 "Real estate markets across Asia-Pacific face interest rate pressure: Report")
The last quarter of the current calender year (Q32023) witnessed an increase in interest rates across real estate markets in the Asia-Pacific region leading to challenges in generating favourable returns in relation to cost of capital. The "Colliers' Q3 2023 APAC Cap Rates Report" takes a look into retail, office and industrial real estate markets in the Apac region, which includes India, China, Thailand, Singapore, Hong Kong, Korea, Japan, Australia, and New Zealand. Within India, the report draws on Bengaluru in the commercial real estate or office sector and Mumbai in the retail and industrial real estate sectors. Here are some of the key findings of the report.
Marginal drop in cap rates in Bengaluru's office sector
According to the Colliers report, global sentiment has remained strong towards Indian real estate, however, the market has not been immune to these challenges. In Bengaluru transaction values in Q3 were the same as the previous quarter. Individual investors drove these while institutional players were less active. Deal sizes were smaller resulting in a marginal drop in the cap rate in the office segment. Chinese cities Shanghai and Beijing, on the other hand, have witnessed escalating cap rates. Meanwhile Auckland, New Zealand has seen upward movement for more than a year. Investors have continued to take a cautious approach to the market, subduing market activity over the last quarter.
Tokyo, Japan's office sector, performed well in the last quarter as the hybrid working ratio has dropped to 44 per cent this year compared to 61 per cent in 2021. Seoul, Korea, has retained high demand, however, there is increasing downward pressure on values due to a lack of liquidity in the market.
Mumbai retail sector to gain traction
Colliers report found that Mumbai's retail sector is poised to gain more transactions driven by demand for the luxury segment. The anticipated release of additional supplies of quality organised retail assets will also drive future demand in the sector. Comparatively, Shaghai's retail market has retained relative stability, with national holidays helping boost domestic demand and consumption in the last quarter.
Strong industrial demand in Mumbai
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Despite compression in the cap rate, industrial demand remained strong in Mumbai over the last quarter. The cap rate was attributed to lower availability of Grade A stock. Investor's optimism in the sector has continued, with them willing to trade off lower current yields as they anticipate future growth.
Beijing and Shanghai received fresh supply as the government released more industrial and logistics land. In Bangkok, rental and sales were stable in a low-activity market with a lack of evidence of sufficient transactions. Assets with long lease expirations and low fixed-term rent in Australia, experienced downward pressure on the values during the last quarter.
Ajay Sharma, the managing director at Valuation Services explained these trends in the Indian real estate ecosystem, stating "Given that the RBI has not changed the rate stance over the last eight months with inflation range bound, the trend of fully leased CRE as an investment for inflation hedge has cooled, expanding investor interest into under-development and alternative assets. Further, yield compression has slowed considerably, indicating peaking in the ROI cycle where optimum valuations have been reached. Industrial assets continue to see encouraging investments despite yield compression slowing significantly and will be range bound till macro-economic factors step in to make any change."