MARKETVIEW

Asia Pacific, Q2 2019

Market headwinds hit leasing

activity and investment sentiment
2019 APAC GDP Growth Asian Business Sentiment Index 2019 Industrial Production
+4.6% / +4.4% 63 / 53 +2.9% / +2.8%
(Forecast in Q1 2019 / Forecast Q2 2019) (Q1 2019 / Q2 2019) (Forecast in Q1 2019 / Forecast in Q2 2019)

Source: CBRE Research, Thompson Reuters/INSEAD Asian Business Sentiment Survey June 2019, Oxford Economics

Quick Stats OFFICE

Office q-o-q y-o-y

Net absorption rebounded by 15% q-o-q to 14.1 million sq. ft. NFA in Q2
Rent +0.2% +2.8% 2019 but this was primarily due to pre-leasing in new supply. Aside from
Capital value +1.4% +3.9% India, demand in most markets was subdued. Tech firms led new set-up
and expansion but demand from flexible space providers slowed. 16.8
Retail q-o-q y-o-y
million sq. ft. NFA of new space was completed but tight availability
Rent -0.1% +0.1% ensured regional vacancy edged up by just 0.2 ppt to 11.1%. Rents
Capital value -0.4% +2.0% increased by 0.2% q-o-q.
Logistics q-o-q y-o-y
R E T A IL
Rent +0.4% +2.5%
Capital value +1.5% +5.4% Leasing demand was limited and largely confined to retailers with
Investment* q-o-q y-o-y relatively smaller sized requirements such as premium coffee, drinks and
personal care stores. New supply this quarter totalled just 3.8 million sq.
Total volume +4.1% -17.9% ft., but the 51 million sq. ft. due for completion in H2 2019 is set to exert
Cross-border +52.9% -4.1% significant upward pressure on vacancy. Rents edged down slightly by
Source: CBRE Research, Q2 2019. 0.1% q-o-q.

*Transactions include deals above US$10 L O G I S TI C S

million in the office, retail, mixed, industrial,
hotel and other commercial sectors
Demand slowed as occupiers, particularly those in trade-related sectors,
turned more cautious. Leasing activity was primarily led by domestic
consumption-driven occupiers. New supply fell to 15.7 million sq. ft., a
significant decline on the 24.7 million sq. ft. recorded in Q1 2019, with
further tapering expected in H2 2019. Rents rose by 0.4% q-o-q.

I N V E S TMENT

While transaction volume increased by 4.1% q-o-q to US$28.6 billion,

market sentiment continued to be negatively impacted by a range of
factors including the U.S-China trade conflict; geopolitical tension and
socio unrest in several Asian markets; and mounting global economic
uncertainty. However, cross-border investment remained active, with
Asian capital continuing to dominate.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

ECONOMY
G R O W T H O U T L O O K W E A KE N S Figure 1: Asia Pacific 2019 and 2020 GDP Growth Forecast (%, Y-o-Y)

CBRE has revised down its 2019 Asia Pacific GDP 8%

2019F 2020F
growth projection from 4.6% to 4.4% as the U.S.- 7%
China trade conflict continues to drag on economic
6%
activity.
5%
Purchasing Manufacturers Indexes (PMI) in China,
4%
Singapore, Korea all fell into contraction territory in
Q2 2019. Corporate expansion sentiment weakened, 3%
with the Thomson Reuters INSEAD Asia Business 2%
Sentiment Index declining to a 10-year low.
1%

The weaker economic outlook was also due to slower 0%

Vietnam

Japan
Philippines

Korea
India

Indonesia

New Zealand

Australia

Taiwan
Hong Kong

Asia Pacific
China

Thailand
Malaysia

Singapore
export growth. Exports from China, Singapore and
Hong Kong all came under pressure during the
quarter, while Korea suffered its sharpest contraction
in three years, with June exports falling by 13.5% y-o-
y. Source: Oxford Economics, CBRE Research, Q2 2019.

Consumer spending is expected to remain prudent.

Market
Nonetheless, the largely stable labour market across
the region should continue to provide some support
Table 1: Policy Interest Rate Changes

End of July 2019,

to consumption demand. Market Change
%

M O N E T A R Y P O L IC Y L O O S E N S
Australia 1.00 -50 bps
China 4.35 0 bps
Indications that the U.S. Federal Reserve plans to cut
Hong Kong* 2.54 +75 bps
rates in H2 2019 prompted many Asia Pacific markets
to loosen monetary policy in Q2 2019. India 5.75 -25 bps
Indonesia 5.75 -25 bps
Australia reduced its cash rate twice in June and July
New Zealand 1.50 -25 bps
to a new historical low of 1%, while Korea cut its base
rate in July for the first time since 2016. New Zealand Singapore* 2.00 +5 bps
cut its cash rate by 25 bps, the first reduction since
Korea 1.50 -25 bps
2017, while India reduced its repo rate to 5.75%, the
lowest level in nine years. Taiwan 1.375 0 bps
Thailand 1.75 0 bps
Other markets to cut rates included The Philippines,
Philippines 4.50 -25 bps
Malaysia and Indonesia. The People’s Bank of China
continued to lower the required reserve ratio, Note on policy interest rates: Australia - Cash rate, China - 1 Yr
especially for small and medium sized banks, to free lending rate, Hong Kong – 3M HIBOR, India - Repo rate ,
up liquidity. Indonesia – 7-days Repo rate, New Zealand - Official Cash Rate,
Singapore – 3M SIBOR, Korea - Base rate, Taiwan – Discount Rate,
Further rate cuts are likely in the Pacific, Korea and Thailand -1-day repo rate.
Southeast Asia in the coming quarters. * Rates for Singapore and Hong Kong are as of 30 June 2019.
Source: CBRE Research, Various Central Banks and Monetary Authorities,
Q2 2019.

