China/Hong Kong

China’s economy grew 18.3% year-over-year in the first quarter of 2021, representing a robust rebound from the low base set in 2020 and the strongest quarterly figures since 1992. Manufacturing and exports continued to benefit from the resilience of domestic consumption and the gradual resumption of economic activity around the world. As detailed in the 14th Five-Year Plan, the robust performance of these industries aligns with the government’s long-term objective of transforming China into an innovation-driven economy. On the trade front, export volume grew 30.6% year-over-year. China’s central bank maintained its neutral monetary policy but slowed its liquidity injections, as aggregate financing and M2 supply registered single-digit growth for the first time in 12 months.

In Beijing, there was a soft pickup in leasing demand, mainly driven by the continuing relocation trend. Net absorption continued to rebound from 60,592 square meters in the fourth quarter of 2020 to 211,436 square meters in the first quarter of 2021. Approximately 79% of all leasing transactions came from domestic tenants, as foreign tenants continued to remain cautious. Healthcare industry tenants accounted for 23% of the total leasing transactions in the first quarter of 2021, while the expansion of leading IT companies continued to support leasing demand in the Zhongguancun submarket of Beijing—also known as “China’s Silicon Valley”—and across the entire city. Overall, rents decreased 8.0% and vacancy edged down to 15.0%. In Zhongguancun, rents remained relatively flat and vacancy was only 2.5%.

Industrial and logistics real estate remained resilient in the major submarkets due to limited supply and strong leasing demand from third-party logistics companies. In Shanghai, industrial rents rose 2.1% year-over-year and vacancy ended the quarter at only 6.8%, due to strong take-up of newly completed supply in emerging submarkets.

In terms of overall market activity, national commercial real estate transaction volume totaled RMB 42 billion in the first quarter of 2021—down 25% quarter-over-quarter—largely due to weaker activity during the Lunar New Year holiday. The two main gateway cities of Beijing and Shanghai registered more than RMB 35.5 billion of investment volume, up 20% quarter-over-quarter. Domestic investors dominated the market and accounted for 85% of the total transactions.

Hong Kong’s economy grew 7.9% year-over-year in the first quarter of 2021, ending six consecutive quarters of contraction. The improvement was attributed to strong export growth alongside a rebound in global demand. Total exports of goods surged by 30.2% year-over-year in the first quarter thanks to the global economic recovery led by the U.S. and mainland China. Exports of services saw a visibly narrower year-over-year decline of 8.1%. Although inbound tourism remained in the doldrums, cross-boundary transport and business services picked up alongside the improving external environment and vibrant regional trade flows. Private consumption expenditure grew only modestly by 1.6% year-over-year, despite an exceptionally low base in 2020, as the fourth wave of the pandemic disrupted local consumption activities. The unemployment rate continued to deteriorate to 7.2%, the highest level in 17 years and up moderately from 6.6% in the prior quarter.

With limited supply, residential prices rose 3.7% year-over-year in the first quarter of 2021 and were the highest they’ve been in nine months. Commercial real estate transaction volume rose 14% quarter-over-quarter, as investor sentiment improved due to the abolition of the double stamp duty. Industrial transactions accounted for 43% of the total volume, while demand for office remained lukewarm. As of March 2021, Hong Kong’s office vacancy climbed to 8.9%—the highest level in almost 16 years—while rents declined 15.2% year-over-year. These rental declines were driven by soft leasing demand in the core submarkets of Central and Tsim Sha Tsui, while decentralized markets like Kowloon East and Kwai Chung experienced a milder impact.

After a significant rebound in the first quarter, China’s GDP returned to normal levels in the second quarter.

CNY continued to appreciate against USD.

Hong Kong’s office vacancy climbed to nearly 9%, the highest level in 15 years.


