• Quarterly net absorption numbers rebounded in Q2 2024 after a slow start to the year. E-Commerce demand remains slow, but 3PL operators continue to take up space.
• Completions reached an all-time record high of 7.6 million sqm over the quarter, higher than the previous 6.9 million sqm record in Q2 2023 and well above the five-year average of 4.8 million sqm.
• Investment activity remained patchy across the region. The very strong investment activity in Australia over the quarter was not evident anywhere else across the region.

Take-up slightly improved in Q2 2024, supported by record levels of supply. Nevertheless, market conditions remain broadly challenging. Relatively slowing economic growth is weighing on sentiment, while persistently high interest rates remain a drag on overall activity.

Supply reached record levels this quarter, with stock completions high in Seoul, Shanghai and Tokyo. Overall across Asia Pacific (APAC), supply continued to outpace demand. Consequently, region wide vacancy rose to 16.2%. This is much higher than the 10-year average of 9.5%. Vacancy across APAC tier-1 markets also rose, jumping from 11.7% to 13.4% over the quarter.

Rental growth plateaued across most markets. High and rising vacancy has translated to a more competitive leasing market, with landlords increasing offering greater incentive levels to attract and retain occupiers.

Investment activity is patchy. In Sydney, whilst down on last quarter’s result, transaction volumes in Q2 2024 exceeded AUD 1 billion, and remain well above the 10-year average. Transaction volumes also surged in Melbourne, with strong interest from a wide range of investor groups. Activity elsewhere remained limited.

Outlook
Net absorption is expected to slow around 12.6 million sqm y-o-y in 2024, down from 16.4 million sqm in 2023. Economic headwinds and high interest rates are expected to persist in 2024, dampening sentiment and activity. Consequently, rental growth will continue to slow. Tenant favourable conditions will persist as landlords compete for tenants in a high vacancy environment.

Investment markets will remain sluggish. Hurdle rates will remain high, and many investors will continue with their wait and see approach. Nevertheless, there will be pockets of activity.