• Occupier sentiment is generally weak, though net absorption did pick up in Q3 2024 with patches of strong supply led take-up in some China Tier 2/3 markets.

• Vacancy fell (albeit modestly) for the time since 2021. Lower supply rather than an upsurge in demand led to this outcome. Nonetheless quarterly figures are volatile and vacancy is expected to trend higher again in 2025.

• Investor sentiment improved given the Fed’s switch to expansionary policy settings. More rate cuts may be needed to spur activity in 2025.

Asia Pacific net absorption improved in Q3 2024, bucking the slowing trend in the first half of 2024. Nonetheless, occupier sentiment remains broadly weaker. Persistent global economic headwinds, coupled with local domestic market pressures in some geographies contributed to the generally slower leasing environment that has characterised 2024.

After a record quarter of new supply in Q2 2024 (7.6 million sqm), new supply moderated to just 4.0 million sqm in Q3 2024 – the lowest level in more than two years. Consequently, vacancy fell to 15.9% (from 16.2%), marking the first decline since 2021.

Despite lower vacancy, rents fell again given the still high abundance of space options for occupiers. The competitive leasing market is forcing landlords to strongly compete for tenants. Most landlords are offering higher incentives rather than lowering face rents.

The Fed’s interest rate cuts are unlikely to have an immediate impact on investment activity, but the positive signal is uplifting investor sentiment. Generally, transaction volumes remain patchy across the region. Investment activity remains subdued in Greater China due to macro-headwinds and geopolitical tensions, deterring offshore groups. On the other hand, Sydney and Melbourne maintain their elevated investment activity, featuring multiple large deals exceeding AUD 50 million.

Outlook
2024 is expected to be the trough in the demand cycle, with net absorption expected to rebound (modestly) in 2025. Take-up next year will also be supported by still-strong supply levels. Tenant-favourable conditions will persist and rents will likely continue their downward trajectory.

Investment activity is expected to pick up in 2025. Lower interest rates should make leverage much more attractive in many markets, spurring activity that has been mostly absent in 2024.