Cap Rates Report Shows Office Sector Surges in Q2 2024 Across Asia Pacific – Mumbai and Bangalore Remain Stable with High-End Rentals

Office Sector Shows Strong Movement in Cap Rates in Q2 2024 Across Asia Pacific The office sector in the Asia Pacific markets has experienced significant movement in cap rates during the second quarter of 2024, as revealed in the latest Cap Rates Report released by Colliers. This development highlights the dynamic nature of the real estate market in the region. Lease Transactions Dominate Sales in the APAC Region While sales transaction volumes in the Asia Pacific region have remained relatively low, lease transactions have dominated the market. This indicates a preference for leasing over buying among businesses operating in the region. Potential Increase in Investment Activity in H2 2024 With interest rates remaining stable, experts predict that the second half of 2024 will see a surge in investment activity in the real estate sector. This anticipated increase in investment may influence the trends in cap rates and reshape the market further. Mumbai’s Office and Retail Sectors Experience Healthy Movement In the Mumbai region, both the office and retail sectors have witnessed positive movement in recent times. Office rentals in particular have seen a quarterly increase of 1-2%, with certain premium micro markets recording rentals that are 20% higher than average. The superior construction quality and global amenities offered by these spaces have contributed to the spike in rental prices. Consumer Spending Expected to Increase in Mumbai The Consumer Price Index (CPI) inflation in Mumbai has dropped below 5%, and the Reserve Bank of India (RBI) has set a target inflation rate of 4.5% for FY-25. As a result, consumer spending is expected to rise. This optimistic forecast bodes well for retail landlords, as better lease terms can be achieved due to increased consumer demand. No Significant Changes in Bangalore’s Cap Rates and Rental Rates Meanwhile, in Bangalore, cap rates for logistics and warehousing assets have remained flat on a quarterly basis, with lease transactions making up the majority of the volume. Similarly, rental rates and capital values for Grade A commercial office spaces have had no noteworthy changes. Despite the stability in interest rates, the impact on cap rate movement has been limited due to transaction volumes remaining static and perceived risk levels remaining constant. In Mumbai, Grade A Office Rentals Experience Positive Growth Mumbai has seen a noticeable quarterly rental increase of 1-2% in Grade A office spaces. Notably, June 2024 witnessed some of the highest lease rental transactions in India, signifying a growing preference for well-equipped and premium spaces among occupiers in the city. Slow Investor Participation in Bangalore’s Retail Segment Investor participation in Bangalore’s organized retail segment has been relatively low, with the exception being high street retail spaces, which have seen some traction in leasing activities. As a result, cap rates in these areas continue to remain stable. According to Ajay Sharma, Managing Director of Valuation Services at Colliers India, “The surge in rental prices in both Mumbai and Bangalore reflects the growing preference of occupiers who are willing to pay a premium for well-equipped, premium spaces. While transaction volumes and perceived risk levels have limited the movement in cap rates, the stable interest rate regime has provided a favorable environment for leasing activities in both cities.” As the real estate sector in Asia Pacific continue to evolve, investors, landlords, and tenants need to closely monitor these shifting trends. With opportunities for investment and potential growth in certain micro markets, businesses should adapt their strategies to navigate the changing dynamics of the market.