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M A R K E T V I E W ASIA PACIFIC Q2 2019

OFFICE Investment Turnover

28.3% y-o-y
Capital Values
1.4% q-o-q
Rental Values
0.2% q-o-q

L E A S IN G L O S E S M O M E N T UM
Figure 2: Office Net Absorption (‘000s sq. ft.)
Office leasing activity remained soft in Q2 2019, 80,000
continuing the subdued performance of the past 70,000
quarters. Leasing volume fell by 2.0% y-o-y in H1 60,000
2019. Although regional net absorption rebounded 50,000
by 15% q-o-q to 14.1 million sq. ft. NFA, this was 40,000
primarily due to steady pre-leasing in new supply. 30,000
Net absorption declined by 19% y-o-y in H1 2019. 20,000
10,000
Demand in China tier I cities continued to suffer
0
under the impact of the U.S.-China trade conflict
and slower economic growth. Hong Kong and Q1 Q2 Q3 Q4 Annual New Supply
Singapore continued to see a lack of new demand
Source: CBRE Research, Q2 2019
drivers, while Seoul reported only a small number
of new leases. Occupiers in Australia delayed
leasing decisions ahead of May’s Federal election.
Table 2: Major New Office Supply in Q2 2019
Upbeat markets included India, which continued to
Estimated Size
benefit from robust outsourcing demand. Total net Market Development Name
(sq. ft.)
absorption for India’s three major cities surged to
Seoul Eulji Twin Tower 1,578,800
7.3 million sq. ft. NFA.
Mumbai Nesco (Building No.4) 1,200,000
T M T S E C T O R L E A D S D E M AN D Shenzhen The Platinum Towers 1,038,300

Bangalore Prime Co Tower 970,000

Flight to quality remained a key trend, supported
by the addition of new stock in selected markets. Shanghai AI Tower 861,100
Tech firms displayed a healthy appetite for new set- Hong Kong The Quayside 639,000
up and expansion, with India reporting a
particularly strong uptick in expansion and Source: CBRE Research, Q2 2019.
consolidation.

Flexible space providers have been a key driver of

Figure 3: Vacancy Rate and Development Pipeline
leasing activity in recent quarters, but demand
50
Vacancy & development pipeline as % of stock

slowed in a number of locations in Q2 2019. The Development Pipeline of 2019 H2 & 2020
sector accounted for less than 4.0% of total leasing 40 Current Vacancy Rate (Q2 2019)
volume this quarter. However, major international
30
and regional operators continued to enter new
markets, with Greater China, Seoul and India the 20
main focus.
10

Expansionary demand from the financial sector was 0

Hanoi

Seoul

Taipei

Sydney
Shenzhen

Canberra
HCMC

Tokyo

Bangkok
Auckland
Mumbai

Perth
Shanghai

Adelaide
Guangzhou
Beijing

Hong Kong
Brisbane

Singapore

Wellington
Melbourne
New Delhi

Bangalore

limited. Foreign banks remained in cost saving

mode, with a few cost saving relocations to
decentralised areas reported in Hong Kong, and
Source: CBRE Research, Q2 2019.
Singapore witnessing some right sizing deals.
Note: Grade A vacancy rate and new supply as a % of Grade A stock for Asian
markets. Pacific markets are based on total vacancy and new supply as a %
of total stock.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

V A C A N CY I N C R E AS E S M A R G I N A LLY Figure 4: Asia Pacific Vacancy Rate (%)

14
Around 16.8 million sq. ft. NFA of new office space
12
was completed this quarter, a figure 10% higher than
the three-year quarterly average. Shenzhen 10

Vacancy Rate (%)

accounted for one-third of new supply as two delayed 8
projects came on stream. Other markets with large
6
new supply included Bangalore and Shanghai.
4
Asia
Shanghai (18.0%, +1.5 ppt q-o-q) and Shenzhen 2 Pacific
(16.6%, +3.3ppt q-o-q) both recorded a significant Asia Pacific
0

H1 14
H1 03
H1 04
H1 05
H1 06
H1 07
H1 08
H1 09
H1 10
H1 11
H1 12
H1 13

H1 15
H1 16
H1 17
H1 18
H1 19
increase in vacancy, mainly due to the addition of new
supply. In India, healthy pre-commitments to newly
completed stock helped stabilised the vacancy rate in Source: CBRE Research, Q2 2019.
key markets.

Figure 5: Asia Pacific Office Rental and Capital Value Index

Despite the new supply, tight availability in Southeast
Asia and the Pacific ensured regional vacancy edged 350
325
up by just 0.2 ppt to 11.1%. Vacancy will continue to 300
slowly trend upwards as major new supply comes on 275
250
Index Q2 2001 = 100

stream in China tier I cities in the coming quarters. 225

200
175
S L I G HT R E N T A L G R O W T H R E C O R DE D 150
125
100
Office rents rose by 0.2% q-o-q in Q2 2019, with year- 75
to-date growth standing at 1.0%. Strong growth in 50

2016 Q2
2003 Q2
2004 Q2
2005 Q2
2006 Q2
2007 Q2
2008 Q2
2009 Q2
2010 Q2
2011 Q2
2012 Q2
2013 Q2
2014 Q2
2015 Q2

2017 Q2
2018 Q2
2019 Q2
Melbourne and Perth was offset by weakness in
Beijing, Shenzhen and Hong Kong.
Rental Value Index Capital Value Index
Source: CBRE Research, Q2 2019.
This quarter marked a turning point for Perth, with
prime face rents recording their first growth since
2013. Other positive markets included Taipei,
Singapore and Bangkok, which all recorded growth in Figure 6: Strongest Grade A Rental Growth, Q-o-Q
4%
excess of 1.0% q-o-q.

