Hong Kong dollars.

    •    Future Outlook: Lower interest rates expected in 2024 are likely to drive increased investment, particularly in distressed assets and redevelopment opportunities.

 

7. Key Trends

 

    •    Hotel Accommodation Tax: A new 3% hotel accommodation tax (HAT) will be introduced in January 2025. This tax will apply to the agreed price for hotel rooms but exclude the standard 10% service charge.

    •    Top Talent Pass Scheme (TTPS): This scheme aims to attract highly skilled professionals to Hong Kong, allowing them to work in the city without needing pre-secured employment. The TTPS is expected to increase the talent pool in the hospitality industry.

    •    Tourism Promotion: The Hong Kong government has allocated 1.1 billion Hong Kong dollars in the 2024-2025 budget to promote mega events, including monthly fireworks and drone shows, as part of efforts to boost tourism.

 

8. Investment & Taxation Guide

 

    •    Foreign Investment: There are no restrictions on foreign ownership in Hong Kong’s hotel sector, though residential properties have policies to protect domestic buyers.

    •    Taxes: Various taxes apply to hotel properties, including property tax (15% on rental income) and profits tax (16.5% for companies).

    •    Stamp Duty: Stamp duty is payable on property transactions, with progressive rates based on the property’s value.

 

Conclusion

 

The APAC Hotels & Hospitality Market Update: Hong Kong SAR - March 2024 highlights the strong recovery of Hong Kong’s hotel sector, supported by the return of mainland Chinese tourists and major infrastructure developments. Although investment activity remains muted due to high borrowing costs, the sector is expected to see increased investment in the coming years, particularly in co-living and serviced residence assets. With several new hotel openings on the horizon and tourism promotion efforts underway, the outlook for Hong Kong’s hotel market remains positive.

“Asia Pacific Cap Rate Survey Q1 2024” by CBRE provides an in-depth look at cap rate trends across the Asia-Pacific region for various real estate asset classes, including office, retail, logistics, hotels, and data centres. The survey examines investor sentiment, market performance, investment recovery timelines, and sector-specific cap rate changes, highlighting key insights into the evolving investment landscape amidst the current economic environment.

 

Key Insights from the Survey

 

1. Market Performance and Investment Sentiment

 

    •    Delayed Recovery: Investment recovery in most Asia-Pacific markets has been pushed back due to limited risk appetite and delays in anticipated interest rate cuts. Total investment volume for Q1 2024 was down 4% quarter on quarter and 14% year on year, amounting to 24 billion U.S. dollars.

    •    Top Markets: Japan (7.4 billion U.S. dollars) and mainland China (6.4 billion U.S. dollars) accounted for the largest share of investment activity.

    •    Investor Preferences: A clear flight-to-quality continues, with demand concentrated in premium assets, particularly in the hotel and residential sectors. These asset types are benefiting from cyclical and structural tailwinds.

    •    Cap Rate Expansion: Cap rates continued to expand across the region, with more pronounced expansions observed in secondary assets. The largest cap rate expansions are expected in Australia, while cap rates in Japan are anticipated to remain stable.

 

2. Timing of Investment Recovery

 

    •    Expected Recovery: Survey respondents indicated that investment recovery is likely to begin in the second half of 2024, coinciding with the expected peak in interest rates. Investors are advised to complete acquisitions before rate cuts take place.

    •    Figure 1: A survey shows 45% of respondents expect recovery to occur in Q3 or Q4 of 2024, while 26% believe recovery is already underway.

    •    Net Buyers and Sellers: There has been a shift in buying and selling intentions, with most markets seeing more net sellers than net buyers. Notably, Japan, India, and New Zealand have the highest net buying intentions, while Hong Kong and mainland China have the highest net selling intentions.

    •    Figure 2: Net buying and selling intentions by market reveal stronger buying intentions in Japan (63%) and India (70%).

 

3. Sector-Specific Cap Rate Trends

 

    •    Office: Cap rates for Grade A office buildings in core locations continued to expand across the region, particularly in Australia and Greater China. Office assets in decentralised locations also saw cap rate expansions as vacancy rates remained elevated.

    •    Expansion Example: Sydney’s cap rates for Grade A office assets expanded from 5.35%-6.75% in September 2023 to 5.50%-7.00% in March 2024.

    •    Retail: Retail cap rates have expanded, especially in core and neighbourhood shopping malls. Interest in prime shopping malls is expected to continue, driven by tenant demand for high-traffic locations.

    •    Expansion Example: Retail cap rates in Melbourne increased from 5.50%-7.50% in September 2023 to 6.00%-8.00% in March 2024.

    •    Logistics: Institutional-grade logistics assets have experienced cap rate expansion, though the sector remains relatively resilient. Traditional logistics facilities, however, are seeing increased cap rates due to rising vacancy rates and new supply.

    •    Expansion Example: Cap rates for institutional-grade logistics in Sydney rose from 4.75%-6.50% in September 2023 to 5.25%-6.50% in March 2024.

    •    Hotels: Cap rates in the hotel sector expanded in many markets, with urban hotels seeing renewed investor interest due to tourism recovery.

    •    Expansion Example: Hotel cap rates in Sydney rose from 5.00%-6.00% in September 2023 to 6.25%-6.70% in March 2024.

    •    Data Centres: Data centre cap rates remained relatively stable, with some expansion seen in satellite cities near major data centre hubs like Beijing and Shanghai.

    •    Expansion Example: Data centre cap rates near Beijing increased from 8.00%-10.50% in September 2023 to 8.50%-10.75% in March 2024.

 

4. Key Challenges for Investment

 

    •    Economic Uncertainty: The economic outlook remains a major challenge for real estate investment, with 61% of respondents citing economic uncertainty and 38% citing geopolitical concerns as key risks.

    •    Financing Pressure: The persistence of high interest rates and tight lending standards are pressuring financing conditions for investors. Banks continue to dispose of assets, and investors are focusing more on tenant quality and rent roll stability to mitigate risks.

    •    Repricing and Asset Liquidity: A lack of repricing across markets has prompted funds to realise returns earlier. Real estate investment trusts (REITs), especially in the office sector, are trading at discounts due to weaker market sentiment.

    •    Figure 4: The weighted net asset value (NAV) discounts for REITs in office, retail, and industrial sectors reflect investors’ cautious approach, with Hong Kong showing particularly significant discounts for office and retail REITs.

 

5. Investment Demand by Sector

 

    •    Hotel and Multifamily Gain Traction: As of Q1 2024, hotels and multifamily assets have gained strong investor interest. Urban hotels, in particular, have benefitted from the return of international travel, while the multifamily/build-to-rent (BTR) sector is attracting long-term investment due to stable yields.

    •    Figure 10: The survey shows 41% of respondents report higher enquiries for institutional-grade logistics, traditional logistics, and urban hotels.

