Logistics and Industrial Market Insights

September 4, 2023 / By ,

Supply reaches record high

Logistics occupier demand across Asia Pacific remained generally steady over the quarter, but there were pockets of greater headwinds as economic activity slowed. Across Tier-1 cities1 net absorption declined by 18% from a strong first quarter, but was 58% higher than 2Q22 levels as a wave of new supply supported activity.

New supply reached record levels this quarter, driving vacancy higher across the region. Completions reached 7.3 million sqm in 2Q23, surpassing the previous record last quarter of 6.3 million. This is almost double the quarterly average of 4.0 million sqm over the past five years. 2023 remains on track to be the highest year for completions on record. Given these supply side pressures, Tier-1 market vacancy rose to 10.0% in 2Q23, up from 6.1% 12 months ago. Vacancy is anticipated to remain elevated in the short to medium term.

Resilient rental growth in the face of higher vacancy

Rents continued to trend up at an aggregate level despite rising vacancy levels. The Asia Pacific rent index rose by 1.2% q-o-q, and by 10% y-o-y. While this is robust, growth was concentrated in a few Tier-1 markets and the pace is slowing.

At a market level, Greater China quarterly rent movements were mixed in 2Q23 – rents fell in Beijing, were stable in Shanghai, and increased modestly in Hong Kong. After falling last quarter, rents stabilised in Tokyo with marginal change in the quarter. Rents rose modestly in Seoul, with supply pressures keeping a lid on greater growth. In Singapore, rents rose for the ninth consecutive quarter, with demand continuing to outpace supply. Rents continued to accelerate in both Sydney and Melbourne but at a slower pace than in previous quarters.

Investments constrained by higher interest rates

Investor sentiment continues to be weighed down by higher interest rates. There were very few major transactions across Greater China. A land parcel changed hands in Beijing, while there were no major recorded deals in Shanghai. Transaction volumes were down 65% q-o-q in Hong Kong.

Tokyo remains one of the more attractive markets for investors. In Seoul, despite the challenging conditions, there were some midsized deals (USD 50 million – USD 100 million) in Incheon. There was only one major recorded deal in Singapore. Investment volumes were up in both Sydney and Melbourne, though it is worth noting that a few large deals accounted for much of the total volumes this quarter.

Patchy outlook suggests pockets of opportunity

The outlook remains challenging for the remainder of 2023. Vacancy continues to climb higher on the back of a strong supply cycle. And while rental growth has held firm so far, still rising vacancy will likely slow the pace of rental growth over the next 12-18 months. Positive for the market is that many projects in the pipeline may be delayed or cancelled altogether given the more challenging development financing environment.

In terms of yield movements, bifurcation will likely persist, with yields rising in some markets and compressing in others. Aggressive offshore groups will continue to drive moderate yield compression in Tokyo over the short term. Yields should remain broadly stable across Greater China and Singapore, but rise in Australia, New Zealand and South Korea given the more aggressive interest rate hiking cycle in these markets. Generally, there will be selective buying opportunities in some markets where investors see upside value growth, or in markets where there is a gap in investment appetite.


1Beijing, Shanghai, Hong Kong, Tokyo, Seoul, and Singapore. Net absorption and vacancy are not tracked in Sydney and Melbourne.


Talk to us 
about real estate markets.