Global commercial property specialist CBRE has released 2021 Q4 figures for Asia Pacific. Their numbers indicate that leasing and investment finished strong for the year. Here are a few highlights from the report.
Q4 is traditionally a quiet period for leasing, with the result that net absorption in the sector fell slightly on Q3 figures (13.7M sq. ft. to 13M sq. ft.). While the more mature Hong Kong and Tokyo markets continued to contract slightly due to downsizing, tier 1 expansionary demand improved overall for the quarter, with Beijing and Shenzhen recording record Grade A absorption.
CBRE sees this rise in expansionary demand as a positive indicator of the economy’s recovery. Technology and finance sectors are the key drivers of growth. In the former case, companies in artificial intelligence, cloud computing, and big data arenas are expanding. In the finance industry, funds, securities, and asset management firms are expanding while the big banks continue to reassess and rationalize their property portfolios.
Overall, the year saw a solid recovery of 40% on 2020’s low of 46M sq. ft. However, new supply remains uneven—45% of the 16M sq. ft. Grade A space that came onto the market in Q4 was in mainland China's tier 1 cities. At the same time, India's major cities saw a quarter-on-quarter increase of 29% in new supply, with Mumbai and Bangalore heavy contributors. As a result, the total new Grade A office space for the APAC region amounted to 60M sq. ft. for the year and is set to reach 67M sq. ft. for 2022—the highest in over a decade.
Rental declines continued to slow in Q4, with some markets like Beijing, Shanghai, Singapore, and Seoul turning to gains. This brought the full-year correction to 1.7%. Australian major markets are stabilizing or reducing incentives, with the result that Melbourne was the first CBD market in the country to experience effective rent growth. Tokyo lags behind, however, experiencing continued rental decline due to increasing vacancies, which has led to reduced capital values.
The Omicron variant stalled the retail growth that arose in the first half of 2021, especially in zero-COVID policy markets. In mainland China, for example, these resulted in retail sales growth dropping from 3.9% to 1.7% year-on-year in Q4.
Retailers increased leasing activity to capitalize on favorable rental markets in prime locations. Several online fashion brands have opened brick-and-mortar stores to entrench their brands. However, new demand was dominated by domestic food and beverage and sporting goods. Luxury brands generally held back on expansion. Taipei and Sydney’s CBD were exceptions to this trend, however. In addition, mid-to-high range auto retailers, including electric vehicle (EV) makers, continue opening stores in prime malls in Seoul and Shenzhen.
With international travel still restricted, vacancies remained high in Australia and in some tourist-oriented shopping districts. Some 14M sq. ft. of new retail space came onboard in Q4, with much of this in decentralized areas of Shanghai and Shenzhen. Most of the 52M sq. ft. due for completion in 2022 is also in decentralized areas, mainly in China and India.
Retail rents have mostly stabilized in the region, and capital values are on the up but still closed lower than Q4 2020.
Supply chain disruptions have increased demand for space in the logistics sector as holiday stockpiling catalyzed storage expansion. As a result, leading markets saw net absorption of 35M sq. ft. for the quarter—the highest on record. India and Australia saw robust growth in this area. Cross-border e-commerce is also playing a massive role in demand, with China seeing a 25% year-on-year growth in revenues for this category in 2021. E-commerce hubs like Guangzhou, Shenzhen, Dongguan, and Huizhou are doing well. Total logistics absorption for the APAC region for the year was 98.3M sq. ft., a rise of close to 60% year-on-year.
Developers are responding to demand in the sector, and the 2022 new supply will be close to 90% higher than the five-year average. However, that supply will be unevenly distributed, with Seoul, Tokyo, Shanghai, and Guangzhou accounting for half of it. As a result, occupancy is set to stay high in prime-located sites. While Shanghai and Guangzhou reported higher vacancies in Q4, this was only because most of their supply came online in the quarter.
Q4 rents in the logistics sector grew by 1.0% quarter-on-quarter, with growth for 2021 reaching 3.4% year-on-year. The growth was strongly driven by Australian markets, while Singapore, Seoul, Delhi, and Gurgaon played a supporting role. Rents are predicted to continue rising in 2022, but not on the same trajectory as 2021, given the increase in supply. Capital values will increase as many investors are looking to acquire upscale logistics centers managed by professional developers.
APAC investment turnover rose to $41 billion in Q4 2021, leading to a full-year turnover of $141 billion. Property funds, REITs, and corporations were the most significant contributors to the figures. These numbers come close to the last high in 2017 of $142 billion.