 

6. Summary of Cap Rates by Asset Class

 

    •    Office: Cap rates for Grade A offices in core locations ranged from 2.00%-5.50% across major markets in March 2024.

    •    Example: Tokyo Grade A office cap rates stood at 2.50%-3.50% in core locations, with a six-month outlook of further stability.

    •    Retail: Cap rates for prime shopping malls ranged from 2.90%-8.50%, with strong growth in markets like Vietnam.

    •    Example: Hanoi saw cap rates rise from 6.75%-8.50% to 7.00%-9.50% in Q1 2024.

    •    Logistics: Cap rates for institutional-grade logistics facilities remained relatively tight, particularly in Japan and Australia, but expansion is expected as new supply comes online.

    •    Example: Cap rates in Seoul for traditional logistics facilities increased from 5.20%-6.50% to 4.50%-7.00%.

    •    Hotels: Urban hotel cap rates expanded across most markets, with some volatility expected in the six-month outlook as the sector continues its post-pandemic recovery.

    •    Example: Sydney hotel cap rates rose from 5.00%-6.00% in September 2023 to 6.25%-6.70% in March 2024.

 

Conclusion

 

The Asia Pacific Cap Rate Survey Q1 2024 reveals that the investment landscape remains challenging due to delayed interest rate cuts and economic uncertainty. However, there are opportunities in sectors such as hotels, logistics, and multifamily assets, which continue to attract strong investor interest. Cap rate expansions are expected to stabilise by the second half of 2024, offering a more favourable environment for investment, particularly as asset repricing accelerates.

 

“2024 Asia Pacific Real Estate Chief Sustainability Officer Survey” by CBRE and the U.S. Green Building Council (USGBC) examines the role of Chief Sustainability Officers (CSOs) in the real estate industry across the Asia-Pacific region. It focuses on how real estate companies and investment funds are addressing environmental, social, and governance (ESG) imperatives, the evolution of the CSO role, and the challenges companies face in achieving net-zero carbon emissions.

 

1. Introduction

 

    •    Real Estate’s Role in Decarbonisation: Real estate plays a pivotal role in reducing carbon emissions, and with growing emphasis on ESG, many companies have established dedicated roles like Chief Sustainability Officers (CSOs) or Heads of ESG to lead sustainability initiatives.

    •    Survey Objectives: The survey, conducted by CBRE Asia Pacific Research and the USGBC, aims to understand how real estate companies are addressing ESG challenges, the role of CSOs in achieving these objectives, and the preparedness of companies to meet net-zero targets.

 

2. The Role of the CSO

 

    •    CSO Presence: Over 80% of real estate companies surveyed in Asia Pacific have established designated sustainability roles. Investors, particularly fund managers, tend to have more established CSO roles compared to landlords. Many CSO roles were created within the last three years as ESG became critical for raising capital.

    •    Responsibilities: CSOs are primarily responsible for ESG monitoring and reporting, overseeing the implementation of sustainability projects, and fostering corporate change aligned with ESG goals. Their role also includes regulatory compliance and ensuring sustainability is embedded in decision-making processes.

 

3. Companies’ Attitudes Toward ESG Resources

 

    •    Conservative Approach: Economic challenges have led many companies to adopt a conservative attitude toward increasing ESG-related resources. While about one-third of respondents plan to increase ESG budgets, many will do so on a project basis, and nearly half have no plans to expand ESG headcount over the next two years.

    •    Budgeting and Outsourcing: Given financial constraints, companies may consider outsourcing ESG projects to third-party consulting firms rather than expanding internal teams.

 

4. Obstacles to Achieving Net Zero

 

    •    Key Challenges: The top challenges to achieving net-zero emissions include limitations in city infrastructure, competing business priorities, and uncertainty over the costs and financial benefits of ESG initiatives. Lack of government policy incentives and limited access to renewable energy also hinder progress.

    •    Progress Toward Net Zero: Asset owners are largely targeting 2050 to reach net zero, aligning with government-level targets. However, tenants often aim for earlier deadlines, typically by 2030. This discrepancy may push landlords to accelerate their sustainability efforts.

 

5. Carbon Emissions Reporting

 

    •    Scope 1, 2, and 3 Emissions: Top real estate companies report on Scope 1 (direct emissions), Scope 2 (indirect emissions from energy use), and Scope 3 (other indirect emissions, including supply chain activities). However, Scope 3 emissions are challenging to measure, especially due to limited transparency from suppliers and tenants.

    •    Tenant Collaboration: While green leases and data sharing between landlords and tenants can improve transparency, tenants are often hesitant to share energy consumption data, complicating efforts to meet ESG goals.

 

6. Green Finance

 

    •    Adoption of Green Financing: Green finance is widely used in Asia Pacific for projects like green building construction and energy efficiency improvements. Green bonds and Sustainability-Linked Bonds (SLBs) have facilitated over 21 billion U.S. dollars in property-related projects in 2022. However, the high interest rate environment is reducing the attractiveness of SLBs.

    •    Use of Funds: Asset owners mainly use green finance to fund capital-heavy construction, acquisition of green buildings, and renewable energy projects.

 

7. Energy Efficiency and Infrastructure

 

    •    City Infrastructure: One of the biggest challenges for achieving net zero is the carbon intensity of Asia Pacific’s electricity grids, which is significantly higher than in Europe and the U.S. While countries like China, Japan, and Korea are reducing their reliance on coal, the transition to clean energy is slow.

    •    Efficiency Measures: Landlords are adopting energy-efficient technologies and retrofitting buildings to reduce energy consumption. However, onsite renewable energy generation can only account for a small portion of total energy use.

 

8. Sustainability Certifications

 

    •    Green Building Certifications: Over 60% of respondents plan to have more than 80% of their portfolios green-certified in the next three years. Australia is leading the region with an 80% adoption rate of green-certified office stock, while markets like Japan and Singapore are catching up. Mainland China lags behind but is expected to boost its ESG compliance due to tenant competition.

    •    Demand for Green Office Space: Despite growing demand for green office buildings, supply is lagging, creating a gap in the market. Real estate developers are encouraged to focus on creating more green buildings to meet this demand.

 

9. Diversity, Equity, and Inclusion (DEI)

 

    •    Slow Adoption of DEI: While DEI criteria are becoming more common in corporate strategies, their adoption in the Asia Pacific real estate sector remains slow. International investors, particularly in Australia, are leading the way in promoting DEI through placemaking initiatives, such as accessible facilities and public amenities.

    •    Community Initiatives: Real estate companies are also focusing on placemaking efforts that include facilities for people with special needs, public spaces, and support for community events.

