The commercial real estate market in the Asia-Pacific region held firm in the first quarter of 2025, with total transaction volume reaching US$32.8 billion, representing a slight 1% dip from the previous quarter but posting an 11% increase year on year, according to a recent report.

Amid tepid demand and cautious occupier sentiment over ongoing economic uncertainties, overall, the regional market for the first quarter of the year showed mixed results with transaction volume drops in China and Hong Kong being too substantial to be offset by strong momentum in Japan and Australia.

Grade A office’s net absorption increased by a quarter, with a solid number of new enquiries and property renewals among retail and logistics leasing, finds CBRE’s latest report on commercial property figures.

Along with the upbeat sentiment, however, was the compromise on rents and capital values. Despite a marginal quarterly uptick of 0.5% in retail rents, rents in the logistics and office sectors cooled. Offices in Asia-Pacific lost almost 12% in valuation compared with the same period last year followed by 10% in logistics and 5% in retail.

Hong Kong, China

One of the key losers in the commercial property market was Hong Kong, where the total investment amount was slashed by a staggering 43% from the previous quarter to US$741 million, marking the second-worst quarterly result since 2009.

Although the Hong Kong market maintained mild retail rental growth as fashion brands jostled for a presence in the limited prime retail space, the negative impact of the shift in consumption patterns in Hong Kong has been across the board, with an 8% decline in retail sales, the worst among Asia-Pacific markets.

The vacancy rate in the logistics sector dropped by a record 10% as related third-party activities diminished in the world’s once-busiest port. As well, the logistics outflow weighed on leasing activities in Hong Kong, posting a knock-on effect on falling rents.  

Logistics took a severe hit not only in Hong Kong but also in China. Rents recorded further decline as landlords in major cities, including Shanghai, Beijing and Shenzhen, continued to offer concessions to propel occupancy. These efforts, however, didn’t necessarily translate into a lower vacancy rate under the new supply of land, bringing the rate in Guangzhou offices to 37%, and that in Shanghai logistics to 29%.

Financial stability remained a fine line to walk among Chinese developers, leading to a number of deal disposals. Property investments remained 15% less than the first quarter in 2024.

While the Chinese market hasn’t fully recovered from the downturn, some areas. including retail leasing, observed signs of revitalization. The growth was focused on the food and beverage corporates, particularly the mid- to low-price brands. The upward push will likely be extended following new retail land supply by year end. 

Office net absorption remained solid in China, underpinned by the technology, media and telecommunications, and consumption-related sectors.  

On the other hand, other Asia-Pacific markets showed signs of resiliency and solid demand in commercial properties.

Japan, Australia

Tokyo led the office space uptick with net absorption of 3.7 million square feet as a result of a widespread shift to quality buildings, in addition to strong pre-commitments to new office stocks. Leasing activities had the strong backing from tech corporates, as well as manufacturing and construction firms, which reported intensive demand in relocation to retain staff.

Logistics in Japan operated on strong conditions as half of the new land supply during the first quarter in Osaka was fully leased. More than 10 million square feet of logistics land supply was added from this area and Greater Tokyo.

Tokyo Ginza, the high-traffic shopping centre of the city, left no vacancy in retail leasing and achieved marginal quarterly growth in retail rents.

Japan, in addition to sharing 37% of the total commercial property investment in Asia-Pacific, with close to half being cross-border deals, has proven to be a promising market amid a tourism boom and improved economic fundamentals.

Optimism runs high as well in Australia, in particular for rental growth, given the country’s growing population and high-level lifestyle consumption. This is reflected in the strong backing of the food and beverage sector and athleisure brands in retail leasing. Retail in Australia stood out with more than 3% quarterly growth in sales, with Brisbane and Perth having strength in the retail realm.

Cautious Q2 outlook

The outlook in the second quarter is further tempered due to more cautious sentiment and delayed decisions. With that in mind, CBRE downgraded China’s outlook on the office market, but remained enthusiastic on regions, including those of Greater Seoul, Greater Osaka and India, to counter trade war pressure.

“Near-term leasing activity will be conservative, with renewals expected to dominate,” says the CBRE report. “Asia-Pacific full-year leasing volume is expected to remain flat following last year’s record high.”