Cap rate movement across Asia Pacific markets is being driven by the office sector, according to the latest data released by leading diversified professional services and investment management company, Colliers.

Colliers’ APAC Cap Rates Report for Q3 2024 reported the most movement in cap rates in the office sector, with eight out of 18 cities covered in the research recording changes. This was driven by the Australian CBD markets of Adelaide, Brisbane, Canberra, Melbourne, Perth and Sydney as well as Hong Kong.

CK Lau, Colliers’ Managing Director of Valuation and Advisory Services in Asia, said the steadying of interest rates across major markets was leading to increased sentiment in all sectors.

"The US Fed cut the benchmark federal funds rate by 0.5% in September, fostering positive sentiment in the real estate sector,” Mr Lau said. “This has led the way in encouraging more activity in the market.”

According to the report, 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 caution.

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, demand for office space has remained strong on a year-on-year basis, driven by strata deals that have contributed to rising rents and declining vacancy rates. Capital is actively pursuing deals across the country, leading to increased office leasing activity. 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 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.

In other sectors, the report found retail markets across APAC were stabilising, with many showing signs of recovery supported by cuts to both interest and taxation rates. Cap rates for the industrial sector across the region were stabilising after a lengthy easing cycle.

Download Colliers’ APAC Cap Rates Report for Q3 2024 here.

For further information, please contact CK Lau, Colliers’ Managing Director of Valuation and Advisory Services in Asia as the details below.