 

10. Tenant-Landlord Collaboration

 

    •    Shared Responsibility: Both landlords and tenants must work together to achieve net-zero goals. Many CSOs advocate for incorporating green lease clauses to drive collaboration on sustainability initiatives. However, data sharing and accountability remain hurdles.

    •    Common ESG Agenda: Tenants are driving the conversation around sustainability, and landlords need to align their ESG strategies with tenant expectations, particularly as tenants aim for earlier net-zero deadlines.

 

11. Conclusions and Recommendations

 

    •    Collaboration and Alignment: Landlords and tenants need to align their net-zero goals and collaborate more closely on ESG initiatives. Landlords should play a more proactive role in ESG policymaking and explore the use of green finance to support sustainability projects.

    •    Focus on Energy Savings: Energy-saving projects that result in cost reductions will be prioritised, especially in light of financial constraints. Real estate developers should focus on building energy-efficient properties and retrofitting older buildings to meet future regulatory standards.

 

“Electric Vehicles and Real Estate: The Case of Hong Kong” by CBRE focuses on the evolving relationship between electric vehicles (EVs) and the real estate market in Hong Kong. It highlights how EV adoption is impacting property developments, infrastructure, and the demands placed on landlords, particularly in relation to the installation of EV charging facilities.

 

1. Executive Summary

 

    •    EV Growth and Impact: Electric vehicles are becoming a key component of global efforts to reduce carbon emissions. In Hong Kong, where the government aims to achieve zero carbon emissions by 2050, the rapid increase in EV adoption is driving demand for EV charging facilities. However, the city faces unique challenges due to its high-density urban landscape, making it difficult to install private charging stations in residential buildings.

    •    Real Estate and EVs: Commercial buildings equipped with EV chargers are becoming more attractive to office tenants and retail visitors. Demand for suitable space for EV showrooms, maintenance facilities, and public charging stations is increasing, driven by the growing competition among car importers.

 

2. The Emergence of EVs

 

    •    Global Context: The transport sector is responsible for around 20% of global carbon emissions, with passenger cars contributing a significant portion. In response, car manufacturers are shifting to alternative energy sources, particularly EVs, to reduce their carbon footprint.

    •    EV Growth: The number of EVs globally increased from 190,000 in 2012 to 25.9 million by 2022, with a 3.5x growth from 2020 to 2022 alone. Technological advancements have extended the range of EVs, making them more suitable for longer journeys. In addition, corporate ESG (Environmental, Social, and Governance) mandates and the lower cost of EV ownership have contributed to their popularity.

 

3. Hong Kong’s EV Landscape

 

    •    Government Support: In Hong Kong, EV adoption has been accelerating due to government policies, including the cessation of new registrations for fuel-powered vehicles by 2035 and financial incentives for EV buyers. EV sales surpassed petrol car sales for the first time in 2022, accounting for over 53% of new private car registrations.

    •    Challenges: The stratified ownership of high-density residential buildings in Hong Kong complicates the installation of private EV chargers. As a result, public charging stations are in high demand, especially as the number of EVs continues to grow.

 

4. Charging Infrastructure

 

    •    Public Charging: Currently, only about 6% of Hong Kong’s 690,000 parking spaces have EV chargers, with an estimated 40,000 chargers citywide, including public and private facilities. However, only 7,936 chargers are accessible to the public.

    •    Distribution: Most public chargers are found in commercial complexes, shopping malls, and government buildings. Kowloon East leads the city in the number of EV chargers in office buildings, while areas like Central have a relatively low concentration of public charging facilities.

 

5. Outlook

 

    •    Future Growth: The number of EVs in Hong Kong is expected to grow exponentially, particularly as the government phases out fuel-powered vehicle registrations. By 2033, EVs are projected to account for 43% of all private vehicles, rising to 84% by 2046.

    •    Infrastructure Gaps: While the government’s EV-charging-at-home subsidy scheme (EHSS) aims to install 140,000 chargers by 2028, there will likely still be a shortage of public chargers, with an estimated deficit of 98,000 chargers by 2035 and 170,000 by 2040.

 

6. Home-Charging and Public Chargers

 

    •    Home-Charging Challenges: Due to Hong Kong’s high-rise residential buildings, installing private chargers can be difficult. Many properties lack the necessary power capacity, and the approval process requires consensus from multiple owners.

    •    Public Charging Demand: With limited access to private chargers, EV owners will increasingly rely on public charging facilities in commercial and public spaces. Demand for public chargers is expected to rise, especially in retail and office locations where users can charge their vehicles while they shop or work.

 

7. Real Estate Implications

 

    •    Office and Retail Properties: Office carparks are ideal for slow chargers, as workers can leave their vehicles parked for long periods. Shopping malls, on the other hand, benefit from both medium and fast chargers to accommodate visitors who need to charge their vehicles during shorter trips.

    •    Showrooms and Workshops: As the number of EV brands in Hong Kong grows, there will be increased demand for real estate to house showrooms and workshops for maintenance and repair services.

    •    Sustainability and ESG: Property developers and landlords are increasingly incorporating EV chargers into new developments to meet sustainability targets. Buildings equipped with charging facilities are becoming more attractive to tenants and visitors, especially those focused on ESG goals.

 

8. Technological Innovation and Future Trends

 

    •    New Green Technologies: EVs are just one of many new technologies aimed at reducing the carbon footprint of transportation. Other innovations, such as fuel cell vehicles (FCVs) and advanced biofuels, are being developed, and may offer alternative solutions for sustainable transport in the future.

    •    Battery Swapping: In addition to improvements in EV batteries, technologies like battery swapping, which allows EV owners to replace depleted batteries with fully charged ones, are gaining traction. This could reduce the need for stationary chargers in the long term.

 

Conclusion

 

The rapid adoption of EVs in Hong Kong is reshaping the real estate landscape, with growing demand for EV charging facilities in both residential and commercial properties. Property developers and landlords need to invest in EV infrastructure to future-proof their assets and remain competitive. Public chargers will play an increasingly important role, especially as the number of EVs grows and private charging options remain limited.

 

 “2024 Asia Pacific Real Estate Market Outlook - Mid-Year Review” by CBRE provides a detailed assessment of the current trends and market conditions across various real estate sectors in the Asia Pacific region. It compares the forecasts made earlier in 2024 with the actual outcomes, and highlights key economic, investment, and sector-specific changes. The review focuses on the economy, investment trends, office space, retail, logistics, and hospitality.

 

1. Economy

 

    •    Revised Forecast: CBRE has upgraded its GDP growth forecast for the Asia Pacific region from 3.5% to 3.9% for 2024, due to stronger-than-expected economic performance in the United States, which boosted exports from many Asian countries.

    •    Key Risks: Sluggish growth in mainland China continues to be the region’s biggest economic risk. Weak household confidence and an imbalanced economic structure in China are particularly concerning.

