_Asia-Pacific office vacancy rates reach a new peak in Q2 2023

Singapore, 19 July 2023 - Knight Frank, the leading independent global property consultancy, has released its latest Asia-Pacific Prime Office Rental Index for Q2 2023 - a comprehensive analysis that tracks the rental performance of prime office properties across 23 key markets in the Asia-Pacific region. 
 
The index dropped by 1.6% quarter-on-quarter, maintaining a year-long downward trend since Q2 2022. This brings the annual decline of rents to 3.1%, which can largely be attributed to continued soft conditions in the Chinese Mainland.
Vacancies rose marginally by a quarter of a percentage point quarter-on-quarter to 13.8%, which is at its highest level in over 10 years. However, seen in the context of the delivery of over 4 million sq ft of office space this last quarter, office demand has held up better than those in US and Europe, with a stronger return-to-office trend. As the region is entering a new development phase, new supply in 2023-2024 is projected to add close to 10% to existing stock, driving vacancy rates up further. Consequently, market conditions across most of the region are expected to remain tenant-favourable for the rest of the year.

Highlights for Q2 2023:

·        Out of the 23 cities tracked, 15 cities reported stable or increasing rents in Q2 2023, compared to 16 in Q1 2023

·        Perth led the quarterly rental growth at 5.3%, followed by Brisbane at 2.6%

·        Leasing activity in Tokyo and Kuala Lumpur is rebounding on post-pandemic demand

·        Slow economic recovery in the Chinese Mainland is amplifying the effects of an elevated supply pipeline, keeping rents under pressure

Tim Armstrong, global head of occupier strategy and solutions at Knight Frank, said: “Landlords in major office markets across the world are managing the effects of both an economic slowdown as well as a return-to-office that has stalled, particularly in the US. Markets in Asia-Pacific have clearly outperformed with higher office utilisation rates compared to other regions, and demand is holding up better supported by a flight-to-quality trend. With the region’s development cycle expected to extend into 2024, the expansion of options will give occupiers leverage to secure favourable leasing terms in the current window, extending the flight-to-quality trend which will amplify the gap between best-in-class and lower-rated assets.”

Christine Li, head of research at Knight Frank Asia-Pacific, said: “The region’s elevated supply pipeline and weaker-than-expected economic rebound in the Chinese Mainland have reset expectations for the Asia Pacific office market to stage a recovery in the short term. While occupiers remain cautious about space requirements, they are also continually evolving responses to hybrid working and higher aspirations for their real estate portfolio, from sustainability ambitions to a more transformational role in operational aspects. These dynamics will continue to fuel strong underlying demand for prime quality assets, which belies the overall declining rental trajectory, and generate new and different occupier trends across the region’s occupational markets over the current cycle.”

Asia Pacific Prime Office Rents for Q2 2023

Read the full report here.