_Asia-Pacific prime office rents see sustained recovery

19 April 2022, Singapore - Knight Frank, the independent global property consultancy, has released its Asia-Pacific Prime Office Rental Index for Q1 2022. The index is up 0.8% quarter-on-quarter (QoQ), after rising by 0.3% in the preceding quarter, indicating that economic recovery is sustained from Q4 2021, despite a turbulent Q1 with accelerating inflation and the Russian invasion of Ukraine weighing down on market sentiment. The overall index is up 0.2% year-on-year.

Vacancy remains elevated at 13.1%, similar to that of Q4 2021. This should start to reduce further as more Asia-Pacific markets start to open their economies and tenants in the tech industry continue to seize opportunities for premium quality spaces in the CBD at low rents.

Highlights for Q1 2022:

• Of the 23 cities tracked by the index, 21 cities recorded stable or increased rents this past quarter, as compared to 13 in the previous quarter
• Shanghai recorded the highest year-on-year rise in Q1 2022 at 4.2% among the cities tracked by the index, while Shenzhen continued its decline trend by 4.5% YoY for the same period
• On a quarterly basis, Bengaluru saw rent increasing by 5.8%, accelerating from the 1% QoQ improvement the quarter prior
• The Index will now track Ho Chi Minh City from Q1 2022 onwards. Rent grew 0.7% QoQ and stayed flat on a yearly basis.

Tim Armstrong, global head of occupier strategy and solutions, Knight Frank, said: “Optimism at the start of the year was tempered by multiple resurgences of COVID-19 which resulted in Hong Kong and several tier-1 Chinese Mainland markets re-tightening movement restrictions. The sustained economic recovery post-COVID in the region is also challenged by the Russia-Ukraine war which led to the surge in energy prices and inflationary pressure. As such, the growth forecasts for the region could be lower than what have been projected. Nevertheless, the Asia-Pacific market is not as directly impacted by the macroeconomic uncertainties as other regions. Particularly in countries where there is sustained optimism over re-opening, corporates are choosing to take more decisive leasing decisions in view of the rising material costs and construction delays.”

Christine Li, head of research, Knight Frank Asia-Pacific, said: “There are still mixed signals particularly in developing countries where office leasing demand is still in a state of flux. As economic recoveries hinge significantly on foreign direct investments, the macroeconomic environment now is making things more unpredictable than ever before. Nevertheless, the drop in rents during the entire pandemic were not as deep compared to previous crises, and we also do not expect supply-side pressure on both rents and occupancies in the coming quarters in Asia-Pacific. With hybrid working being the way forward, occupiers are likely not over-committing to space the way they did in the past, which could modestly support stable leasing demand in markets that are already out of the woods.”

Download the full report here.