    •    Interest Rate Cuts: The U.S. Federal Reserve is expected to begin cutting interest rates in September 2024. Policy rates across most of the Asia Pacific region (excluding mainland China) will remain higher than initially forecasted and are unlikely to return to pre-pandemic levels in the short term. Australia, Korea, and India are expected to cut rates in the fourth quarter of 2024.

 

2. Investment

 

    •    Investment Activity: Investment in commercial real estate has not fully recovered, as expected interest rate cuts have been delayed and the rate of asset repricing has been slower than anticipated.

    •    Revised Forecast: CBRE revised its full-year investment volume forecast to between 0% and 3%, down from earlier predictions of higher growth.

    •    Key Markets: Japan remains the preferred investment destination, with high interest from both local and cross-border investors. Other key markets include Australia and Korea, while China and Singapore are seeing more investors willing to soften cap rates to meet value change expectations.

    •    Trends: Core assets in tier-1 markets are still highly sought after for their stable cash flow, but value-add opportunities continue to attract interest for their higher internal rates of return (IRR).

 

3. Office

 

    •    Vacancy Rates: Oversupply remains a major issue, pushing regional office vacancy rates to a record high of 19%. Two-thirds of markets saw vacancy rates rise or remain at elevated levels. High vacancy continues to push landlords to offer more incentives, including rent-free periods, fit-out allowances, and turnkey solutions.

    •    Leasing Trends: Office leasing volume is projected to grow by 0% to 5% year on year, with stronger-than-expected leasing activity in Japan and India offset by weaker performance in mainland China.

    •    Flight to Quality: Occupiers continue to prioritise high-quality, ESG-compliant office space, with demand for premium city-centre offices remaining strong. Cost control remains a key factor for tenants, leading many to renew leases rather than relocate.

    •    Rents: Prime office rents in key markets like Brisbane and Seoul outperformed, while rents in mainland China, Hong Kong, Bangkok, and Manila are expected to decline due to oversupply.

 

4. Retail

 

    •    Consumer Spending: Growth in consumer spending has been weaker than expected, due to prolonged high interest rates and weakening economic conditions in markets like mainland China and Hong Kong. However, international visitor arrivals have provided a cushion to retail sales, particularly in Japan.

    •    Retailer Expansion: Despite the economic challenges, expansionary demand remains resilient, particularly in the food and beverage (F&B) and sports-related retail sectors. Vacancy in prime shopping precincts has returned to pre-pandemic levels.

    •    Rents: Retail rents have grown modestly in prime areas, led by cities such as Ho Chi Minh City and Hanoi, which have seen double-digit rental growth. However, weaker demand in mainland China has prompted landlords to reduce rents to attract tenants.

 

5. Logistics

 

    •    Leasing Activity: Logistics demand normalised faster than expected in the first half of 2024. However, leasing volumes are still expected to be weaker than in 2023 due to high rents and fit-out costs.

    •    Vacancy Rates: Vacancy has increased across the region, particularly in mainland China, Greater Seoul, and Vietnam. The logistics market is shifting in favour of tenants, with landlords offering more incentives to attract occupiers. The substantial development pipeline of 93 million square feet in the second half of 2024 is expected to increase vacancy rates further.

    •    Rental Outlook: CBRE has downgraded its rental outlook for logistics space in the region, as rising incentives such as rent-free periods and capital expenditure (CapEx) contributions have slowed rental growth. Markets like Sydney and Singapore are also seeing rental pressure due to new supply.

 

6. Hotels

 

    •    Tourism Recovery: Asia Pacific’s tourism sector is recovering strongly, with international arrivals expected to return to 2019 levels by the end of 2024. Airline passenger load factors have exceeded pre-pandemic levels, but staffing and aircraft shortages are preventing a full recovery.

    •    Mainland Chinese Tourists: Outbound travel from mainland China is picking up, particularly to Japan, Korea, and Southeast Asia. However, a full return to pre-pandemic levels is not expected until 2025.

    •    Revenue Performance: Most markets in the region have seen year-on-year increases in revenue per available room (RevPAR) as of June 2024. Occupancy levels have risen, although they remain below 2019 levels. Performance has been driven by strong demand from mainland Chinese tourists, and further growth is expected as more tourists return.

 

Key Forecast Adjustments

 

    •    Upgraded Markets: Brisbane and Seoul are expected to drive office rental growth due to tightening availability, while logistics rental growth is expected in Mumbai and Pune, driven by the completion of premium-grade assets.

    •    Downgraded Markets: Mainland China and Hong Kong’s office and logistics markets have been downgraded due to rising vacancy rates and weak demand. Similarly, retail rents in Taipei and prime CBDs in Melbourne are expected to grow at a slower pace due to economic headwinds and inflationary pressures.

 

Conclusion

 

The 2024 Mid-Year Review by CBRE highlights that while the Asia Pacific real estate market is showing signs of recovery, it remains highly dependent on external economic factors such as interest rate cuts and export performance. Key trends such as the flight to quality in the office market, resilient retail demand, and the normalisation of logistics leasing will shape the remainder of 2024. Occupiers and investors alike are focusing on high-quality, ESG-compliant assets, with value-add opportunities and premium locations being the most sought-after.

 

 “2024 Asia Pacific Office Occupier Survey” by CBRE provides a comprehensive analysis of office occupier trends, preferences, and key factors influencing real estate decisions across the Asia-Pacific region in 2024. The survey focuses on hybrid working, office utilisation, portfolio planning, workplace preferences, and the growing role of technology and sustainability in building selection.

 

Key Sections and Findings

 

1. Hybrid Working and Office Utilisation

 

    •    Office Utilisation Rates: Over 60% of occupiers report that their office attendance has stabilised, compared to 50% in 2023. This indicates that flexible and hybrid working models have been widely accepted as the new norm.

    •    Sector Breakdown: 71% of financial sector respondents report a steady state of office attendance. In contrast, only 50% of technology, media, and telecommunications (TMT) companies have reached this steady state, while the other half expect increased usage.

    •    Office Attendance vs. Expectations: Across the region, actual office attendance aligns closely with employer expectations. Approximately 70% of companies want employees to attend the office at least three days per week, with 36% aiming for a full five-day attendance. Mainland China has the highest expectations, with 69% of respondents requiring employees to be in the office five days a week.

    •    Key Metrics for Utilisation: Leading occupiers are now measuring office utilisation using three key metrics: peak, average, and trough. Consistent utilisation throughout the week, rather than spikes on peak days, is considered crucial for maintaining vibrant workspaces that attract employees to the office.

 

2. Portfolio Planning and Workplace Preferences

 

    •    Occupier Expansion: Despite economic challenges, 41% of occupiers anticipate growing their office footprint over the next three years. However, the expected collapse in demand due to hybrid working was overstated, as space needs are primarily based on peak attendance.