In China, several landlords cut rents to attract high 3%

quality tenants. Hong Kong suffered its first quarterly

rental decline since Q2 2014, as weaker leasing 2%
momentum in core submarkets resulted in a fall of
0.6% q-o-q. 1%

Office capital values continued to increase, driven by

0%
high investment liquidity in Australia and Korea. Hong Melbourne Perth Wellington Bangkok Singapore
Kong and Shanghai recorded a mild correction in
prices due to subdued leasing momentum, with yield Source: CBRE Research, Q2 2019.
in both markets expanding mildly amid higher leasing
risk.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

RETAIL Investment Turnover

4.6% y-o-y
Capital Values
0.4% q-o-q
Rental Values
-0.1% q-o-q
R E T A I L S A L E S G R O WT H S L O WS F U R T H E R

Retail sales growth continued to lose momentum in Q2 Figure 7: Y-o-Y Growth in Retail Sales In Selected Markets
2019 as consumers turned more prudent amid rising 2018 Jan-May 2019 Jan-May
economic uncertainty and deteriorating corporate 15%
sentiment.
12%
China recorded retail sales growth of just 8.4% y-o-y in 9%
H1 2019, mainly due to sluggish vehicle sales. In Hong
6%
Kong, retail sales fell by 2.9% y-o-y in April - May, with
several major retailers reporting further declines in 3%
subsequent months.
0%

Drugstores in Japan have reported slower sales growth -3%

for cosmetic products this year, partially due to stricter China Australia Korea Japan Hong Kong Singapore
regulations on daigou (reselling) in China. Retail sales
Remarks: Singapore’s growth rate represents changes in Retail Sales Index
growth in Japan weakened, although there could be a
Source: CEIC, 2019.
brief spike ahead of the next consumption tax hike in
October. Figure 8: New Retail Entrants by Sector H2 2018 – H1 2019

50%
Consumer spending is expected to remain prudent on
the back of subdued economic prospects and H2 2018 H1 2019
40%
consumer sentiment. However, the largely stable
labour market across the region should continue to
30%
provide some support to consumption demand.

20%
L E A S IN G D E M A N D R E M A I N S S U B D U E D

10%
New leasing demand was limited in Q2 2019 and
largely confined to retailers with relatively smaller sized
0%
requirements such as premium coffee, drinks and
Coffee and Specialist Luxury and Mid Range Health and
personal care stores, along with a few new-to-market Restaurants Clothing Business Fashion Personal Care
brands.
Source: CBRE Research, Q2 2019.

Premium coffee outlets including % Arabica and Blue

back new openings, opting instead to focus on
Bottle Coffee opened new stores in Korea and China
penetrating emerging markets and expanding online
this quarter, while Starbucks opened its first Starbucks
platforms. H&M will cut its global store openings this
Now in the region in Beijing. This format is an express
year while Inditex group is to extend its online
store which serves as a centralised dispatch centre for
offering to more markets.
delivery orders. Major markets also continued to see
rapid expansion from bubble tea and dessert outlets
High-end fashion groups continue to report strong
seeking to capture demand over the traditionally busy
sales growth in Asia, mainly driven by China. However,
summer months.
rather than add new locations, luxury brands are
expected to focus on revamping and upgrading
Several major fast fashion brands continued to
existing stores, while also utilising pop-ups.
consolidate their operations, with Forever 21 exiting
Taiwan and China and American Eagle downsizing in
Other drivers of leasing activity included personal
the latter. Other groups are scaling
care retailers and sportswear brands.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

V A C A N CY E X P E C T E D T O R I S E
Figure 9: Retail Development Pipeline
25
Just 3.8 million sq. ft. of new retail supply was
completed in Q2 2019, mostly in China and Vietnam. 2020F 2019F
20
However, the expected addition of 51 million sq. ft. of

Development Pipeline (Million sq. ft.)

space in H2 2019 will exert upward pressure on
15
vacancy which is already being impacted by weak
leasing sentiment.
10

Leasing demand for space in prime-grade shopping

centres and along major high streets is expected to 5

remain relatively healthy but current trading

conditions will pose a challenge for operators of older 0

Tokyo
Shanghai

Hong Kong

Melbourne

Adelaide
Wellington
Brisbane
Beijing

Bangkok
Guangzhou

Taipei

Singapore

Auckland
Seoul

HCMC

New Delhi

Mumbai
Hanoi

Sydney

Perth
Shenzhen
properties.

Landlords are advised to consider renovation,

Source: CBRE Research, Q2 2019.
reconfiguration and placemaking schemes to ensure
their assets remain competitive.
Figure 10: Asia Pacific Retail Rental and Capital Value Index
400
R E N T S D E C L IN E S L I G H T L Y
350
Index Q1 2003 = 100

300
Retail rents edged down by 0.1% q-o-q in Q2 2019.
250
Markets in Australia saw longer lease negotiations
and signs of increased incentives. Melbourne was the 200
worst performer (-2.9% q-o-q) after several retailers 150
consolidated store networks for cost saving purposes, 100
while the Perth CBD (-2.8% q-o-q) also struggled 50
2004 Q2

2017 Q2
2003 Q2

2005 Q2
2006 Q2
2007 Q2
2008 Q2
2009 Q2
2010 Q2
2011 Q2
2012 Q2
2013 Q2
2014 Q2
2015 Q2
2016 Q2

2018 Q2
2019 Q2
under the impact of high vacancy.

Taipei also reported weaker rents, driven by a Rental Value Index Capital Value Index
correction along Zhongxiao East Road, where several Source: CBRE Research, Q2 2019.
landlords were seeking to fill vacancy. Rents in Hong
Kong were largely stable aside from a mild correction
Figure 11: Markets With Rental Correction In Q2 2019
in Central. However, a moderate decline is expected
in the coming months due to ongoing sociopolitical
0%
unrest.

