Capital Markets

CBRE conducts the Asia Pacific Cap Rate Survey with our capital markets brokers and valuers every six months to obtain insights into current capital markets trends and sentiment along with the latest cap rate movements across individual markets and sectors. This report summarises the survey’s key findings.

Below are the key highlights:

• Commercial real estate investment got off to a strong start this year, rising 11% year-on-year to US$33 billion in Q1 2025 on the back of declining interest rates and asset repricing.
• Bifurcation in cap rates was observed across the region. Australia’s shopping malls experienced cap rate compression, while cap rates in Greater China continue to experience expansion pressure.
• In response to tariffs, some 60% of respondents expect investors to reassess the pace of purchasing activity. Mainland China, Hong Kong, and Singapore investors were extremely concerned about the impact of tariffs, while those in Korea, Australia, India, and Japan were somewhat concerned.
• Private (28%) and institutional (12%) investors continued to display the strongest buying intentions. Buying intentions for REITs and real estate funds strengthened from six months previously.
• Net buying intentions were highest in New Zealand (77%) and Australia (48%). Japan attracted the strongest interest from cross-border investors.
• Elevated yields / favourable pricing (63%), potential for rental uplift (44%) and healthy or improving occupancy/rent roll stability (36%) were named as the top three opportunities to improve investment returns.
• Interest in multifamily & build to rent increased significantly (44% vs. 34%) from six months ago, with Japan, Greater China and Australia the main markets of interest. Demand for neighbourhood shopping malls (24% vs. 12%) also picked up from the Q3 2024 survey.
• Data centres (63%) were the clear favourite among alternatives.

India’s capital markets continue to evolve, backed by strong macroeconomic fundamentals, policy reforms, and a resilient appetite from both domestic and global investors. The real estate sector remains a key focus, with heightened activity across income-generating and emerging asset classes. With stable demand, strategic capital deployment, and increasing institutional interest, FY25 is poised to be a defining year for the Indian investment landscape.

Key highlights of the report include:

India Market Overview

• Robust investment activity observed across core commercial office assets and the industrial & logistics sector.
• Emerging interest in data centres and alternative assets, driven by digitisation and rising demand for specialised infrastructure.
• Rising participation from global investors in large-scale platform deals and structured equity transactions.
• Continued interest in income-yielding assets and Grade A developments across top metros.

Capital Trends & Deal Activity

• Strategic partnerships between institutional investors and developers drive capital inflows.
• Notable transactions include deals in Mumbai, Bengaluru, NCR, and Hyderabad across office and warehousing sectors.
• Increased focus on structured transactions and forward purchase models.

Outlook

• Investor sentiment remains positive, underpinned by India’s growth trajectory and real estate sector resilience.
• Policy support and infrastructure development expected to further enhance market depth and transparency.
• India continues to attract long-term capital seeking stability, scale, and sustainable returns.

Asia Pacific’s growing influence on global capital markets is reshaping investment dynamics, positioning it as a prime source and a top destination for global cross-border capital. With stabilising economic fundamentals and sustained investment momentum, the region continues to strengthen its appeal among investors seeking growth and stability.

Key highlights of the report include:

Asia Pacific

• APAC is home to four out the top 10 capital sources worldwide – Singapore, Hong Kong, Japan and China.
• Seven of the top 10 destinations for land and development sites globally located within Asia Pacific – China, Singapore, Australia, India, Malaysia, Vietnam and Japan.
• For standing assets globally, Asia Pacific remains a key player with Japan, Australia and China ranking among the top 10 destinations.
• The region has diverse investment appeal: Six sectors, led by office and industrial, saw US$183 billion in investment over the past 24 months.
• The office sector led the way with US $57billion, followed by industrial (US $55billion), retail (US $37billion), multifamily (US $17billion) and hospitality (US $15billion).
• Key source of global capital: Asia Pacific is home to four of the top 10 sources of capital – Singapore Hong Kong, Japan and China.
• Continued dominance as a global cross-border capital destination: With seven out of the top 10 destinations for land and development sites and three of the top 10 destinations for standing assets, the region is a magnet for cross-border capital.

