Office occupiers will have greater opportunities in challenging 2020, report

(image: Colliers International)

An overall economic slowdown in Asia Pacific appears inevitable in 2020, but office occupiers will likely enjoy declines in rental levels and enhanced lease terms

  • Market conditions to generally turn more office occupier friendly as the COVID-19 outbreak impacts the global economic outlook
  • Markets with limited supply, such as Taipei and Ho Chi Minh City will be less severely impacted from the outbreak

office occupiersCushman & Wakefield has released their APAC Office Report: Outlook 2020, which has indicated greater opportunities for office occupiers despite a challenging 2020 ahead resulting from the COVID-19 outbreak.

An overall economic slowdown in Asia Pacific appears inevitable in 2020, but office occupiers will likely enjoy declines in rental levels and enhanced lease terms.

The COVID-19 pandemic has exacerbated office market cycles, particularly in those markets where availability has been rising. As a result, most key markets in Asia Pacific will turn more occupier-friendly. As landlords scramble to protect long-term tenant relationships and defend against increasingly attractive incentive packages from their competitors, the negotiation ball is now more firmly in the court of the office occupiers.

James Shepherd, Head of Research, Asia Pacific, stated: “As seen in all major territories, governments and central banks around the region have been responding to the situation with policy measures and financial aid to mitigate the economic impact. With China now appearing to be succeeding in controlling the outbreak at home, the World Health Organization believes that it is still possible to change the trajectory of the pandemic.

Assuming this scenario holds, and the global economy experiences a stimulus-fuelled rebound, we can expect office leasing activity to pick up in H2 and beyond as normal business activity gradually resumes. Although some local markets have started to show signs of recovery, global economic headwinds are likely to temper this.”

In Greater China, an influx of supply had recently prompted a downward rental trend in Shanghai, Beijing and Guangzhou. Given the impact of COVID-19, rentals are expected to slide further. For Hong Kong, the outbreak deals a second blow to a property market already weakened from social unrest. The premium office market is expected to remain under pressure over the near-term.

Rental growth is likely to be weak in Sydney, Australia, over 2020 due to the economic impact of the pandemic. However, relatively muted supply and low vacancy suggest growth can return relatively quickly with economic recovery. In contrast, rents are nearing peak in the current cycle in Singapore. Despite lower market confidence, landlords have been able to hold their rents steady for the moment due to tight vacancies and limited upcoming supply. Global economic and geopolitical uncertainties are also taking a toll on the ability of companies to secure budgets for relocation and expansion, limiting the demand for office space.

Dr. Hideaki Suzuki, Head of Research & Consulting, Japan, said: “An increase in vacancies can be noted in Tokyo, Japan, currently at historical lows of below 2%, and is pending as tenants look to move into new projects, and secondary vacancies rise. Consequently, as a result of the outbreak, the market is braced for a change in direction.

“Asia Pacific became the first region to experience the real economic repercussions of the COVID-19 outbreak. China’s GDP growth will be dented, which in turn will exert economic stress on the Asia Pacific region and the global economy. However, a rebound in economic activity is expected to prompt a gradual return to pre-outbreak office market conditions by 2021.”

SEA office rents remain reasonable compared to world’s most expensive office markets, said another recent report by JLL. Premium office occupancy costs in Singapore rank 14th worldwide, driven by technology firms and traditional banking and finance sectors.

Five Southeast Asian cities rank in the world’s top 86 most expensive premium office rental markets, according to the fifth edition of JLL’s Premium Office Rent Tracker (PORT).

In this fifth edition of JLL’s Premium Office Rent Tracker (PORT), JLL compares like-for-like occupation costs across 86 major office markets in 73 cities. PORT comprises the key elements of occupancy costs – net effective rent, service charges and government tax on rent – all standardised to enable true international comparisons. While only a fraction of a city’s corporate base will pay premium rents, PORT provides a useful barometer of relative costs.

The report, which compares occupancy costs for premium office buildings across the world’s leading real estate markets, reveals that Singapore holds the 14th spot worldwide, with net effective rents and occupancy costs running US$117 per year per square foot. That is slightly more than half the premium rents in Hong Kong’s Central district, the most expensive submarket.


  • Occupancy costs continue to increase for premium offices
    Occupancy costs for premium buildings have continued to rise in major office markets over the past year, despite many markets being in a late-cycle phase. Costs have grown by an average of around 4% in U.S. dollar terms during 2018.
  • Supply is on the rise – but vacancy remains low
    Globally, the supply of premium space is gradually expanding and, while there is now greater choice for office occupiers, premium space is still not in abundance. Among the top office markets, the overall vacancy rate remains in the low single digits – and as tight as 1.5% in Tokyo CBD, 2.7% in Berlin and 3.2% in Beijing.
  • Rental growth set to decelerate in 2019
    Growth in occupation costs is likely to slow down in 2019 as new supply comes through; however, while rental growth is expected to decelerate, there are very few major markets where a downward correction is projected for 2019. In fact, the delivery of new premium buildings will set fresh rental benchmarks in several markets.
  • Affordability is still a concern as corporates look for alternatives
    Affordability continues to be a concern, particularly in the top tier of markets such as Hong Kong, New York and London, although considerable discounts can still be found in other well-located business districts within these cities. More affordable cities are also attracting significant corporate interest, including in Europe (e.g. Amsterdam, Berlin and Warsaw), Southeast Asia (e.g. Ho Chi Minh City and Manila) and select secondary markets in the U.S. (e.g. Dallas and Atlanta).

Written by Ravi Chandran

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