Regional retail rents will come under stronger -1%

pressure in the coming quarters amid rising vacancy
and weakening consumption.
-2%
Although retail investment turnover increased in Q2
2019, capital values declined 0.4% q-o-q, marking the
-3%
first negative growth in three years. Capital values in
Melbourne Perth Taipei Brisbane
Melbourne and Perth weakened in tandem with
rental declines, while Hong Kong also recorded lower
capital values this quarter. Source: CBRE Research, Q2 2019.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

LOGISTICS Investment Turnover

29.8% y-o-y
Capital Values
1.5% q-o-q
Rental Values
0.4% q-o-q

I N D US T R I AL S E N T IM E N T W E A K E NS Figure 12: Warehousing Net Absorption & Completions (million sq. ft.)
80
Industrial sentiment in advanced economies Net Absorption
70
weakened in Q2 2019 due to escalating economic
60 Completions
uncertainty, the U.S.-China trade dispute and
50
disappointing manufacturing sector data. The latter

Million sq. ft.

40
was particularly subdued, with PMIs in China,
30
Singapore, Korea all falling into contraction territory
during the quarter. 20
10
Escalating trade tensions between Japan and Korea 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 H1
and Donald Trump’s recent comments about 2019
potentially introducing tariffs on Vietnam also Note: CBRE tracks net absorption and completions for selected major markets in Asia
clouded the trade outlook. However, Taiwan and Source: CBRE Research, Q2 2019.
emerging Southeast Asia continued to benefit from
supply chain relocation from China.
Figure 13: Logistics Vacancy Rate
16%
The current economic uncertainty prompted many 2019 Q1 2019 Q2
industrial and logistics occupiers to turn more
cautious towards expansion in Q2 2019, especially 12%
Vacancy Rate (%)

export-related manufacturers and trading companies.

8%
L E A S IN G M O M E N T U M D E C E L E R AT E S

4%
Leasing momentum slowed in Q2 2019 as occupiers,
particularly those in trade-related sectors, turned
more cautious. Demand was led by domestic 0%

consumption-driven occupiers.

Net absorption in China continued to suffer from the
ongoing relocation of e-commerce platforms to self-
built facilities and retailers moving to custom-built
warehouses.
In Hong Kong, leasing activity softened as occupiers
adopted a wait-and-see approach amid the U.S.-China
trade conflict. Demand from trade-related 3PLs
weakened and forced relocations, rather than
expansion, drove activity.
Note: CBRE tracks vacancy rate for selected major markets in Asia Pacific.
Source: CBRE Research, Q2 2019.
Positive markets during the quarter included Greater
Tokyo, where leasing demand remained upbeat on
the back of solid expansion by e-commerce platforms.
Also in this market, the labour shortage continued to
encourage upgrading to newly completed modern
logistics facilities requiring relatively less manpower.

Activity in Singapore was limited, with new leases
mainly involving renewals and some relocations.
Other slow markets included Australia, where
weakness in the construction and manufacturing
sectors hampered industrial expansion during the
quarter, lengthening the deal negotiation and closure
process.
The period saw a jump in enquiries for cold storage
space for omnichannel grocery retailers and last mile
distributors, particularly in China, Hong Kong, Korea
and Australia. However, regional supply remains
limited.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

N E W S U P P L Y D W I N DL E S Figure 14: Logistics Development Pipeline

45
New logistics supply fell to 15.7 million sq. ft. in Q2 40
2019F 2020F

Development Pipeline (million sq. ft.)

2019, a significant decline on the 24.7 million sq. ft. 35
recorded in Q1 2019. Greater Seoul (4.25 million sq. 30
ft.) and Greater Tokyo (3.56 million sq. ft.). accounted 25
for around half of the new stock completed during 20
the period. 15
10
5
No new supply was completed in China tier I cities
0
this quarter, ensuring vacancy declined slightly. New

Auckland
Sydney

Shenzhen
Greater Tokyo
Greater Seoul

Shanghai
Perth
Guangzhou

Hong Kong
Brisbane

Beijing
Singapore
Melbourne
Greater Osaka
additions in tier II cities were also limited as some
projects in non-prime locations delayed their
completion date due to slow preleasing.
Note: Singapore records net supply; Australia reported pipeline of entire state
The supply pipeline is forecast to taper further in H2 Source: CBRE Research, Q2 2019.
2019, particularly in Greater Seoul, Sydney, Singapore
and Beijing, thereby providing support for rents in Figure 15: Asia Pacific Industrial Rental and Capital Value Index
these markets.
275
Vacancy in Greater Tokyo fell to a record low of 2.7% 250
on the back of solid leasing demand. Logistics 225
Index Q4 2005 = 100

200
facilities in the core sub-markets of Tokyo Bay and
175
Gaikando were reported to be fully-let during the
150
quarter, while Route 16 and Ken-o-do recorded higher 125
occupancy. 100
75

2017 Q2
2008 Q2
2009 Q2
2010 Q2
2011 Q2
2012 Q2
2013 Q2
2014 Q2
2015 Q2
2016 Q2

2018 Q2
2019 Q2
R E N T A L G R O W T H S L O WS

Regional logistics rents edged up by 0.4% q-o-q in Q2 Capital Value Index Rental Value Index
2019. Growth was led by Wellington, which lodged a Source: CBRE Research, Q2 2019.
gain of 4.5% q-o-q after landlords lifted rents for
renewals amid tight availability. Rental growth in
China slowed, while cities in Singapore, India and Figure 16: Strongest Rental Growth Q-o-Q
Australia reported no change. Rental growth is set to
moderate in H2 2019 as landlords focus on shoring up 5%

occupancy rather than maximising rental income.

