Demand for office space to rise in Asia this year, Knight Frank says

An increasingly regionally connected Chinese economy and the knock-on effects from Japanese stimulus measures are likely to boost activity across the region, with domestic occupiers leading demand for prime office space. 

The Knight Frank Asia-Pacific Prime Office Index rose for the 12th straight quarter, increasing 1.7 per cent last quarter and 5.6 per cent over the last 12 months. Fifteen of the 19 prime office markets tracked saw prime rents increase last quarter. Rents are expected to soften in only three of the 19 markets monitored over the next 12 months. 

The Asia-Pacific Prime Office Index increased 1.7 per cent over the quarter, down slightly from 2.0 per cent recorded in the previous quarter. The Asia-Pacific vacancy rate increased marginally to 12.0 per cent as positive net absorption across most markets was met with significant new supply. 

Tokyo led the way in rental growth, with Grade A office rents increasing over the quarter by nearly 16 per cent. Although still sitting 39 per cent below the 2008 first-quarter peak, the company has continued to see prime centrally located office space outperform the wider Tokyo market. The unprecedented stimulus measures recently introduced by the Bank of Japan are likely to lead to a bump in growth over the next two years, affecting demand for office space and brightening the prospects for further prime rental growth.

In China, despite a drop in growth levels last quarter, the movement to more domestic demand is likely to lead to more stable but lower growth rates over the coming years. The Beijing office market remains tight, although it has likely passed its mid-term peak, while the Shanghai market is likely to continue to become more tenant-friendly as the city welcomes nearly 2.5 million square metres of new supply over the next three years. 

In Southeast Asia, prime office rents fell for the seventh straight quarter in Singapore, while the Vietnamese markets have likely hit the bottom of the cycle after more than four years of declining prime rents.

The Kuala Lumpur prime office market remained steady, with a possible boost in demand after the election tempered by significant new supply. Jakarta continued to see the strongest prime office rental growth across the whole region, while prime Bangkok office rents showed steady growth of 2.6 per cent. 

“In Bangkok we have certainly seen demand for office space increase, especially since the election of 2011,” Marcus Burtenshaw, executive director and head of commercial agency at Knight Frank Thailand, said yesterday.

“And it has been the Grade A segment in particular that has seen the greatest improvement,” he said.

The overall office occupancy rate in Bangkok last quarter increased 2.88 percentage points year on year and 0.45 percentage point quarter on quarter to 88.02 per cent.

“We continue to see the most demand for buildings located in the central business district [CBD] and for properties located within walking distance of mass-transit lines,” Burtenshaw said. “Grade A buildings have been especially sought after as occupancies increased by a substantial 6.2 per cent on year, up 0.99 per cent from last quarter. This has pushed average market rents up by 3.96 per cent year on year, and while growth was seen in every sector, Grade A buildings saw the greatest change – a 5.76-percentage-point year-on-year increase – as landlords responded to growing demand, making this the greatest year-on-year growth that we have recorded.” 

Bangkok tenants should expect and plan for office rents to continue rising, particularly for Grade A space in the CBD, as high occupancy rates with robust local and regional market demand are likely to drive growth throughout the year, he added.