Highlights
- Prime office rental markets continued to see a slow-paced recovery in 2H/2023, with rental movements ranging from -4.6% (Manila) to 12.0% (Mumbai). Amidst ongoing macroeconomic headwinds and heightened market uncertainties, only 9 out of 21 markets recorded rental growth in local currency terms in 2H/2023. These markets are experiencing an undersupply of premium grade stock, particularly Mumbai (12%), Brisbane (7.2%), Seoul (2%) and several major Southeast Asian markets (Singapore, Kuala Lumpur and Ho Chi Minh City, ranging from 0.3% to 3.4%). In contrast, the remaining markets are currently facing either excess office space and/or much higher vacancy levels with rents remaining under pressure, particularly Manila (-4.6%), Guangzhou (-4%), and Hong Kong (-3%). In terms of occupancy costs in US dollars, a stronger US currency caused a different outcome for some markets with weak currencies, such as Japan and China. For example, Tokyo (-1.6%), Beijing (-1.7%), Shanghai (-1.5%), and Shenzhen (-0.4%) recorded mild declines in local currency terms, while rents in US dollar terms saw a slight growth elsewhere (Tokyo: 0.5%, Beijing: 0.3%, Shanghai: 0.6%, and Shenzhen: 1.7%).
- Prime retail rental markets showed signs of recovery in 2H/2023, with rental movements ranging from -10.4% (Seoul) to 5.7% (Hanoi). Benefiting from robust cross-border tourism and resilient domestic consumption, most markets saw mild rental growth or remained stable in H2/2023, with Hanoi (5.7%), Osaka (5.4%), and Hong Kong (3.2%) registering the highest growth rates. Seoul was the only exception with a -5.9% rental decline in local currency terms in 2H/2023, due to a tenant-dominated market and softening consumer consumption. Looking ahead to 2024, slower economic growth and softer consumer spending will weigh on the rental recovery, but the robust rebound in cross-border tourism could offset some of these negative impacts.
- Prime logistics rental markets were the best performers compared with other asset classes in 2H/2023, with rental movements ranging from -1.3% (Hong Kong) to 7.4% (Sydney). Most markets maintained rental growth in 2H/2023, but that growth momentum slowed following fading demand from e-commerce and the slowdown in global trade activity. Even the tight Australian logistics leasing markets experienced a rental slowdown in 2H/2023, including Sydney (from 10.4% in 1H/2023 to 7.4% in 2H/2023) and Melbourne (from 16.8% in 1H/2023 to 3.9% in 2H/2023). Hong Kong was the only market registering a rental decline in 2H/2023, mainly due to weak leasing demand caused by a slow recovery in retail sales and weak external trade activity.
- Luxury apartment rental movements were relatively stable, ranging from -3.4% (Kuala Lumpur) to 5.8% (Taipei). Rents in Taipei moved out from their lowest level since 1H/2010 and recorded the highest rental growth (5.8%) in 2H/2023 amid an improvement in leasing sentiment. Hong Kong (0.6%), Osaka (0.4%), and Guangzhou (0.1%) also picked up slightly in 2H/2023, supported by steady demand for luxury residential units. The remaining six markets registered rental declines in 2H/2023, but the declines were mild, with Kuala Lumpur (-3.4%), Tokyo (-2.0%), and Singapore (-1.9%) registering the greatest falls.
- The prime hotel market remained a bright spot in 2H/2023. Room rates in most markets maintained their growth momentum with room rate changes ranging from -36.7% YoY (Osaka) to 53% YoY (Hong Kong), thanks to a strong recovery in cross-border tourism. Hong Kong (53% YoY) recorded the highest room rate growth in the region, fueled by the gradual return of mainland China tourists and a low base of comparison. Other popular travel destinations also registered double-digit room rate growth, such as Hanoi (26.2% YoY), Taipei (25.5% YoY), Hanoi (26.2% YoY) and Ho Chi Minh City (14.4% YoY). While room rates in Tokyo (-28.4%) and Osaka (36.7%) fell by -28.4% YoY and -36.7% YoY in 2H/2023, this was mainly due to room rates returning to normal after the extreme highs of last year.