4%

Logistics properties remained keenly sought after, 3%

with Australia, Japan and Korea reporting steady
interest from investors. Capital values rose by 1.5% q- 2%
o-q. Yield is expected compress further in Australia
and Japan but will be stable in China as investors 1%
adopt a more conservative stance towards pricing
0%
following the wave of relocations by large e- Wellington Beijing Greater Tokyo Auckland Shenzhen
commerce platforms to self-built warehouses.
Source: CBRE Research, Q2 2019.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

Investment Turnover Cross Border Turnover

INVESTMENT 4.1% q-o-q 17.9% y-o-y 52.9% q-o-q 4.1% y-o-y

T U R N O VE R R I S E S D E S P I T E M A R K E T H E A DWIN DS

Asia Pacific commercial real estate transaction volume
increased by 4.1% q-o-q to US$28.6 billion in Q2
2019. Despite the slight uptick in activity, investment
sentiment continued to be negatively impacted by the
ongoing U.S-China trade conflict and mounting global
economic uncertainty.
Investors turned more cautious in Hong Kong amid
ongoing sociopolitical unrest, while China continued
to report subdued demand from domestic buyers,
particularly developers and funds, due to tighter
lending conditions. Some Chinese developers turned
more willing to dispose of non-core assets during the
period.
In Japan, office assets providing stable income streams
and located in core areas of Tokyo remained keenly
sought after, while in Singapore, high lump sums forced
several foreign investors to consider joint venture
opportunities or stakes in Grade A office buildings in
core locations. Grade B assets in core locations were also
in demand.
Other positive markets included Australia, where there
continued to be steady purchasing activity from foreign
investors including pan-regional focused real estate
funds and Asian capital seeking diversification
opportunities. Domestic REITs and funds also displayed a
robust appetite for commercial property.

Several markets continued to see upbeat investment
activity, with Japan and Singapore both recording
strong cross-border inflows from foreign groups.
Korea continued to see solid investment activity from
domestic conglomerates, with transaction volume rising
to KRW 4.3 trillion (US$3.7 billion) in Q2 2019, an
increase of 33% q-o-q. The recent increase in office
capital values appears to have inspired several owners to
make assets available for sale.

Figure 17: Transaction Volume and Key Themes by Market

(US$ billion) 0 2 4 6 8 10 Key Themes

Japan • Transaction volume is expected to remain robust as owners make assets

available for sale to lock in profits and take advantage of strong liquidity
• Domestic developers turned more willing to dispose of non-core assets
China
• Growing leasing risk will widen the price gap between buyers and sellers
• Increased capital values have prompted an increase in assets available for
Korea
sale, a trend most prominent in the YBD
• More Asian investors are looking to diversify their portfolios and leverage
Australia
the weaker Australian dollar
• Foreign investors exhibited strong demand for office assets
Singapore
• Activity will remain upbeat, with several big deals in the pipeline
• Investors adopted a more cautious stance during the quarter
Hong Kong
• Purchasing by Chinese groups remained quiet due to capital controls
• Investment was led by end-users seeking strata-titled offices and factories
Taiwan
• Investors will turn more cautious ahead of the 2020 presidential election
• Foreign investors continued to seek development sites and office assets
India
• The recent NBFC crisis may create opportunities around distressed assets
• Activity was upbeat, led by local syndicates. Further rate cuts are expected
New Zealand
Q2 2019 in H2 2019
• Investors continued to show strong interest in Vietnam with offices, logistics
*Other SE Asia Q1 2019 and residential properties the main focus

Source: CBRE Research, RCA , Q2 2019; Transactions include deals above US$10 million in the Office, Retail, Mixed, Industrial, Hotel and Other commercial sectors.
Note: * Other SE Asia include Malaysia, Indonesia, the Philippines, Thailand and Vietnam.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

CROSS-BORDER INVESTMENT STAYS ACTIVE

Figure 18: Cross-border Investment in Asia Pacific

Cross-border investment remained strong, with 45

investment turnover in H1 2019 maintaining the same
40
level as the corresponding period last year. Asian
capital continued to dominate, accounting for more 35

than 60% of the total. 30

US$ billion
25
Singaporean property funds and REITs exhibited
20
strong interest in China, Japan and Korea, completing
deals for several office and mixed-used properties. 15

Korean capital emerged as a new driver of intra- 10

regional investment in Q2 2019, with buyers from this 5
market displaying strong demand for office assets
0
located in core areas and providing stable income 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
streams. Q1 Q2 Q3 Q4

Hong Kong investors were also observed to be more Source: CBRE Research, Q2 2019.
active abroad during the quarter, with many groups
taking advantage of weakness in the Australian dollar
to acquire high quality commercial properties. Figure 19: Net Acquisitions by Property Funds in Asia Pacific

50
F U N D S D E P L O Y M O R E C A P I T AL
40
30
Fund-raising by private equity real estate funds
20
remained positive, with several major groups
US$ billion

10
expected to reach interim closes later this year,
0
indicating further purchasing activity in the months
ahead. -10
-20

Real estate funds formed over the past three years -30
continued to deploy capital, with overseas entities -40
displaying a solid appetite for office and logistics 2012 2013 2014 2015 2016 2017 2018 H1 2019
Gross acquisitions Gross disposals Net acquisitions
assets in Japan, Singapore and Australia.
Note: Net acquisitions = gross acquisitions – gross disposals
Source: CBRE Research, Q2 2019.

Table 3: Major Transactions in Q2 2019

Price
Market Property Name Sector Buyer Seller
(US$ mil)

Shanghai Greenland Huangpu Center Mixed 1,549 Brookfield Greenland

Singapore Chevron House Office 752 AEW Oxley Holdings Limited

Guangzhou Fosun Building Office 630 Mapletree Fosun

Swire Properties JV China Motor
Hong Kong 625 King’s Road Office 606 GAW Capital
Bus Company
Seoul State Tower Namsan Office 505 Mirae Asset CBRE Global Investors

Source: CBRE Research, Q2 2019.

