According to CBRE’s (Coldwell Banker Richard Ellis) latest MarketView and Investment Trends research, the rolling out of COVID-19 vaccination programs and an improving economic outlook resulted in a steady increase in commercial property leasing and capital markets activity in Asia Pacific in Q1 2021.
But, the recovery remains uneven across the region, with the momentum in individual countries largely responding to the degree of success in containing COVID-19. This has been manifested by the recent surge in infections in India, which has further given a bleak economic and business outlook, although the reintroduction of lockdown measures and other restrictions in Japan and some emerging markets in South East Asia are expected to influence on real estate related activity in the coming months.
Office Sector
In the office sector, report noted hyped tenant inquiries and more frequent site inspections, as overall occupier demand strengthened during the quarter. Regional Grade A net absorption rebounded from a low base to reach 9.1 million sq. ft. NFA (+1.5% q-o-q and -2.7% y-o-y).
Strong demand from Technology, Media & Telecommunications (TMT) and finance companies created several major flight-to-quality relocations during the period. This includes several anchor-tenant deals at newly completed projects. Mainland China is leading the office market recovery, while the Singapore and Korea markets have followed up.
Steady pre-leasing activity compensate the impact of new supply, with the recovery in demand ensuring regional vacancy up only slightly, reaching 14.8% at quarter’s end. The downwards trend in Asia Pacific Grade A rents decelerated from the previous quarter’s 1.2% q-o-q to 0.7% q-o-q in Q1 2021, bringing the y-o-y fall to 5.0%.
Ada Choi, CBRE’s Asia Pacific Head of Occupier Research, Data Intelligence and Management, said, “The successful control of COVID-19 in most markets and increased office space utilisation should help Asia Pacific office leasing demand and rents remain on a recovery track throughout 2021. As employees return, more occupiers are evaluating the feasibility of hybrid working models. At the same time, many firms are rethinking workplace design and taking new physical distancing concerns into account, which may persuade some companies not to shrink their existing office footprint.”
Retail Sector
In the retail sector, Asia Pacific retail rents down by 0.4% y-o-y in Q1 2021, a slower rate of decline than the 2.1% y-o-y drop recorded in the previous quarter. This quarter’s improved performance was largely owing to rents in tier 1 cities in Mainland China returning to growth.
Retailers in most markets were more active in search of new leasing opportunities, particularly in prime locations, backed by a steady improvement in retail sales and consumer confidence. Particularly apparent was leasing demand from New Energy Vehicle (NEV) companies looking for prime locations in Mainland China.
Although the leasing market will continue to support tenants in the medium term, availability is now beginning to tighten. But, CBRE retains its 2021 forecast of a mild decline in Asia Pacific retail rents.
Industrial Sector
Industrial sentiment continued to grow in Q1 2021, with global manufacturing Purchasing Manufacturers Indices (PMI) reaching 55 in March, a ten-year high. Warehousing demand kept upbeat, with Asia net absorption totaling 15.6 million sq. ft., the highest first quarter total in recent years. Asia Pacific logistics rents up by 0.7% q-o-q, the strongest rate of growth since the onset of the pandemic.
Large 3PLs and e-commerce occupiers drove leasing demand this quarter, assisted by emerging requirements from a range of alternative industries. This includes community purchasing platforms, central kitchens, food delivery providers and pharmaceutical companies.
Following the recent Suez Canal obstruction – which caused significant disruption to global supply chains and shot up shipping costs for major global shipping companies serving global retailers, e-commerce platforms and manufacturers – occupiers are also revisiting safety stock strategies and increasing inventory levels.
This is expected to push demand for bonded warehouses, distribution centres and warehouses serving port facilities in the months ahead.
Asia Investment Trends
CBRE’s research also indicates that Asia Pacific commercial real estate investment sales totaled US$26 billion in Q1 2021, an increase of 12% y-o-y. Investment sentiment continued to strengthen over the quarter, with many markets reporting higher inquiry levels.
Logistics remains the hottest asset class, with yields keep on to compress across most markets. Business and high-tech parks catering to tech tenants continue to be another hot area of interest for investors, especially in Mainland China and Singapore, reinforced by the resilience of tech companies throughout the pandemic.
Retail is gaining interest as a counter-cyclical play, with strong domestic tourism consumption in Mainland China, declining capital values in Hong Kong, and a rebound in J-REIT prices in Japan enticing capital to the sector. Investors are also considering the hotel sector for repositioning opportunities.
“Overall purchasing appetite for commercial property assets is strong, led by private investors. Funds are also actively reviewing acquisition and disposal opportunities, buoyed by current liquidity and pricing levels ahead of upcoming fund expires,” said Dr. Henry Chin, Global Head of Investor Thought Leadership and APAC Head of Research for CBRE.
“Non-core assets and businesses will continue to be disposed in the coming months as corporates recycle and repatriate capital to reduce debt. We expect Asia Pacific investment volume to increase by 10% in 2021, driven by purchasing activity and disposals, led by funds and developers.”
