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APAC Office Outlook

Dominic Brown • 12/7/2022

Asia Pacific Office Overview 


Asia Pacific’s key office markets tell a story of resilience overall, with steady demand in some markets, surging supply in others – and some cities in India experiencing both surging demand and supply.

As has been the case since the start of the COVID-19 pandemic, the Asia Pacific office market continues to demonstrate its resilience. Fully 153 million square feet (msf) of office space has been absorbed across the region’s top 25 markets since the end of 2019, with 47msf of that occurring in the first nine months of 2022. Indeed, Asia Pacific continues to be the only region to record consecutive quarters of positive net absorption throughout the pandemic.

The broad outlook is for this to continue, though inevitably with nuance at the local level. Full-year office demand in 2022 is expected to reach 65msf, on par with the 63msf absorbed in 2021 and well above the pandemic lows of 2020.  A modest improvement is forecast in 2023, with net absorption projected to reach 71msf (+9% y-o-y), before growth stabilises at around 5% per annum through to 2026. While this represents robust demand, it comes at a time of heightened supply as projects that were delayed in the early period of the pandemic regain momentum. Following the 112msf of new supply in 2022, a further 130msf is expected to be delivered in 2023 before slowing to less than 100msf from 2024 onwards. Inevitably, with supply outstripping demand in the near-term, regional vacancy is forecast to soften further, rising from 12.5% pre-pandemic to reach a little over 18% in 2023, after which it is expected to hold steady.

Key Messages:

  • Regional office demand is forecast to increase modestly in 2023 to 71msf, up 9% y-o-y. This is primarily driven by ongoing strong demand in India and recovering demand in mainland China.
  • As new supply, which was delayed during COVID lockdowns, finally comes to market it is likely to overshoot forecast demand and therefore drive regional vacancy from 16% to 18% in the year ahead.
  • Local market trajectories vary significantly, highlighting that in the same way that markets entered the COVID-19 pandemic at different stages of the market cycle, so too will they exit. Occupiers and investors are strongly advised to fully appreciate local market dynamics in their decision making.
  • Rental growth across much of the region appears comparatively benign and unlikely to match the high levels of inflation over the near term. Stronger rent growth is expected across many markets towards the end of the forecast horizon as new supply slows and demand improves as economic growth gains momentum. 
CITY DEMAND* SUPPLY* VACANCY RENTµ
AUSTRALIA  
Brisbane



Melbourne


Sydney


 GREATER CHINA  
Beijing
 ⮞
 Guangzhou
Shanghai
 Shenzhen  
 Hong Kong  ⮝  
INDIA  
Ahmedabad   ⮟
 Bengaluru
 Chennai
 Hyderabad
 Kolkata
 Mumbai
Delhi NCR
 Pune
INDONESIA  
Jakarta 
JAPAN  
 Tokyo
MALAYSIA  
 Kuala Lumpur
PHILIPPINES  
Manila  
SINGAPORE  
 Singapore
SOUTH KOREA  
 Seoul  ⮝
THAILAND  
 Bangkok  
VIETNAM  
 Hanoi
 Ho Chi Minh City  


*
less than 5% change y-o-y

less than 1 percentage point change y-o-y

µ less than 1% change y-o-y

Supply, in aggregate, remains heavily skewed to the region’s largest markets of India and mainland China. Bengaluru and Shanghai are forecast to experience the largest amount of new supply over the 2022-26 forecast horizon at 58msf and 44msf respectively, which is approximately one-third of the existing stock in each city. Delhi NCR, Hyderabad and Shenzhen also have supply pipelines in excess of 30msf, equating to between 25% and 49% of their existing stock.

Outside of these markets, total new supply between 2022 and 2026 in Tokyo is forecast at almost 25msf, which accounts for only 18% of existing inventory. In contrast, Hanoi and Ho Chi Minh City are expecting 2.5msf but this is 47% and 68% of existing stock – clearly highlighting the difference in office market sizes across the region.

Figure 1: New supply in 2022-26* (msf) and as a percentage of existing stock in 2022

APAC regional net absorption chart

* Q4 2022 to Q4 2026
Source: Cushman & Wakefield

Demand across the region is skewed towards the region’s largest markets. Office demand in Bengaluru has been especially strong over the first three quarters of 2022, with momentum forecast to be maintained into 2023 at over 12msf. Similarly, Hyderabad, Mumbai and Delhi NCR are expected to experience sustained demand. Following a record 2021, office demand in mainland China’s top cities has cooled in 2022 in light of both global and local headwinds, though a modest recovery is forecast next year as the national economy returns to stronger growth.

Outside of these markets, which account for 77% of regional demand in the year ahead, robust improvements are also forecast in Tokyo – where demand is forecast to grow three-fold to over 4.7msf as new supply enters the market – and in Manila, which is expecting a 50% increase in demand to reach 3.5msf.

Figure 2: Asia Pacific regional net absorption (msf) and overall vacancy rate (%), 2016-2026

New supply in 2022-26 chart

Source: Cushman & Wakefield

Reconciling the effect of demand and supply, results in the majority (68%) of markets are expected to see vacancy soften in the year ahead, with over half (56%) seeing vacancy rates higher in 2026 than at present. In the near term, this situation is most acute in Ho Chi Minh City where vacancy increase from 4.4% in 2022 to 11.7% in 2023 due to a sharp increase in levels of new supply. Vacancy in Guangzhou, Shanghai, Shenzhen, Chennai and Hyderabad is also forecast to rise by in excess of four percentage points in 2023. In contrast, vacancy is expected to tighten modestly in all of Australia’s eastern seaboard markets. Over the forecast horizon, Jakarta and Manila are expected to tighten dramatically – by up to 12 percentage points – while Shenzhen and Ho Chi Minh City could soften by a similar amount.   

Figure 3: Net absorption (msf) and vacancy rate by market, 2023 

Net absorption by market 2023

Source: Cushman & Wakefield

The outlook for market rental growth therefore remains somewhat muted across the region and unlikely to match inflation over the near term. Downward pressure is most prevalent in Tokyo, where rents could soften by 3.6% in the year ahead. More modest downward pressure is expected in mainland China, ranging from a correction of 1.5% in Beijing to 3.4% in Shenzhen. In contrast, Brisbane, Seoul and Singapore could see rental growth in excess of 3%, while Melbourne is forecast to lead the region at nearly 5%

Looking beyond the year ahead, rental growth is expected to gain momentum in Hong Kong and turn positive from 2025. Bangkok and Jakarta are also expected to experience a strong uptick in rents towards the end of the forecast horizon as more limited supply drives vacancy into low single digits.

Figure 4: Rental outlook by market, 2023 (% y-o-y) and 2022-26* (% per annum)

Rental outlook by market 2023

* Q4 2022 to Q4 2026
Source: Cushman & Wakefield

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