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M A R K E T V I E W ASIA PACIFIC Q2 2019
OUTLOOK
O F F IC E
Macroeconomic headwinds including weaker GDP
growth and the ongoing U.S.-China trade conflict will
continue to affect business sentiment in H2 2019,
further hampering office leasing activity.
Demand is forecasted to remain weak and will
continue to be driven by the tech sector and flexible
space providers. Financial sector demand will be
limited. Corporates will exercise greater caution amid
rising threats and uncertainty, opting to avoid
committing to aggressive lease terms and instead
focusing on renewals, small-sized leasing transactions
and efficiency improvements.
Rental growth is expected to slow further in H2 2019.
While selected office markets in China may benefit
from plans by local authorities to introduce rental
subsidies to support office leasing activity, tier I cities
will experience pressure from rising competition
resulting from oversupply. Singapore, Perth and
Melbourne anticipate further rental growth but at a
slower rate.
RETAIL
Trade tensions and the weaker global economic
outlook will drag on consumer spending in the
coming months. Weaker retail sales will deter retailers
from pursuing large scale expansion. Leasing
momentum will remain muted and new demand will
be limited. Additional cases of market withdrawal,
consolidation and relocation are expected.
Rents are set to remain under pressure, with a further
mild correction expected in H2 2019. Quality retail
space in non-core locations, which caters to daily
essentials rather than non-discretionary spending, is
likely to outperform. Rents for units along secondary
high streets and in shopping centres are expected to
soften.
Q2 2019 CBRE Research
L O G I S T IC S
The lack of substantial progress in U.S.-China trade
negotiations means that the current weak industrial
sentiment is likely to continue in months ahead, a
trend that will strongly influence occupiers’ expansion
plans. Leasing momentum will remain sluggish, with
demand led by domestic consumption backed
occupiers such as 3PLs and omnichannel retailers.
Ongoing trade tension may spur export related
companies or manufacturers to lease temporary
spaces to store unsold inventory, while specialised
occupiers such as temperature-controlled storage and
cross-border ecommerce logistics service providers
will remain active, underpinned by the steady growth
of omnichannel retailing.
Rents in most markets are forecast to record further
growth in H2 2019, albeit at a slower pace.
INVESTMENT
Market activity is expected to diverge in H2 2019.
Strong purchasing is expected in Singapore, Japan and
Korea, where deals for several large commercial
assets are nearing completion. In contrast, activity in
China and Hong Kong is set to slow further in the
coming months, amid slower economic growth and
higher leasing risk.
As central banks in the region shift to a more dovish
monetary policy, CBRE expects to see yield
compression in selected markets including Australia
and Japanese regional cities, driven by liquidity. Mild
yield compression in the office and logistics sectors is
also anticipated.
Retail yield will largely hold flat, aside from some
upward pressure in Australian sub-regional shopping
centres amid weak consumer sentiment driven by the
correction in the residential market.
© CBRE Inc. 2019 | 11
 M A R K E T V I E W ASIA PACIFIC Q2 2019

Rental Cycle
Figure 20: Asia Pacific Office Rental Cycle Q2 2019

Auckland Bangalore
Beijing Hong Kong Bangkok Canberra
Shanghai Ho Chi Minh City Guangzhou
Shenzhen Melbourne
Adelaide Hanoi
Kuala Lumpur Brisbane Taipei
Perth New Delhi
Jakarta Seoul Mumbai Tokyo
Singapore
Sydney
Wellington

Decline Accelerating Decline Slowing Growth Accelerating Growth Slowing

Figure 21: Asia Pacific Retail Rental Cycle Q2 2019

Beijing
Auckland
Melbourne Shanghai
Sydney Tokyo
Hong Kong Shenzhen
New Delhi
Taipei Guangzhou Ho Chi Minh City
Brisbane Bangkok
Perth Singapore Mumbai
Hanoi
Adelaide Wellington

Decline Accelerating Decline Slowing Growth Accelerating Growth Slowing

Figure 22: Asia Pacific Logistics Rental Cycle Q2 2019

Beijing
Shanghai Adelaide
Guangzhou Wellington
Shenzhen

Melbourne
Singapore Chennai
Brisbane Pune Hong Kong
Perth Greater Tokyo
Greater Seoul
Sydney
Auckland
Decline Accelerating Decline Slowing Growth Accelerating Growth Slowing

Source: CBRE Research, Q2 2019.

Note: Markets do not necessarily move along the curve in the same direction or at the same speed.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

Capital Value Cycle

Figure 23: Asia Pacific Office Capital Value Cycle Q2 2019
Guangzhou
Seoul Tokyo Melbourne
Shenzhen Brisbane Sydney
Hong Kong Bangalore Auckland
Shanghai Bangkok

Taipei Singapore
Kuala Lumpur
Perth New Delhi
Mumbai
Beijing

Decline Accelerating Decline Slowing Growth Accelerating Growth Slowing

Figure 24: Asia Pacific Retail Capital Value Cycle Q2 2019

Beijing
Melbourne Shanghai
Sydney Tokyo Auckland
Taipei Kuala Lumpur

Singapore Bangkok
Hong Kong

Decline Accelerating Decline Slowing Growth Accelerating Growth Slowing

Figure 25: Asia Pacific Logistics Capital Value Cycle Q2 2019

Hong Kong
Tokyo Melbourne
Shanghai Sydney
Beijing Auckland
Seoul

Singapore
Bangkok
Kuala Lumpur

Decline Accelerating Decline Slowing Growth Accelerating Growth Slowing

Source: CBRE Research, Q2 2019.
Note: Markets do not necessarily move along the curve in the same direction or at the same speed.
The capital value cycle is intended to display the trend in prime office, retail and industrial properties