    •    Key Drivers for Lease Renewals and Relocations: Cost remains the dominant factor. Among respondents, 65% cited lower rents as the key reason for renewing leases, and 50% listed better lease terms and cost savings as the main motivation for relocation.

    •    Building Preferences: Public transportation access, onsite food and beverage (F&B) services, and sustainability features are the top considerations for office occupiers when selecting buildings. Wellness features, such as fitness centres and indoor air quality, are less critical, as occupiers prefer these amenities to be available in nearby precincts rather than within the building itself.

 

3. Workplace Flexibility and Efficiency

 

    •    Unassigned Seating: Over half of respondents (52%) plan to increase unassigned seating, such as hot desking or activity-based working (ABW), to optimise space and cater to hybrid working patterns. Occupiers are also increasing the proportion of collaborative spaces designed for small group work and virtual meetings.

    •    Desk Sharing Ratios: Desk sharing ratios are set to increase due to hybrid work patterns. In 2024, 49% of companies adopted a desk sharing ratio of 1:1 or less, but this is expected to decrease to 32% by 2026, as companies plan for ratios of 1:1.5 or higher to optimise space.

    •    Flex Space: Flexible office space, comprising non-core lease space, is expected to play a larger role in occupier portfolios. Currently, over 69% of respondents report having portfolios with less than 10% flex space, but this figure is expected to rise to 39% over the next three years. Smaller firms may allocate up to 100% of their portfolios to flex space due to the flexibility it offers in prime locations.

 

4. ESG, Technology, and Building Selection

 

    •    Net-Zero Targets: 55% of Asia-Pacific office occupiers have publicly committed to achieving net-zero emissions, with the majority aiming to achieve these targets by 2030 or 2040. However, 35% of respondents, particularly in Mainland China, have yet to set any net-zero targets.

    •    Green Building Certifications: Green building certifications remain in high demand, with 10% of occupiers willing to pay a rental premium for certified buildings. Other important ESG-related features include resilience against climate change, electric vehicle charging stations, and WELL certifications for health and well-being.

    •    Technology Adoption: The adoption of advanced technologies, including artificial intelligence (AI), is still in its early stages. Most companies are focusing on basic digital solutions, though larger firms are beginning to explore more sophisticated uses of AI in corporate real estate operations, such as predictive analytics, digital twins, and smart building technologies.

 

5. Implications for the Future Workplace

 

    •    Focus on People-Centric Workplaces: Enhancing employee experience is a top priority for 58% of occupiers, who aim to create workplaces that drive attendance and foster collaboration. CBRE advises occupiers to balance space efficiency with creating a high-quality office experience that supports mental and physical wellness.

    •    Workspace per Employee: Workspace per employee is stabilising, with 51% of respondents preferring a range of 75 to 125 square feet per employee over the next three years. De-densification, which began last year, is continuing, with companies in developing Asian countries opting for smaller spaces per employee.

    •    AI in Corporate Real Estate (CRE): AI is being used to summarise documents, process unstructured data, provide real-time responses, and optimise building operations through digital twins and predictive analytics. However, many companies are still in the early stages of AI adoption.

 

Conclusion

 

The 2024 APAC Office Occupier Survey reveals that hybrid working is here to stay, with companies across the region adjusting their office utilisation and portfolio strategies accordingly. Cost savings remain the key driver of lease renewals and relocations, while sustainability and technology are becoming increasingly important in building selection. Flexible office space, unassigned seating, and collaboration spaces will continue to shape the future workplace as occupiers seek to optimise their real estate portfolios while enhancing employee experience and efficiency.

“Adaptive Spaces: Brownfield Land Resumption in the Northern Metropolis – What Does It Mean for Industrial Real Estate?” by CBRE. It focuses on the implications of the Northern Metropolis development in Hong Kong for industrial real estate, particularly in terms of brownfield land resumption, relocation demand, and opportunities for landlords and industrial operators.

 

Overview

 

The report outlines the government’s plans to develop the Northern Metropolis, an innovation and technology hub in Hong Kong’s New Territories, and the impact this will have on brownfield land, which is currently used for industrial purposes. The relocation of brownfield sites will create significant demand for industrial real estate, which will require innovative solutions and present opportunities for industrial landlords.

 

Key Sections

 

1. Brownfield Relocation and Leasing Demand

 

    •    Transformation of the Northern Metropolis: This 20-year development project will turn 30,000 hectares of land in the New Territories into a world-class innovation and technology hub. It will involve the relocation of 65% of the 1,500 hectares of brownfield sites currently in use.

    •    Relocation Demand: CBRE estimates that the relocation of brownfield land users will create 31 million square feet of demand for industrial properties.

    •    Development Goals: The region will focus on high-end industrial, logistics, and value-added economic activity.

 

2. Brownfield Land Bank and Distribution

 

    •    Geographic Distribution: The Northern Metropolis and adjacent areas contain over 1,000 hectares of brownfield sites that will be impacted by the project. The major areas involved include:

    •    246 hectares in Hung Shui Kiu/Ha Tsuen

    •    163 hectares near Man Kam To and the future New Territories North New Town

    •    126 hectares at San Tin/Lok Ma Chau

    •    94 hectares in Yuen Long South

    •    70 hectares in Kwu Tung North/Fanling North

    •    Government Resumption Plan: The resumption of 320 hectares will be completed by 2026, followed by an additional 371 hectares from 2027-2029 and 166 hectares from 2030-2032.

 

3. Brownfield Economy

 

    •    Current Use: Brownfield sites are used for industrial operations that are not suited to multi-storey buildings or face budget and space constraints.

    •    Types of Operations: 33% of brownfield sites are used for open storage, 24% for warehouses/workshops, 16% for vehicle-related operations, and 12% for logistics and freight operations.

    •    Size: There are nearly 2,000 brownfield sites larger than 20,000 square feet, and approximately 130 sites are larger than 100,000 square feet, primarily used for logistics and storage.

    •    Relocation Challenges: About 30% of operations will move into multi-storey industrial buildings, but some industries (such as heavy waste) may find it difficult to relocate to such facilities.

 

4. Industrial Real Estate and the Northern Metropolis

 

    •    Current Supply and Future Demand: Hong Kong’s current 2.6 million square feet of warehouse vacancy will not be enough to meet the anticipated demand of 23 million square feet from relocating brownfield users. In addition, up to 6.7 million square feet of warehouse space may be lost due to redevelopment.

    •    Future Logistics Space: The Northern Metropolis will accommodate up to 77 million square feet of industrial and logistics space, equivalent to 24% of Hong Kong’s total industrial stock in 2023. A significant portion of this space will be developed in Hung Shui Kiu/Ha Tsuen.

