• Cost considerations are still top of mind for real estate decision makers, and many tenants have shown a preference for renewals to avoid additional capex.
• Driven by upgrading demand, regional rent growth stayed positive for the second consecutive quarter but at a slower pace due to soft demand in Greater China and a slowdown in select Asian markets.
• Despite a high-interest rate environment, investment volume saw a y-o-y increase contributed by domestic end-users. However, the capital value performance has lagged behind rental in most markets.

Asia Pacific leasing volume slowed modestly in Q2 2024, marking a 2% y-o-y decrease. However, performance varied across markets with India outperforming and China lagging. Cost considerations were still top consideration of most real estate decisions, with renewal being a preferred route for many occupiers. Nonetheless, a healthy supply pipeline and a growing focus on sustainable workplaces saw companies moving to higher specification buildings.

Regional rent growth stayed in positive territory, but the pace of increase slowed compared to Q1 2024.  Rents in Japan trended higher due to lower vacancy and firm demand from information services, manufacturing, and real estate industries. India also saw rents improving as technology and BFSI firms continued contributing to strong leasing demand. However, this strength was balanced out by the soft performance in Greater China, where new demand was limited and most activity came from renewals.

Most markets saw the capital value performance trailing behind rental. A high-interest rate environment still hindered investment appetite in some markets. However, office investment volumes recorded a modest y-o-y increase with transactions mainly contributed by domestic end-users acquiring assets for self-occupancy.

Outlook
Over the near term, cost-effective upgrades will continue to be a key source of demand across the region as occupiers have a growing focus on quality. This trend should be well supported by new supply. With demand firming, we expect APAC rents to stabilise and see a gradual increase in 2025. Even in a more normalised interest rate environment, capital value growth is likely to come from building-specific rental growth, making asset selection even more crucial to performance.