APAC businesses are cutting rental spend amid fears of a market downturn, says Knight Frank report

Office rents across prime markets in the Asia-Pacific region have declined for a second quarter in succession. Knight Frank’s Prime Office Rental Index for the region saw a quarter-on-quarter fall of 1 percent in October-December 2022, marking its second successive quarterly decline since the April quarter.

The property consultant said the fall is indicative of tight-fisted APAC business unwilling to spend more on rent, as they brace for a possible downturn.

“We expect growth in office rents to moderate as occupiers continue to adopt more flexible strategies and be prudent with their spending,” said Tim Armstrong, Knight Frank’s global head of occupier strategy and solutions.

Despite the quarterly dips, the index ended 2022 with a year-on-year increase of 0.8 percent, with Bengaluru and Mumbai seeing the highest rental spike in 2022. While both cities saw no quarter-on-quarter rental hikes, office rents went up by 11 percent (YOY) in Bengaluru and 7 percent (YOY) in Mumbai.

Prime office markets in Auckland, Singapore, Bangkok and Melbourne saw YOY rental hikes between 5.4 percent and 5.9 percent, with Auckland standing out as the city with the steepest QOQ rental hike of 4.9 percent.

“Solid macroeconomic fundamentals and solid domestic growth have mitigated the impact of global turbulences over the Indian economy,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.

“The office market has experienced a robust recovery from the pandemic lows and has registered the second-best historic year for demand,” Baijal added, “This, in turn, has strengthened rental growth across most markets.”

In terms of occupancy costs, Hong Kong continues to hold Asia’s most expensive office real estate. The special administrative region of China recorded a whopping $174.3 per sq ft / year in 2022 in average office rent followed by Singapore at a distant second with $109.8 per sq ft / year.

For perspective, the average office rent in NCR and Mumbai was $78.7 per sq ft / year and $70.8 per sq ft / year, respectively. Jakarta and Kuala Lumpur recorded the most inexpensive rent among prime office markets in the APAC region last year — $27.8 per sq ft / year and $18.8 per sq ft / year, respectively.

According to the index, 16 out of 23 cities reported stable or increasing office rents in October-December 2022, which was one more than 15 cities in the previous quarter. “The pace of rental growth has already slowed and demand will continue to soften as businesses prioritize spending on necessities,” the report said.

“Market conditions in 2023 will continue to favour tenants as more highly amenitised buildings with sustainability credits will be ready for occupancy,” it added.