Global

• Investment volumes increased in the final quarter of last year due to global interest rate cuts.
• Industrial is back to being the leading global sector of choice.
• Hospitality is the fastest-growing preferred asset class for global cross-border investors.

CBRE professionals in Asia Pacific note that investment activity in the region is strengthening as interest rate cuts commence.

Continued cap rate expansion is expected across most markets in Asia Pacific, with cap rates in Australia showing signs of peaking, and Japan remaining stable. Core assets are expected to exhibit greater resilience over the next six months.

Other key highlights from the survey include:

• Investor risk appetite has increased slightly, and buying intentions have improved across almost all markets and investor types.
• Core Grade A offices return to investors’ radar, with neighbourhood malls also generating more interest.
• Recovery of investment activity in certain markets pushed back to mid-2025.
• More acquisition opportunities to emerge amid a narrowing price gap between buyers and sellers in most sectors.

With the Asia Pacific commercial real estate market sitting at the top of the interest rate hike cycle (excl. Japan) and repricing for assets beginning to materialise, conditions are ripe for certain investment opportunities.

Now is an opportune moment for investors to acquire discounted assets in specific markets and sectors that are expected to see both pricing and performance rebound over the medium-term.

This report identifies opportunities for buyers and sellers seeking to capitalise on changing market dynamics, and explores the cyclical and structural investment strategies that can be deployed across the Office, Industrial & Logistics, Retail, Living, Hotel and Data Centre sectors, as well as through credit strategies.

Knight Frank’s Asia-Pacific Horizon: Look Beyond the Norm report uncovers emerging investment momentum and identifies top investment destinations, with private capital playing a crucial role.

Key highlights:

• Major trends driving real estate investments in APAC
• Projected impact of rate cuts on investments
• Deal flows in APAC signal recovery in H224
• 2024 is a great vintage for offices in Australia and Hong Kong
• Spotlight on Australia, Japan, Singapore, South Korea and Hong Kong SAR
• A return to inflation fires up Japanese real estate

The US Central Bank has lowered interest rates by half a percent for the first time in four years. Some markets across the Asia Pacific region have followed suit or are planning to do so in the coming quarter.

In Q3 2024, the office sector experienced the most movements in cap rates in the region, with 8 out of 18 cities covered in this report reporting changes.

Key Highlights in Q3 2024 

Office sector

• Australia has experienced an uptick in transaction activity, indicating a potential softening of yields.
• In Bangkok, the office sector has seen stable cap rates quarter over quarter. However, the growing supply of Grade A developments, coupled with limited new market entrants, may exert downward pressure on occupancy levels in the near term.
• Major cities in China, including Beijing and Shanghai experiencing a surge of new supply entering the market, which is putting pressure on rents and occupancy rates. The lack of substantial en bloc deals, often key indicators of market confidence, reinforces a prevailing sense of cautious among sentiment.
• Hong Kong’s high vacancy rates are presenting challenges for the office leasing market, leading to a decline in Grade A office rents and capital values. Cap rates have slightly decompressed, with investors remaining cautious regarding office assets.
• In India, technology occupiers are actively driving investment from both institutional and individual investors, significantly increasing capital flow into the office sector. Bengaluru recorded historic absorption in the past quarter, contributing to rental growth.
• Seoul is expected to remain a landlord-favored market due to limited supply despite, despite a slowdown in leasing activity.
• Prime office values should continue to be supported by healthy rents and lower interest rates, highlighting the stability of asset prices in Singapore.

