Published in ASEAN News on 19.08.2023
ASEAN News: Office rentals expected to decrease in various locations throughout ASEAN
Hong Kong stands among a list of cities in Asia Pacific (APAC) that are expected to see office rentals decrease over the coming 12 months, according to new research.
The other cities identified on this list, published in the Knight Frank's Asia-Pacific Prime Office Rental Index for Q2 2023, are: Guangzhou, China; Shenzhen, China; Kuala Lumpur, Malaysia; Phnom Penh, Cambodia, and Ho Chi Minh City, Vietnam.
In the APAC region, a total of 23 markets were tracked on the index. Among these markets, 15 reported stable-to-increasing rents, slightly down from 16 in Q1 2023. Overall, the index experienced a quarter-on-quarter drop of 1.6%, continuing a downward trend that has persisted since Q2 2022. This decline has resulted in an annual rental decrease of 3.1%. According to research, these trends can primarily be attributed to challenging conditions in the Chinese Mainland.
The research also revealed a slight increase in office vacancies during the quarter, reaching a level of 13.8%, which is the highest recorded in over 10 years. However, it is worth noting that despite this increase, the demand for office space in APAC has demonstrated resilience compared to the US and Europe, showing a stronger return-to-office trend. This is particularly notable considering that over 4 million square feet of office space was delivered in the last quarter.
Taking a closer look at Southeast Asia, the rental growth in emerging markets of the region has been moderating due to an increased supply pipeline of offices. However, rents in Ho Chi Minh City continued to rise, as the new supply in 2023, although substantial, marked the first in over two years. In Kuala Lumpur, the market remained stable with rents holding steady during the quarter, supported by Malaysia's better-than-expected GDP growth in Q1 2023 as the country continued its recovery from the pandemic. Singapore's market remained robust due to corporate relocations and a trend of seeking high-quality office spaces.
Moving to East Asia, office markets in mainland China continued to face pressure, with rental declines showing no signs of bottoming out and vacancies remaining persistently high. Prime rents in Hong Kong Island also softened, influenced by elevated vacancies during the quarter.
The index emphasized that the struggling economic recovery in the Chinese Mainland is amplifying the effects of an increased supply pipeline in these markets, which, in the past, would have had little difficulty absorbing it. A stronger economic recovery is crucial for revitalizing the office markets in these cities. However, other markets in East Asia presented contrasting figures. Tokyo experienced a rebound in leasing activity driven by post-pandemic demand, resulting in a marginal rental increase of 0.8% for H1 2023 despite looming supply. Seoul's ultra-tight vacancies stood at over 1%, in stark contrast to most markets in APAC, contributing to higher rents and ongoing market strength.
Knight Frank's Asia-Pacific Prime Office Rental Index for Q2 2023