Apac prime office rents seeing sustained recovery: Knight Frank

ALMOST all of the cities tracked by Knight Frank's Asia-Pacific Prime Office Rental Index recorded stable or increased rents in the past quarter, resulting in the index marking a 0.2 per cent year-on-year increase.

Of the 21 out of 23 cities that recorded increases, Shanghai recorded the highest year-on-year rise in Q1 at 4.2 per cent. On the flip side, Shenzhen continued to decline, falling 4.5 per cent year on year.

Quarter on quarter, the index increased 0.8 per cent, after rising by 0.3 per cent in the preceding quarter. In Q4 of last year, only 13 of the 23 cities tracked by the index recorded stable or increased rents.

Singapore specifically saw rents increase 1.9 per cent year on year and 1.2 per cent quarter on quarter. Hong Kong meanwhile saw 1.1 per cent year-on-year growth and 0.6 per cent quarter-on-quarter growth.

Ho Chi Minh City, a new entrant to the index, posted 0.7 per cent growth in rent quarter on quarter. It was flat on a yearly basis.

"Optimism at the start of the year was tempered by multiple resurgences of Covid-19 which resulted in Hong Kong and several tier-1 Chinese mainland markets re-tightening movement restrictions," said Tim Armstrong, global head of occupier strategy and solutions at Knight Frank.

Economic recovery in the region is also challenged by the Russia-Ukraine war, which led to the surge in energy prices and inflationary pressure.

"As such, the growth forecasts for the region could be lower than what has been projected," he said.

In terms of occupancy costs for Q1, Hong Kong continued to lead the pack at US$186 per square foot (psf) per year. Singapore came in second at S$105 psf per year followed by Tokyo at US$101.20 psf per year.

Christine Li, head of research, Knight Frank Asia-Pacific, said: “There are still mixed signals particularly in developing countries where office leasing demand is still in a state of flux.

"As economic recoveries hinge significantly on foreign direct investments, the macroeconomic environment now is making things more unpredictable than ever before."

Separately, vacancy remained elevated at 13.1 per cent across the region, similar to that of Q4. This should start to reduce further as more Asia Pacific markets start to open their economies and tenants in the tech industry continue to seize opportunities for premium quality spaces in the CBD at low rents, said Knight Frank.

"We do not expect supply-side pressure on both rents and occupancies in the coming quarters in Asia Pacific," said Li.

"With hybrid working being the way forward, occupiers are likely not over-committing to space the way they did in the past, which could modestly support stable leasing demand in markets that are already out of the woods."