    •    New Supply: The government has plans to tender industrial and logistics sites in the Northern Metropolis, with the first batch to include a site in Yuen Long (1.7 million square feet) and two sites in Hung Shui Kiu (5.9 million square feet).

 

5. Relocation Options for Brownfield Users

 

    •    Compensation and Leasing Options: Affected brownfield land users will have several options:

    •    Ex-gratia compensation for agricultural and building land.

    •    Short-term tenancy (STT) on government-offered sites.

    •    Relocation to new purpose-built industrial buildings, with 30% of space allocated at discounted rents for the first 5-10 years.

    •    Challenges for Landlords and Tenants: Competition for space will be intense, as large-scale relocations will need to be accommodated within a limited timeframe.

 

6. Warehouse Automation as a Solution

 

    •    Efficiency Trade-offs: Moving operations from single-floor tin sheds to multi-storey buildings can reduce operational efficiency. Tin sheds offer 90% floor efficiency, compared to 55%-75% for multi-storey warehouses.

    •    Warehouse Automation: To mitigate these challenges, logistics operators can adopt automation technologies, which can improve efficiency and reduce labour costs by up to 60%. Technologies like automated guided vehicles (AGVs) and autonomous mobile robots (AMRs) can increase storage capacity by 30%-80%.

    •    Longer Leases: Given the high costs of automation, longer leases will allow logistics operators to amortise investment costs over time and achieve better returns on investment.

 

7. High-Specification Industrial Buildings

 

    •    New Occupier Demands: Industrial tenants are increasingly seeking buildings with higher specifications, such as larger floorplates, higher ceilings, and greater power availability. The existing industrial stock, mostly built in the 1970s, is aging and not well-suited to modern needs.

    •    Future Demand: Industries like cold chain logistics, e-commerce, and data centres will drive demand for high-quality industrial buildings.

    •    Vehicle Maintenance: As the city moves towards phasing out petrol-engine vehicles by 2035, there will be a need for real estate that can accommodate electric vehicle maintenance workshops.

 

8. Logistics Market Outlook

 

    •    Hong Kong’s Evolving Role: The city is becoming a high-value logistics hub, with 68% of its trade in 2022 involving high-tech products. Cold-chain logistics and healthcare products also saw significant growth during the COVID-19 pandemic.

    •    Greater Bay Area Integration: Hong Kong plays a key role in the Greater Bay Area (GBA) logistics network, handling 75% of the region’s international air cargo through the Hong Kong International Airport.

    •    Future Growth: The expansion of Hong Kong International Airport, including the three-runway system, will double its air cargo capacity by 2035.

 

Conclusion

 

The development of the Northern Metropolis will transform Hong Kong’s New Territories, generating significant demand for industrial real estate as brownfield users relocate. However, the current supply of industrial space is insufficient to meet relocation demand, and competition for space will intensify. Warehouse automation and high-specification industrial buildings will be key solutions to the operational challenges faced by relocated businesses. Landlords and industrial space users are advised to act quickly to secure properties and upgrade their facilities to meet the evolving needs of the market.

 

“Hong Kong Major Report - Hong Kong Market Outlook 2024” by CBRE provides a comprehensive analysis of the Hong Kong real estate market, focusing on five key areas: the economy, investment, office, retail, and industrial & logistics sectors. It examines the performance and trends observed in 2023 and provides forecasts for 2024.

 

Summary of Key Sections

 

1. Economy

 

    •    2023 Review: Economic recovery was mild, constrained by weak inbound tourism and high interest rates. GDP growth in the first three quarters of 2023 was 2.8%, while the Hang Seng Index dropped by 14%, reaching a 14-year low. Retail sales grew by 17.1% year on year, supported by an 8.8% increase in private consumption. However, home prices fell by almost 10%.

    •    Labour Market: Unemployment improved, falling to 2.9% by November 2023, and median household income grew by 6.3%.

    •    Challenges: The trade sector struggled, with a 9.7% drop in merchandise trade.

    •    2024 Forecast: Economic growth is expected to remain modest despite anticipated interest rate cuts. Geopolitical uncertainty, high capital costs, and a government budget deficit will continue to limit growth.

    •    Opportunities: Rate cuts will boost investment activity, while China’s efforts to spur consumption will benefit tourism and retail sales in Hong Kong. Visitor arrivals and domestic consumption are expected to improve.

 

2. Investment

 

    •    2023 Review: Investment activity was subdued due to rising borrowing costs. The 1-month HIBOR reached its highest level since 2001, pushing real estate investment volumes down by 50% to 40.3 billion Hong Kong dollars. There were only 108 deals completed in 2023, the lowest since 2005.

    •    Key Transactions: The largest transaction was the purchase of 12 office floors at One Island East for 5.4 billion Hong Kong dollars by the Securities and Futures Commission.

    •    Challenges: Developers showed reduced interest in land acquisition due to high costs, with several tenders failing. Capital values declined for office and industrial properties, though retail values saw some recovery.

    •    2024 Forecast: Investment volumes should recover slightly as interest rate cuts improve market sentiment. End-users and small investors are expected to drive purchasing, especially for discounted properties.

    •    Key Focus: Distressed assets and properties for self-use will attract attention. Institutional investors are likely to focus on accommodation, storage, and high-yield properties.

 

3. Office

 

    •    2023 Review: Office leasing activity increased by 9%, reaching 4.1 million square feet, but vacancy rates remained high. Overall, 16.4% of office space was vacant by the end of 2023, with Central’s vacancy reaching 9.7%.

    •    Demand Trends: Mainland Chinese companies accounted for only 10% of new leases, and demand from insurance and retail companies grew as tourism recovered.

    •    Rents: Rents fell by 7.7%, particularly in Hong Kong East, which became more attractive due to affordability.

    •    2024 Forecast: A gradual recovery of the Chinese economy and expected interest rate cuts will improve leasing momentum, though high vacancy will continue to exert pressure on rents.

    •    Challenges: Despite improved leasing activity, vacancy rates are projected to rise above 17%, causing rents to decline further by 5% to 10%.

 

4. Retail

 

    •    2023 Review: Retail leasing recovered, with 1.6 million square feet leased, the highest since 2010. However, inbound tourism did not return to pre-pandemic levels, and many local consumers opted to spend abroad, particularly in Japan and Shenzhen.

    •    Demand Drivers: Food and beverage (F&B), pharmacies, and electric vehicle dealers drove most of the leasing activity, while luxury brands remained cautious.

    •    Rents and Vacancy: High street shop rents increased by 6.3%, and vacancy rates fell to 9.1% in core shopping districts.

    •    2024 Forecast: Retail demand is expected to grow moderately, supported by interest rate cuts and a recovery in the Chinese yuan. Retail developments such as the opening of the 2.6 million square foot 11Skies mall will add new supply to the market.

