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APAC Office Outlook

Dominic Brown • 07/12/2022

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. 

The region has entered a period of above average new supply, which is expected to continue through to 2025 before starting to ease. Of the 25 markets forecast, 16 will welcome more supply in 2023–25 than 2017–19 as pandemic-delayed construction continues to enter the market. Collectively, cities in India account for almost half – 168 msf – of the forecast new supply in 2023–2025.

Unsurprisingly, the region’s largest office markets have the largest supply pipelines over the full 2023-27 forecast horizon. Hyderabad, Bengaluru, Shanghai and Shenzhen are all expecting over 55 msf to be brought to market by 2027, which represents from 32% to 66% of existing stock and highlights not only how large these markets have become, but their continuing rapid growth.

In contrast, supply is relatively constrained in Brisbane, Jakarta, Seoul and Singapore. Each of these markets have supply pipelines through to 2027 that total less than 10% of existing stock. In Brisbane, there are several years where no new supply is expected, whereas the other markets more reflect a “little and often” approach.

Figure 3: New supply in 2023-27* (msf) and as a percentage of existing stock in 2023

Figure 3: New supply in 2023-27* (msf) and as a percentage of existing stock in 2023

Source: Cushman & Wakefield

From a demand perspective, the top eight Indian real estate cities have led the region in net office absorption over the past 18 months, fuelled by both expansion of domestic companies and the ongoing growth of global capability centres, predominantly in technology-focussed cities. This leading position is not expected to be challenged over the forecast horizon, with net absorption forecast to average approximately 40 msf per annum, equivalent to around 52% of the regional total.

The recovery in mainland China’s tier one cities is also expected to continue. Office demand in these four cities (Beijing, Shanghai, Guangzhou and Shenzhen) is expected to end 2023 at a little over 13 msf, a 20% improvement on 2022, then accelerate to almost 18 msf in 2024 and remain around 20 msf per annum for the remainder of the forecast period.

Some markets across Southeast Asia are also forecast to experience a strong uptick in demand. Kuala Lumpur and Manila, with their expansive national economic growth outlooks, stand out, while Singapore is likely to continue its steady performance as its economy rebounds.

Elsewhere, Tokyo is starting to emerge from a comparatively slow 2021–22 period, with demand in 2024 forecast at 5.3 msf—the highest level of net absorption in several years. Supply-led demand, however, remains a key driver as tenants relocate to higher quality buildings and/or locations.

Figure 4: Regional annual grade A office net absorption (msf) and vacancy rate by broad geography*

Figure 4: Regional annual grade A office net absorption (msf) and vacancy rate by broad geography*

* Tier 1 mainland China = Beijing, Guangzhou, Shanghai, Shenzhen India = Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, Pune Rest of APAC = Bangkok, Brisbane, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Kuala Lumpur, Manila, Melbourne, Seoul, Singapore, Sydney, Tokyo.

Source: Cushman & Wakefield

This remains an important issue across the region. Recent analysis has highlighted the importance of building location and quality in occupier decision-making . Factors such as sustainability and technology accreditation are becoming increasingly important, yet adoption of both  remains at relatively low levels across Asia Pacific. Accordingly, demand is likely to be further bifurcated or even trifurcated, and led by best-in-class buildings in good locations, and/or by those buildings with re-positioning potential.

Despite the positive outlook for office demand, vacancy is expected to continue pushing upwards in 2024 as new supply exceeds demand. While approximately half of the markets forecast are expected to experience higher vacancy in 2027 than 2023, the most significant increases are concentrated in just a few markets. Guangzhou’s vacancy rate increased around 600bps in 2023, from 14% to 20%, and is forecast to rise to almost 30% by 2027. A similar situation is seen in Shenzhen, with vacancy rising from 27% in 2023 to almost 35% in 2027. While these are the largest vacancy rate increases, vacancy rates in markets including Hyderabad, Kuala Lumpur and Bangkok are forecast to exceed 25% by 2027. This is primarily driven by new supply, as positive office demand is expected to endure in all these markets. Again, this highlights the importance of truly understanding tenants’ needs when positioning assets within high vacancy markets.

Singapore and Seoul are likely to remain the tightest markets in the region, with vacancy in both remaining below 5%. Neither Tokyo nor Manila is expected to exceed 7% over the forecast horizon (2027). In Australia, vacancy rates are expected to remain stable at around 10%, though this is likely to tighten in Brisbane and Sydney toward the end of the forecast horizon as supply pipelines dry up.

Figure 5: Net absorption (msf) and vacancy rate, 2023-27

Figure 5: Net absorption (msf) and vacancy rate, 2023-27

Source: Cushman & Wakefield

Bringing these factors together suggests that there will be comparatively little upward pressure on rental growth over the near-term at the aggregate level. However, this is not universally true at the local level, and in almost all markets there remains a bifurcation with higher-quality stock likely to outperform the wider market and the the vast majority of poorly located, lower-quality buildings likely to remain under significant pressure.

Sub-regionally, recent performance has been varied. Australian markets have led rental growth across the region in 2023, topped by Brisbane. Together with Sydney and Melbourne, these three markets are forecast to show the strongest growth through to 2027, averaging around 4% to 7% per annum. Jakarta’s forecast rental increase over the same time is similar, though this is predicated on strong growth from 2025 which would need to come to fruition to offset slower growth in the near-term. In Singapore, steady growth of around 4% per annum is forecast from 2025 onwards, fuelled by strong demand, limited supply and already-tight vacancy.

Rental growth elsewhere in the region is more muted. Soft conditions in the near-term remain prevalent across tier one markets in mainland China. Rents in Tokyo are expected to remain flattish with minor downside risk expected until 2027.

Figure 6: Rental outlook by market, 2024 (% y-o-y) and 2023-27 (% per annum)

Figure 6: Rental outlook by market, 2024 (% y-o-y) and 2023-27 (% per annum)

Source: Moody’s Analytics

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