Retail sector

• Retail spending in Auckland has stabilised and is expected to recover, supported by cuts to both interest and taxation rates.
• In Bangkok, the retail market remains stable, with both rent and occupancy rates unchanged and likely to stay consistent through the end of the year.
• Bengaluru’s organised retail segment has seen limited transactions driven by institutional capital, resulting in stable cap rates. There is a noticeable increase in demand for high street retail space within the city.
• In Hong Kong, high street shop rents beginning to show signs of recovery as tourism picks up at a faster pace, although local consumers’ outbound spending has somewhat restrained the rebound in retail sales. The cap rate has expanded as rental growth increases from a low base, with select retail asset sales during the quarter offering attractive yields for investors.
• Metro Manila is witnessing numerous renovations and expansions of malls, contributing to a rise in retail vacancy rates from 15% in 2023 to 17% in 2024. Rents remain stable and property values are expected to follow suit.
• Leasing activity in Grade A malls in Mumbai has remained robust, as retailers anticipated a boost in average transaction duration (ATD) during the upcoming festive season. Despite the increased supply in the city and limited capital chasing deals in this asset class, cap rates are expected to remain within the current range.

Industrial sector

• Cap rates for the industrial sector in Auckland are stabilising after a lengthy easing cycle. Development activity has slowed, which is expected to limit the increase in vacancy rates observed throughout 2024.
• In Bengaluru, investor sentiment in the industrial asset class has remained largely unchanged, reflected in the stability of the cap rate across the overall market.
• Hong Kong has experienced low transactions volumes; however, investment activity surged quarter-over-quarter due to a notable high-quality logistics transaction in Q3 – the LiFung Centre.
• In Jakarta, industrial demand is primarily driven by the automotive sector, data centers, and modern warehouses catering to E-commerce, Fast-moving consumer goods (FMCG) and logistics. This growth has been consistent with minimal variation.
• Seoul’s industrial investment activity has improved, alleviating concerns about oversupply in the market.

While activity remains limited in Australia amid delayed rate cuts, some buyers are returning to the retail sector now that pricing has been reset. The hospitality and living sectors are also attracting interest. H2 2024 will be the optimal buying window as some sellers expect the rate cute cycle to arrive by year’s end.

In Hong Kong SAR, the relaxation of LTV ratios for commercial real estate investment has improved sellers’ confidence and liquidity, leading to fewer discounted and distressed opportunities. More investors are looking at niche sectors such as student housing and data centres as the office market remains under repricing pressure.

Investment volume in Japan was supported by J-REITs and domestic property firms in Q1 2024. However, activity by foreign buyers weakened amid high interest rates globally. Interest in prime offices and hotels remains strong but investors are becoming more selective towards the residential sector.

Korea continues to see improved market sentiment on the back of easing lending rates. Positive carry is expected to occur by the end of 2024 as yields continue to expand and the cost of finance trends down.

This report was originally published in https://www.cbre.com/insights/figures/asia-pacific-investment-trends-q1-2024

Office: A rise in site inspections and enquiries failed to translate to an increase in leasing activity in Q1 2024 due to occupiers’ cost cautious stance and the first quarter historically being a quiet period for transactions. Occupiers are likely to retain a cautious attitude towards spending and location selection in the near term.

Retail: Leasing was dominated by expansion, with upgrading and relocation also picking up. Demand was led by the luxury and F&B sectors. Although retailers continue to be location sensitive, markets with tight availability are seeing demand spill over to secondary areas.

Logistics: Demand moderated this quarter during what is a traditionally quiet period for transactions. Leasing activity was constricted by stricter capital expenditure controls due to moderating sales growth. 3PL occupiers continued to display steady demand, supported by cost optimisation and outsourcing.

Investment: Asia Pacific commercial real estate investment volume fell by 4% q-o-q to US$24 billion, primarily due to a decrease in industrial investment. Delays to much anticipated interest rate cuts prompted investors to stay on the sidelines, with most buyers opting to wait for additional repricing opportunities as the negative carry situation persists.

This report was originally published in https://www.cbre.com/insights/figures/asia-pacific-figures-q1-2024

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

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

Key Highlights in Q1 2024

Office sector

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

Retail sector

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

Industrial sector

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