    •    Challenges: Rental affordability will remain a key factor for retailers, though high street shop rents are expected to rise by another 5%.

 

5. Industrial & Logistics

 

    •    2023 Review: Leasing activity in the industrial sector slowed significantly, with a 52% drop in new leasing volumes. Demand was driven by emerging sectors such as data centres and art galleries, while traditional sectors like retail-related logistics underperformed.

    •    Rents and Vacancy: Despite weak demand, vacancy rates remained low, limiting rental declines to 1.2%.

    •    2024 Forecast: Emerging sectors, including technology, electric vehicles, and data centres, are expected to boost demand for industrial space. New developments like the Northern Metropolis will also drive demand for construction-related logistics.

    •    Rents: Rents are expected to decline slightly by up to 5%, but vacancy rates should remain stable.

 

Figures and Charts Summary

 

The report includes several charts to support its analysis:

 

    •    Private Consumption Expenditure: Displays a line graph showing fluctuations in private consumption growth over the year.

    •    Labour Market Conditions: A chart showing unemployment trends over the months, highlighting a decline in unemployment.

    •    Retail Sales: A graph showing the year-on-year growth in retail sales.

    •    Investment Volumes: Bar charts depicting investment volumes by asset class and type of investor.

    •    Office Vacancy: A graph illustrating vacancy rates across major districts in Hong Kong, including Central, Kowloon East, and Wan Chai.

    •    Industrial Vacancy and Rent Trends: Charts illustrating trends in warehouse vacancy and rents, showing slight declines in both.

 

Conclusion

 

Overall, the report predicts a modest recovery for Hong Kong’s real estate market in 2024, driven by interest rate cuts and improving economic conditions in China. However, challenges such as high vacancy rates, geopolitical uncertainty, and constrained growth in traditional sectors will continue to pose risks across the office, retail, and industrial sectors.

 

“Hong Kong Major Report - Hong Kong Market Outlook 2024” by CBRE. It provides an analysis of various real estate sectors in Hong Kong for the upcoming year. The key focus is on the economy, investment, office, retail, and industrial & logistics, examining trends from 2023 and making predictions for 2024. The report highlights the influence of geopolitical uncertainties, anticipated interest rate cuts, and their expected effects on investment, leasing, and overall economic activities.

 

1. Economy

 

    •    2023 Summary: Economic growth in 2023 was modest, due to a weaker-than-expected recovery in inbound tourism and high interest rates. Hong Kong’s GDP increased by 2.8% in the first three quarters of the year, but market sentiment was negatively impacted by high financing costs and geopolitical tensions.

    •    Tourism: Visitor arrivals totalled 30.1 million, significantly below pre-pandemic levels.

    •    Stock Market: The Hang Seng Index dropped by 14%, reaching a 14-year low.

    •    Retail Sales: Retail sales rose by 17.1% on the back of strong domestic consumption, with private consumption expenditure increasing by 8.8%.

    •    Labour Market: Unemployment fell to 2.9%, while the median household income saw a 6.3% rise.

    •    2024 Forecast: Economic growth is expected to remain modest, though anticipated interest rate cuts should improve investment sentiment.

    •    Challenges: Geopolitical tensions, high capital costs, and a government budget deficit will continue to constrain economic growth.

    •    Opportunities: A recovery in visitor arrivals and retail sales is expected, with the Chinese yuan’s recovery supporting local consumption. Lower interest rates may ease funding costs, potentially driving economic recovery.

 

2. Investment

 

    •    2023 Summary: Investor interest waned due to rising borrowing costs. The volume of commercial real estate investment dropped by half to 40.3 billion hong kong dollars, with only 108 deals, the lowest figure since 2005.

    •    Key Transactions: The largest deal involved the purchase of 12 office floors in One Island East for 5.4 billion hong kong dollars.

    •    Challenges: Developers were less active in bidding for residential sites due to high financing costs, with several tenders failing to attract bids.

    •    Sector Overview: The office sector accounted for 35% of all deals, despite high vacancy rates and falling rents.

    •    2024 Forecast: A mild recovery in investment is anticipated, driven by lower interest rates and the availability of discounted assets. However, negative cash flow will continue to limit the increase in overall investment volume.

    •    Main Drivers: Local investors, end-users, and institutional investors in accommodation and storage are expected to drive activity.

    •    Challenges: High vacancy rates in the office and industrial sectors will likely continue to push capital values down.

 

3. Office

 

    •    2023 Summary: There was a slight improvement in leasing activity, but vacancy rates remained high, with a citywide vacancy rate of 16.4%, or 14.3 million square feet of empty office space.

    •    Vacancy Trends: Central Hong Kong saw vacancy rates reach 9.7%, while Kowloon’s vacancy rose by 1.3% due to new office space supply.

    •    Rents: Office rents declined by 7.7%, with areas such as Hong Kong East becoming more appealing due to more affordable rents.

    •    2024 Forecast: The gradual recovery of the Chinese economy and expected interest rate cuts will likely boost leasing activity, but vacancy pressure will persist.

    •    Key Drivers: Increased fundraising activity, IPO recovery, and growth in the asset management sector are expected to drive demand.

    •    Rents and Vacancy: Office rents are expected to drop further by 5% to 10%, as vacancy rates exceed 17%.

 

4. Retail

 

    •    2023 Summary: Retail leasing activity improved due to increased tourism, with leasing volume reaching 1.6 million square feet, the highest since 2010. However, visitor numbers remained below pre-pandemic levels, limiting overall growth.

    •    F&B and Pharmacies: These sectors were key drivers of retail leasing activity. High street shop rents rose by 6.3%, with vacancy rates dropping to single digits in core shopping areas (9.1%).

    •    Luxury Goods: Despite a 55% increase in sales of watches and jewellery, luxury retailers were cautious in their expansion plans.

    •    2024 Forecast: Retail sales are expected to grow moderately, supported by lower interest rates and a stronger Chinese yuan. Retail concepts that emphasise local culture are predicted to attract more tourists.

    •    New Developments: The opening of 11Skies at Lantau will add 2.6 million square feet of new retail space.

    •    Rents: High street shop rents are projected to rise by 5%, while vacancy rates are expected to continue declining.

 

5. Industrial & Logistics

 

    •    2023 Summary: Demand for industrial and logistics space weakened, resulting in a 52% drop in new leasing volume. However, low vacancy helped stabilise rents, which fell by only 1.2%. Demand was driven by IT-related companies and new sectors such as data centres.

    •    Warehouse Vacancy: Excluding one large unleased project, citywide warehouse vacancy edged down to 1.7%.

    •    2024 Forecast: Emerging sectors such as technology and electric vehicles are expected to drive demand for industrial and logistics space. The development of the Northern Metropolis will also create demand for construction-related logistics space.

    •    Rents: Warehouse rents are expected to decline by up to 5%, but overall vacancy rates will likely remain stable.