In the first quarter of 2021, Japan’s real GDP fell 1.0% quarter-over-quarter after two consecutive quarters of growth. Exports remained strong, but consumer spending and private sector investment were sluggish during the country’s second state of emergency. GDP is expected to shrink again in the second quarter, as the government declared a third state of emergency. However, many economists predict that the economy will recover in the second half of 2021 due to the rapid increase in domestic vaccination rates and the steady increase in exports. Since the Tokyo Olympics will be held without spectators, they are unlikely to contribute to Japan’s economic recovery. With Lower House general elections scheduled for the fourth quarter of 2021, the Japanese government is expected to provide an additional stimulus package in order to accelerate economic recovery. Supported by the government’s stimulus packages, the unemployment rate remains low at 3.0% as of May, and the number of corporate bankruptcies in fiscal year 2020 was 17% lower than the previous year, the lowest level in 30 years.

Office real estate fundamentals remained healthy in the first quarter, with office vacancy rates in Tokyo only increasing from 1.2% to 1.5% for Grade A and from 1.4% to 2.0% for Grade B. Office vacancy rates are expected to rise slightly due to the economic slowdown after the third state of emergency and the uptick in companies seeking to reduce costs. The logistics sector remains strong, with the vacancy rate for large multi-tenant facilities in the Greater Tokyo area at only 1.1% in the first quarter.

Real estate transaction volume in the first quarter decreased 24% year-over-year. Expected yields on logistics assets continue to decline as investor demand for such assets—from both domestic and international buyers—increases. Many corporate owners are considering selling non-core assets to improve their balance sheets. Banks continue to be active in real estate lending, and the capital markets are expected to remain strong.

Japan’s real estate investment market has remained strong despite the ongoing pandemic, with the Japanese REIT (J-REIT) Index rising 21% from the beginning of the year and standing only 4% below pre-pandemic levels as of July.

Tokyo office fundamentals remained strong.

Cap rates have tightened, but spreads are still wide as compared to the previous peak in 2006-2007.

The J-REIT Index continued to improve, driving down yields and driving up property values.

South Korea

The Korean economy was off to a good start in 2021, with GDP growing 1.7% quarter-over-quarter in the first quarter driven by robust consumption and investment across multiple sectors. The Bank of Korea (BoK) revised its GDP growth forecast to 4.0% in 2021, up one percentage point from its previous forecast. Daily confirmed cases of COVID-19 in Korea have increased sharply over recent weeks, rising to approximately 1,500 cases per day as of mid-July with the spread of the Delta variant. To tackle the recent rise in cases, the Korean government implemented its strictest level of social distancing rules effective July 12th. The vaccination rollout has been slow, as there is an insufficient stock of vaccines; as of mid-July, approximately 13% of the population was fully vaccinated while 32% had received first doses.

On the real estate front, the spread between prime office cap rates and Korean government bond yields stood at 280 basis points, which is above the 10-year average of approximately 260 basis points. Despite the pandemic, office fundamentals remain robust, with strong tenant demand for office space and heightened investment appetite for stabilized core office assets. Cap rates for prime office assets continue to compress and are at historic lows. Investment activity momentum in the commercial office sector continued in the first quarter; transaction volume hit $4 billion, which is 30% of last year’s record high total volume. Prime office vacancy in Seoul’s major business districts was 14.9% in the first quarter. Vacancy remains relatively high due to the completion of a few new large office assets in the Yeouido business district and a large office complex in the Gangnam business district. Despite the new supply, net absorption of existing office space across the three major business districts in Seoul has remained positive since 2020. Vacancy is expected to stabilize, as there is limited supply going forward.

Leasing and investment activity in the logistics sector remain robust, with the outbreak of COVID-19 catalyzing the continued growth of the e-commerce industry. Modern and efficient logistics facilities in the greater Seoul area have only frictional vacancy—3.4% as of the first quarter. Cap rates for logistics centers have compressed sharply over the past three years, decreasing approximately 200 basis points. For the first time, several prime logistics assets have traded at cap rates near prime office cap rates of 4.0%.

Despite tight regulations aimed at curbing speculative investments in the residential sector, residential prices in Seoul have continued to rise—increasing 19.5% year-over-year as of June 2021. Ill-conceived government measures, such as restricting supply in core Seoul markets, have contributed to price increases in the sector.

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Seoul’s office vacancy remained high, as new supply from a few large properties weighed on the market.

Cap rate spreads have tightened but are wide as compared to the prior peak in 2007-2008.

Following sluggish growth in 2020, the Korean economy recovered significantly in 2021.

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