Asia-Pacific Office Occupier Highlights Q4 2022

2022 began with optimism for the general economy to get back on the rails after battling the pandemic for two years. While it became a thing of the past, macroeconomic headwinds murk the outlook and the year concluded with many uncertainties and challenges. Many markets had their full year GDP growth forecasts revised downward against the backdrop of more monetary policy tightening. As such, Q4 2022 seemed to foreshadow how the initial months of 2023 will play out – watered-down sentiments. ​

For this quarter, Knight Frank’s Asia-Pacific Prime Office Rental Index dipped by 1% quarter-on-quarter (QoQ), the second consecutive quarter of decline since Q2 2022. Year-on-Year (YoY), the overall index is still up by 0.8%. In general, average vacancy expanded by 0.8%.​

Although the unemployment rate had reached a record low, it did not translate to higher leasing activity as businesses constricted their CAPEX in preparation for another market downturn. This then forced​ landlords to cut their expectations to ensure competitive rents. This is vital to attract and retain occupiers, especially when there is an abundance of supply currently.​

The pace of rental growth has already slowed, and demand will continue to soften as businesses prioritise spending on necessities. Shadow spaces are also expected, which will lead to an expansion in vacancy rate. Market conditions in 2023 will continue to favour tenants as more highly amenitised buildings with sustainability credits will be ready for occupancy. 

Oceania office market

The Australian economy grew solidly in Q4 and closed 2022 on a generally positive note. Unemployment rate remained low, which helped wage growth pick up. All four Australian cities tracked recorded continuous occupier demand, and with no new supply completion, vacancy rate remained to be on par with the previous quarter. Rents were largely stable as well, with marginal growth of 1.1% and 0.7% seen in Brisbane and Melbourne respectively QoQ. Likewise, neighbouring Auckland displayed confidence with a 4.9% rental growth over the last quarter, after months of static growth, and a stable vacancy rate. While both countries will experience a slowdown in economic growth alongside the world, fundamentals have proven to be resilient for the long-term recovery of their office markets. ​

Southeast Asia office market

The downbeat sentiments from Q3 seem to have been lifted slightly as the highly anticipated news of the reopening of the Chinese Mainland's economy and borders finally arrived. Rental growth was recorded for the majority of Southeast Asian (SEA) markets tracked, led by Bangkok at 3.3% quarterly, and Singapore at 5.5% yearly. Across the board, vacancy rate dipped as a large amount of completions were not recorded. Despite the anticipated resumption of business activities in the Chinese Mainland, SEA will still be battered by economic challenges going into 2023 and as such, rental growth will slow as demand moderates. Modest future pipeline supply will help to keep vacancies steady or rise slightly. ​

East Asia office market

Prolonged volatility in the market has incessantly affected the Greater China region as office rents continued their downward trajectory in Q4, with the exception of Taipei where rent grew by a marginal 0.5% QoQ, the third consecutive quarter of growth. Cautious sentiments hovered on as leasing activity remained dormant, resulting in negative net absorption captured for some cities and rising vacancy rates, made worse by the release of new office supply into the market. The hardest-hit market this quarter seemed to be Hong Kong, where rent decelerated quickly at 4.8% QoQ and vacancy rose as some tenants retired their space in Central, in favour of high-quality new supplies in decentralised areas that are more affordable. A silver lining prevails with the imminent reopening of and removal of travel restrictions in the Chinese Mainland. We can anticipate a long-awaited recovery from the weak market activities as the situation in Greater China stabilises, albeit much more observation is needed for Covid-19 cases in the Chinese Mainland to reduce. ​

South Asia office market

Solid macroeconomic fundamentals have insulated India’s economy from the deteriorating external environment, which can be attributed to its large domestic market and minimal exposure to international trade flows. As such, leasing activity remained relatively stable throughout the quarter, and all three Indian cities recorded sizeable net absorptions, driven by co-working operators, healthcare/life sciences and other services sectors. Bengaluru continued to lead the YoY rental growth at 11%, a marginal slowdown compared to 12% in Q3. Although the average vacancy rate expanded on the back of new supply completions in Q4, this should not be an issue as office demand is expected to be slightly higher than in 2022. Recessionary forces in the West could potentially outsource more roles to India, increasing hiring in the IT sector. Overall stable economic outlook would support the Indian market in 2023.

Get the detailed market-by-market data analysis in our full Asia-Pacific Office Highlights Report.