 

Charts and Graphs

 

The report includes various graphs and charts depicting:

 

    •    Private Consumption Expenditure: A line graph showing fluctuations in growth rates over several quarters.

    •    Labour Market Conditions: A chart illustrating the steady decline in unemployment.

    •    Retail Sales and Trade Flows: Graphs showing the rise in retail sales and the drop in trade flows.

    •    Investment Volumes: A graph highlighting the year-on-year decrease in investment, segmented by asset class.

    •    Office Vacancy and Rents: Bar charts depicting office vacancy rates in different districts, as well as trends in rental prices.

    •    Warehouse Vacancy and Rents: Charts showing warehouse vacancy and rent trends over time, with projections for 2024.

 

Conclusion

 

The report suggests that Hong Kong’s real estate market will see moderate recovery in 2024, driven by expected interest rate cuts and improving economic conditions. However, high vacancy rates and ongoing geopolitical uncertainty will continue to pose significant challenges across different sectors.

 

“Hong Kong Major Report - Hong Kong Market Outlook 2024” by CBRE and presents an analysis of various real estate sectors in Hong Kong for the upcoming year. Here’s a comprehensive breakdown of the document:

 

Overview

 

The report focuses on key sectors such as the economy, investment, office, retail, and industrial & logistics, analysing trends from 2023 and forecasting developments for 2024. The main theme revolves around geopolitical uncertainties, rate cuts, and their impact on investment, leasing, and economic activities.

 

1. Economy

 

    •    2023 Summary: Economic growth was mild due to weaker-than-expected inbound tourism recovery and high interest rates. Hong Kong’s GDP grew by 2.8% y-o-y in the first three quarters, but interest rates and geopolitical tensions weighed heavily on market sentiment.

    •    Tourism: Visitor arrivals were 30.1 million, far below pre-pandemic levels.

    •    Stock Market: The Hang Seng Index fell by 14%, hitting a 14-year low.

    •    Retail Sales: Grew by 17.1% y-o-y due to domestic consumption, supported by an 8.8% rise in private consumption expenditure.

    •    Labour Market: Unemployment fell to 2.9%, and median household income rose by 6.3%.

    •    2024 Forecast: Economic growth will remain modest, but interest rate cuts are expected to improve investment sentiment.

    •    Headwinds: Geopolitical tension, high capital costs, and a budget deficit are seen as major constraints on economic growth.

    •    Opportunities: Visitor arrivals and retail sales are expected to improve, and the RMB’s recovery will support Hong Kong’s consumption. Lower interest rates could reduce funding costs and spur economic activity.

 

2. Investment

 

    •    2023 Summary: Investor appetite weakened due to rising borrowing costs. Commercial real estate investment volume halved to HK$40.3 billion, with only 108 deals, the lowest since 2005.

    •    Key Transactions: The largest deal was for 12 office floors in One Island East, purchased for HK$5.4 billion.

    •    Challenges: Developers were less active due to high funding costs, and several residential sites failed to attract bids.

    •    Sectors: The office sector saw 35% of deals despite high vacancy and falling rents.

    •    2024 Forecast: A mild recovery is expected, driven by interest rate cuts and demand for discounted assets. However, negative carry will persist, limiting the investment volume uptick.

    •    Focus Areas: Small-cap local investors, end-users, and institutional investors in sectors like accommodation and storage are expected to remain active.

    •    Challenges: High vacancy in office and industrial sectors will likely cause further capital value declines.

 

3. Office

 

    •    2023 Summary: Leasing momentum improved slightly, but vacancy rates remained high, with a citywide vacancy rate of 16.4% (14.3 million sq. ft.).

    •    Vacancy Trends: Central’s vacancy reached 9.7%, and Kowloon saw an increase to 1.3% due to new supply.

    •    Rents: Rents declined by 7.7%, with areas like Hong Kong East becoming more attractive due to affordable rents.

    •    2024 Forecast: The gradual recovery of the mainland Chinese economy and rate cuts should improve leasing activity, but vacancy pressure will continue.

    •    Key Drivers: Fundraising and IPO recovery, asset management growth, and construction-related trades are expected to drive demand.

    •    Rents and Vacancy: Rents are expected to decline further by 5%-10% as vacancy rates rise above 17%.

 

4. Retail

 

    •    2023 Summary: Retail leasing demand recovered as tourism improved, with leasing volume hitting 1.6 million sq. ft., the highest since 2010. However, visitor numbers remained below pre-pandemic levels, limiting growth.

    •    F&B and Pharmacies: These sectors drove most of the leasing activity. High street shop rents climbed by 6.3%, and vacancy rates returned to single-digit levels in core shopping districts (9.1%).

    •    Luxury Goods: Despite a 55% y-o-y rise in watch and jewellery sales, luxury retailers remained cautious about expansion.

    •    2024 Forecast: Retail sales will likely grow moderately, supported by rate cuts and RMB recovery. Retail concepts focused on local culture are expected to attract tourists.

    •    Key Developments: The opening of 11Skies at Lantau will add 2.6 million sq. ft. of new retail supply.

    •    Rents: High street shop rents are forecasted to increase by 5%, with vacancy rates continuing to decline.

 

5. Industrial & Logistics

 

    •    2023 Summary: Weaker demand led to a 52% drop in new leasing volume, but low vacancy helped stabilise rents, which fell by only 1.2%. Major demand came from IT-related companies and new trades like data centres.

    •    Warehouse Vacancy: Excluding a large unleased project (Cainiao Smart Gateway), vacancy edged down to 1.7%.

    •    2024 Forecast: Emerging sectors such as technology and electric vehicles are expected to boost demand. The development of Hong Kong’s Northern Metropolis will create demand for construction-related logistics space.

    •    Rents: Warehouse rents are expected to contract by up to 5%, but vacancy will remain stable.

 

Charts and Graphs

 

The report includes several figures that show:

 

    •    Private Consumption Expenditure: A line graph showing fluctuating growth rates over several quarters.

    •    Labour Market Conditions: A chart illustrating the declining unemployment rate.

    •    Retail Sales and Trade Flows: Depictions of how retail sales grew and how trade flows dropped.

    •    Investment Volumes: A graph depicting the year-on-year decline in investment, with figures segmented by asset class.

    •    Office Vacancy and Rents: Bar charts showing office vacancy rates across key areas in Hong Kong, with rent trends also highlighted.

    •    Warehouse Vacancy and Rental Trends: These figures illustrate how vacancy and rents have evolved and are expected to change in 2024.

 

Conclusion

 

Overall, the report indicates that Hong Kong’s real estate market will face modest recovery in 2024, driven by interest rate cuts and improving economic sentiment, but high vacancy and geopolitical uncertainty will continue to pose challenges across sectors.

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