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

Table 4: Key Markets Indicative Grade A Office Rent and Overall Vacancy Rate

City Per local Grade A rent US$/sq. ft. per Q-o-Q change Y-o-Y change Vacancy
measurement local annum (%, local) (%, local) rate (%)
Beijing RMB sq. m. p.m. 483 109 -0.3 0.4 8.4
Shanghai RMB sq. m. p.m. 317 74 0.0 0.1 18.0
Guangzhou RMB sq. m. p.m. 196 47 0.1 5.7 4.9
Shenzhen RMB sq. m. p.m. 244 56 -0.9 -0.6 16.6
Hong Kong HK$ sq. ft. p.m. 74 113 -0.4 2.8 6.2
Taipei NT$ ping p.m. 2,764 46 1.1 3.4 7.2
Tokyo JPY tsubo p.m. 37,950 119 0.9 3.8 0.7
Seoul – CBD KRW sq. m. p.m. 32,829 60 0.1 3.0 14.7
Seoul – Gangnam KRW sq. m. p.m. 28,106 52 0.1 2.4 3.8
Seoul – Yeouido KRW sq. m. p.m. 23,372 50 0.1 1.2 11.8
New Delhi – CBD INR sq. ft. p.m. 295 68 0.0 0.0 1.7
New Delhi – Gurgaon INR sq. ft. p.m. 100 27 1.0 1.0 24.2
Mumbai – Nariman Point INR sq. ft. p.m. 220 48 0.0 0.0 5.6
Mumbai – BKC INR sq. ft. p.m. 270 67 8.0 8.0 19.0
Bangalore – CBD INR sq. ft. p.m. 144 33 1.3 1.3 6.8
Singapore S$ sq. ft. p.m. 11 100 1.3 11.9 4.8
Bangkok CBD THB sq. m. p.m. 1,055 38 1.6 5.0 3.5
Ho Chi Minh City US$ sq. m. p.m. 47 52 0.8 2.9 2.6
Hanoi US$ sq. m. p.m. 32 36 0.6 4.7 8.2
Jakarta CBD IDR sq. m. p.m. 282,942 25 -1.3 -3.6 24.1
Kuala Lumpur MYR sq. ft. p.m. 7 20 0.0 0.0 24.0
Adelaide CBD A$ sq. m. p.a. 287 19 1.0 5.9 14.2
Brisbane CBD A$ sq. m. p.a. 376 25 0.0 1.9 13.0
Canberra CBD A$ sq. m. p.a. 272 18 0.0 0.8 12.2
Melbourne CBD A$ sq. m. p.a. 471 31 3.5 9.7 3.2
Perth CBD A$ sq. m. p.a. 316 21 3.4 10.2 18.5
Sydney CBD A$ sq. m. p.a. 822 54 1.1 9.8 4.1
Auckland CBD NZ$ sq. m. p.a. 400 25 1.0 0.8 7.6
Wellington CBD NZ$ sq. m. p.a. 366 25 2.0 10.2 6.0

Source: CBRE Research, Q2 2019.

Note: Grade A rents are stated in local currency and prevailing unit of measure, as well as in those terms – effective or face rents, gross or net floor basis
that are customarily employed in the respective market. Grade A rents in U.S. dollars are quoted based on net floor area basis

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

Table 5: Key Markets Indicative Retail Rent

Per local Average rent US$/sq. ft. per Q-o-Q change Y-o-Y change
City Type
measurement local annum (%, local) (%, local)

Beijing Shopping Centre RMB sq. m. p.day 37 184 0.1 2.1

Shanghai Shopping Centre RMB sq. m. p.day 35 175 0.2 0.8

Guangzhou Shopping Centre RMB sq. m. p.day 33 161 0.0 -0.3

Shenzhen Shopping Centre RMB sq. m. p.day 23 112 0.0 1.4

Hong Kong High Street HK$ sq. ft. p.m. 474 729 -0.1 -4.0

Taipei High Street NT$ sq. m. p.m. 5224 188 -1.0 -2.6

Tokyo* High Street JPY tsubo p.m. 400,000 1,252 0.0 0.0

Singapore Shopping Centre S$ sq. ft. p.m. 25 222 0.0 0.4

Bangkok Shopping Centre THB sq. m. p.m. 2180 79 0.0 0.0

Ho Chi Minh City Shopping Centre US$ sq. m. p.m. 50 55 0.4 -1.1

Hanoi Shopping Centre US$ sq. m. p.m. 32 35 1.7 5.8

New Delhi Shopping Centre INR sq. ft. p.m. 1,300 226 0.0 0.0

New Delhi High Street INR sq. ft. p.m. 1800 313 0.0 5.9

Mumbai Shopping Centre INR sq. ft. p.m. 1,000 174 0.0 11.1

Sydney High Street A$ sq. m. p.a. 5215 340 0.0 2.0

Melbourne High Street A$ sq. m. p.a. 3486 227 -2.9 -6.0

Adelaide High Street A$ sq. m. p.a. 2117 138 0.0 0.8

Brisbane High Street A$ sq. m. p.a. 2700 176 -0.9 -5.3

Perth High Street A$ sq. m. p.a. 2527 165 -2.8 -11.3

Auckland High Street NZ$ sq. m. p.a. 4800 300 0.0 6.7

Wellington High Street NZ$ sq. m. p.a. 2591 162 0.0 -0.2

Source: CBRE Research, Q2 2019.

Note: All markets measure the relative performance of retail properties of similar quality with the exception of Vietnam, which tracks the overall market movement.

