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PRIME OFFICE RENTS IN THE ASIA-PACIFIC REGION DECLINES FOR THE 17TH CONSECUTIVE MONTH
April 25, 2024
According to Knight Frank, prime office rents in the Asia Pacific continued on a downward trajectory in the first quarter of 2024.
The independent global property consultancy firm said in its newly released Asia-Pacific Prime Office Rental Index for Q1 2024 that the index registered a 3.2% year-on-year decline, steeper than the 2.4% year-on-year (YoY) fall in Q4 2023.
"This seventh consecutive quarterly drop was primarily driven by deepening rental declines in Chinese Mainland cities, which reached record lows during the quarter," Knight Frank said, noting, however, that the regional rental prime office landscape exhibited contrasting extremes.
"While Chinese Mainland cities struggled with weak fundamentals, cities such as Seoul and Taipei experienced multi-year high rental rates, reflecting a flight-to-quality trend favouring prime office assets in these markets," it added.
For the first quarter of 2024, the report found that 15 out of 23 cities tracked by the index recorded stable or increased rents in Q1 compared with 13 cities in Q4 2023. Brisbane led rental growth at 6.8% YoY.
It said that the Asia-Pacific prime office market will continue to favour tenants in 2024, with vacancy rates expected to trend upward.
Positive trends were also reported in select markets, with regional vacancy rates at record highs.
[Source: Knight-Frank]
According to the report, while Ho Chi Minh City and Phnom Penh have halted their declines, the current upward trend in these markets may face challenges due to the substantial construction pipeline.
Additionally, regional vacancy rates have reached record highs, reflecting the ongoing growth in office space supply.
"The prime office market in Singapore remained resilient, with a slight 0.6% quarter-on-quarter increase, supported by positive rental reversions. However, the upward trend shows signs of waning and could stabilise in the second half of 2024 as the technology and financial sectors undergo restructuring," Knight Frank said.
Vacancies rose again
Regionwide vacancies rose again marginally to 14.9%, which sustained a trend that has seen the metric continually breach record highs since Q4 2022.
"Although the region remains largely caught in a tenant-favourable setting, the bifurcation in metrics between the top and the lower rated assets indicates diverging conditions between these segments," said Tim Armstrong, global head of occupier strategy and solutions.
He added that a consistent theme across the region is the strength of demand for higher-end spaces.
"These conditions were particularly acute in cities in Australia and New Zealand but also observed in Japan's capital, Tokyo, and Southeast Asia's emerging markets. Although weaker in Chinese Mainland markets, we expect this recurring flight-to-quality theme to intensify as occupiers seek quality assets to optimise portfolios, experiment and evolve their hybrid work plans and hit ESG targets," Armstrong said.
"As momentum builds around portfolio dynamics, shifting from strategy to execution, occupiers will continue to align capex constraints with commercial real estate strategy," he added.
Meanwhile, occupiers in the region are signalling a stronger return to the office.
The latest Knight Frank Corporate Real Estate Sentiment Index registered significant gains in sentiment around a return to pre-pandemic occupancy levels.
Going forward, it noted that the interplay between a greater return to office and a more densely occupied office will be a key theme.
"Against a backdrop of capex constraints and lower headcount growth, overall vacancies will likely remain elevated for the rest of 2024, as occupiers will continue to prioritise lease renewals and remain selective in expansionary plans. However, there remain pockets of strength within the region, supported by occupiers' long-term strategic interest in the region's superior economic growth, growing consumer markets, and skilled workforce," said Christine Li, head of research, Asia Pacific.
"We expect offshoring firms in India and the Philippines to remain a pillar of demand while portfolio optimisation will continue to propel absorption of prime spaces in the developed markets," Li added.
