Southeast Asia leads APAC office recovery amid global economic headwinds in Q1 2025
As Trump's tariffs reshape global trade, regional office markets show varying degrees of resilience, with Jakarta, Bangkok, and Kuala Lumpur outperforming larger neighbours
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Southeast Asian office markets show resilience in Q1 2025, with rents rising an average of 1.3% quarter-on-quarter across emerging markets in the region. This growth is critical when global economic uncertainties are mounting, particularly following recent U.S. trade policy shifts.
Jakarta's office market is turning a corner after struggling with rental declines and high vacancies since mid-2023. Market fundamentals are strengthening as the new supply pipeline tapers off, creating a more balanced demand-supply dynamic expected to accelerate throughout 2025. This turnaround signals a potential inflection point for Indonesia's commercial real estate sector, following a prolonged period of oversupply.
Bangkok's prime offices continue to attract tenants seeking high-quality, amenity-rich environments, positively impacting rental rates. This trend aligns with the global shift toward premium workspaces as companies use office quality as a tool to encourage employee return-to-office initiatives.
Kuala Lumpur's office market is experiencing improving occupancy rates, benefitting significantly from the expansion of tech firms and multinational corporations looking to strengthen their regional presence. Malaysia's strategic position in Southeast Asia and relatively stable political environment make it an attractive destination for corporate relocations.
Meanwhile, Singapore's office rents remained unchanged quarter-on-quarter, as occupiers increasingly consider cost-neutral options, including right-sizing and relocating to more modern office facilities. Despite this flat performance, Singapore maintains its position as a premier business hub in the region, with its stable government, strong infrastructure, and business-friendly policies continuing to attract global corporations.
East Asia: Challenges and contrasts
The Chinese mainland's tier-one cities are facing accelerated rental declines, with prime rents dropping at a faster 4.5% in Q1 2025, compared with 4.3% in Q4 2024. Prime rents are now 13% lower than in Q1 2024, with vacancies exceeding 20%. This downward trend is expected to persist as foreign companies reduce their presence amid rising U.S.-China tensions and profitability concerns as China's economic growth moderates.
Seoul stands as APAC's office market pacesetter, achieving 17 consecutive quarters of rental growth and a 6.9% year-on-year increase. With the region's tightest vacancy rate at just 1.8%, Seoul's prime office sector reflects a strong financial sector demand with severely constrained CBD supply. Yet this run may face headwinds, as three years of above-inflation rental growth has triggered tenant resistance, with key occupiers increasingly eyeing secondary districts to mitigate escalating costs.
Similarly positive, Tokyo's rental growth gathered momentum, supported by strong demand. According to Sanko Real Estate, net absorption in the five central wards breached 100,000 tsubo for the first time in over four years, highlighting the strength of Japan's office market despite global economic headwinds.
Hong Kong SAR's office leasing market continues to grapple with an ample pipeline, but there were notable take-ups by firms in the legal and financial sectors. The increasing complexity of financial markets, particularly in areas like cryptocurrency, has led to heightened demand for specialised legal services. An alternative investment firm leased over 55,000 square feet in The Henderson, which is rapidly emerging as an attractive address for financial firms.
Despite an oversupplied pipeline weighing on Hong Kong SAR's office market, the financial and legal sectors provide targeted bright spots. The rising complexity of financial markets, particularly crypto assets, has fueled demand for specialised legal expertise, with one alternative investment firm securing a landmark 55,000-square-foot lease in The Henderson, which is quickly establishing itself as an attractive address for financial firms.
India: Tech giants and GCCs drive growth
India's three largest office occupier markets showed increased demand in Q1 2025, reflecting strong business sentiment in the country. Leadership teams across industries, including tech giants, are actively promoting a return to the office, further boosting leasing activity.
Global Capability Centers (GCCs) dominated leasing activity during the quarter, taking the spotlight from domestic-focused businesses that have been anchoring the market since the pandemic. Bengaluru's dominance is unmistakable, capturing 65% of all GCC transactions and cementing its status as India's premier tech hub.
Flexible space operators were particularly active, increasing requirements by 28% year-on-year and taking up close to half a million square feet during the quarter. There was also a higher incidence of small businesses taking up co-working spaces, indicating a broader shift in how businesses of all sizes approach office space.
However, Mumbai experienced a rental decline as landlords prioritised occupancies amid the substantial volume of new office spaces expected to be completed in 2025.
Australasia: Flat rental growth amid high vacancies
Australia's office markets ended the quarter with prime net effective rents largely flat, down just 0.1% quarter-on-quarter. A marginal increase in incentives offset the rise in face rents, indicating that rent growth has noticeably lost momentum going into 2025.
Melbourne's prime offices saw a rise in incentives, which increased by 0.8 percentage points to average 47.8%, as landlords aimed to raise occupancies. Vacancies in the city hit 18%, reportedly the highest in over 20 years, attributed mainly to Australia Post vacating 111 Bourke Street, which released 44,000 square meters to the market.
Brisbane continues to register the highest annual rental growth in the region. However, the city's rental upcycle is stabilising, with rents increasing by just 0.5% quarterly. This moderation can be attributed to the recent sustained strong rental growth and ongoing high fit-out costs, with tenants focusing on renewals.
Opportunities amid challenges
While the regional office market presents a mixed picture, several trends point to potential opportunities:
Flight to Quality: Across the region, tenants continue to prefer high-quality, amenity-rich environments, creating demand for premium spaces even in challenging markets.
Return-to-Office Momentum: As companies increasingly encourage employees to return to physical workspaces, office demand is expected to strengthen, particularly in markets with improving infrastructure.
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