_Knight Frank latest report shows continued downturn in Asia-Pacific prime office rental market
Knight Frank, the leading independent global property consultancy, has released its latest Asia-Pacific Prime Office Rental Index for Q4 2023, which showed a decline of 1.1% quarter-on-quarter. This is the sixth consecutive quarter-on-quarter decline for the index since Q2 2022. Year-on year, the overall index fell 2.4%. Concurrently, the vacancy rate remains high, rising marginally by 0.5% from the past quarter.
Highlights for Q4 2023:
Perth led rental growth with a 6.9% increase annually and 3.5% rise quarterly
Competition for space remains intense in Seoul as the city registered record-low vacancy rate of 0.9%
The Asia-Pacific office market will continue to favour tenants in 2024, with vacancy rate expected to trend upwards
Tim Armstrong, global head of occupier strategy and solutions, said, “Despite concerns arising from recent layoffs in sectors such as technology and finance, we expect the impact on occupancy markets to be limited, largely due to the continued, overall tight employment market. While many MNCs will continue to scrutinise portfolio performance and look for opportunities to reduce their office footprint, demand for prime assets will be sustained as occupiers seek high-quality spaces to support their evolving workplace needs. Stepping into 2024, we anticipate a stable leasing market as companies prioritise optimising their current spaces. However, expect cautious decision-making as geopolitical tensions remain a constant threat to sustained corporate growth and confidence.”
Christine Li, head of research, Asia-Pacific said, "The Asia-Pacific occupier market is increasingly polarised, where demand and rental are still holding up well in some markets but remained challenging in others. Although rents moderated by 2.4% through 2023, vacancy rate showed resilience by only expanding 1.2%, despite eleven million square metres of new inventory being added to the market. With that, we can conclude that the adoption of ‘office-first hybrid’ strategy will continue to drive demand for space in the region for 2024, especially since occupier sentiment is experiencing a positive shift, with an increased willingness to invest and to spend."
The latest Knight Frank | Cresa Corporate Real Estate Sentiment Index echoes a similar sentiment. As occupiers shift from strategising to execution in their portfolio management, the prospects for the future expansion of the physical footprint are turning positive.
Among the 23 cities in the Asia-Pacific index, 13 cities showed stable or increased rents in the past quarter, a slight decrease from 15 cities in the preceding quarter. In Singapore, the prime office market's rental growth cycle extended to become the longest in the country's history, with increases observed for the 11th consecutive quarter, although the pace of growth slowed in H2 2023 as businesses focused on maintaining stability.
Forecast for the next 12 months:
The full report can be viewed here.