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

Table 6: Key Markets Indicative Logistics Rent

Per local Average rent US$/sq. ft. per Q-o-Q change Y-o-Y change
City Type
measurement local annum (%, local) (%, local)

Beijing≠ Logistics RMB sq. m. p.m. 47.6 7.9 1.0 3.2

≠
Shanghai Logistics RMB sq. m. p.m. 47.1 7.8 0.0 2.7

≠
Guangzhou Logistics RMB sq. m. p.m. 38.1 6.3 0.4 2.8

Shenzhen≠ Logistics RMB sq. m. p.m. 44.6 7.4 0.8 3.8

Hong Kong Warehouse HK$ sq. ft. p.m. 13.0 19.9 0.5 4.4

Greater Tokyo Logistics JPY tsubo p.m. 4,200 13.1 1.0 1.9

Warehouse
Singapore S$ sq. ft. p.m. 1.6 14.0 0.0 0.0
(ground floor)

Chennai Logistics INR sq. ft. p. m. 27.0 4.7 0.0 3.8

Pune Logistics INR sq. ft. p. m. 28.0 4.9 0.0 0.0

Sydney Warehouse A$ sq. m. p.a. 140.0 9.1 0.0 3.6

Melbourne Warehouse A$ sq. m. p.a. 96.9 6.3 0.4 6.4

Brisbane Warehouse A$ sq. m. p.a. 108.4 7.1 0.0 0.0

Adelaide Warehouse A$ sq. m. p.a. 78.8 5.1 0.0 0.1

Perth Warehouse A$ sq. m. p.a. 86.8 5.7 0.0 -3.9

Auckland Warehouse NZ$ sq. m. p.a. 151.0 9.4 0.9 3.6

Wellington Warehouse NZ$ sq. m. p.a. 119.7 7.5 4.5 6.4

Source: CBRE Research, Q2 2019.

Logistics rents - Average rental values are derived from a basket of prime logistics properties located in major industrial zones in each market.
≠Refers to like-for-like rental change for Q-o-Q & Y-o-Y

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 M A R K E T V I E W ASIA PACIFIC Q2 2019

Table 7: Key Markets Indicative Prime Yields

Prime Office Y-o-Y Change Prime Retail Y-o-Y Change Prime Industrial Y-o-Y Change
City
Yield (bps) Yield (bps) Yield (bps)

Beijing 4.00 0 4.10 -20 5.00 -50

Shanghai 4.25 +25 4.25 +10 5.25 -25

Hong Kong 2.85 +5 2.20 -5 3.55 +5

Taipei 2.60 +10 3.10 +10 3.85 0

Tokyo 2.65 -5 2.90 0 3.70 -20

Seoul 4.70 0 n/a n/a 6.50 0

Singapore 3.60 +25 4.85 +5 3.85 0

New Delhi 8.25 0 8.50 0 10.50 0

Mumbai 9.10 0 12.50 0 13.50 0

Sydney 4.65 0 4.25 0 5.45 -35

Melbourne 4.75 -10 3.50 -40 6.00 0

Brisbane 5.15 0 5.25 +15 6.15 -25

Auckland 5.15 -10 4.50 -15 5.25 -10

Source: CBRE Research, Q2 2019.

N o t es a n d D e f i n i ti ons
CBRE's investment transaction data in this report is based on real estate transactions valued at US$10 million and above in the office, retail, industrial, hotel,
mixed-use and commercial property sectors in 15 markets throughout Asia Pacific. Development sites and residential transactions are excluded. Transaction
prices are tracked in local currencies and converted to US dollars using average exchange rates recorded in the respective quarter of the year.

The CBRE Asia Pacific Office Capital Value Index tracks the performance of 24 office markets throughout Asia Pacific.
The CBRE Asia Pacific Retail Capital Value Index tracks the performance of 15 retail markets throughout Asia Pacific.
The CBRE Asia Pacific Industrial / Logistics Capital Value Index tracks the performance of 14 industrial markets throughout Asia Pacific.
The CBRE Asia Pacific All Sectors Capital Value Index is the weighted average of three capital value indices for office, retail and industrial sectors.

The indicative prime yield presented in this report is the ratio between annual net rental income (rent less non-recoverable costs) and the total amount invested
(purchase price plus purchasers’ on-costs), expressed as a percentage figure, achievable in the relevant top-tier building(s) in prime location, let according to
market conditions. It is based both on sale & purchase contracts concluded during a period and also on the market overview of the local investment department.
No allowance is made for any future rental growth.

Q2 2019 CBRE Research © CBRE Inc. 2019 | 17

 M A R K E T V I E W ASIA PACIFIC Q2 2019

ASIA PACIFIC RESEARCH GLOBAL RESEARCH

Henry Chin, Ph.D. Richard Barkham, Ph.D., MRICS

Head of Research, Asia Pacific & Global Chief Economist
Europe, Middle East and Africa e: richard.barkham@cbre.com
e: henry.chin@cbre.com.hk
Neil Blake, Ph.D.
Ada Choi, CFA Global Head of Forecasting
Head of Occupier Research, Asia Pacific &
e: neil.blake@cbre.com
Head of Research, Greater China
e: ada.choi@cbre.com.hk
Henry Chin, Ph.D.
Jonathan Hills Head of Research, Asia Pacific &
Senior Director, Asia Pacific Europe, Middle East and Africa
e: jonathan.hills@cbre.com.hk e: henry.chin@cbre.com.hk

Cynthia Chan
Office Specialist Spencer Levy
e: cynthia.chan@cbre.com.hk Chairman of Americas Research
e: spencer.levy@cbre.com
Liz Hung
Retail & Logistics Specialist Please visit the Global Research Gateway at
e: liz.hung@cbre.com.hk
http://www.cbre.com/research-and-reports
Leo Chung, CFA
Capital Markets Specialist
e: leo.chung@cbre.com.hk

George Wang
Senior Analyst
e: george.wang@cbre.com

Felix Lee
Analyst
e: felix.lee@cbre.com

CBRE GLOBAL RESEARCH

This report was prepared by the CBRE Asia Pacific Research Team, which forms part of CBRE Global Research – a network of preeminent researchers who
collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.

Disclaimer
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projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not
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