Asia Pacific’s Office Market To Fare Better Than Others’
SINGAPORE – Property consultancy Cushman & Wakefield (C&W) believes that the office space leasing market in Asia Pacific will be more resilient than those of other regions, reported The Business Times on Monday morning (19 October).
“Under (our) baseline scenario, net office absorption in Asia Pacific excluding Greater China in 2020 declines by 70 percent year-over-year to 20.5 million sq ft before moderately improving to 28 million sq ft in 2021,” said C&W’s regional Head of Analysis & Insight, Dr Dominic Brown.
Asia Pacific’s 2020 figure marks an office absorption rate of just 2 percent, the lowest since such data were tracked in 2007. Notably, the baseline assumption takes into account both structural and cyclical impacts on office space take-up.
Despite the COVID-19 pandemic, C&W forecasted that emerging markets in Asia Pacific would add 683,000 office jobs this year.
However, the region’s advanced economies including Singapore could lose about 340,000 office jobs. This is triple of the job losses seen during the 1997 Asian Financial Crisis and over four times the job losses in the 2008 Global Financial Crisis
“When factoring in both employment declines that are more severe, and more elastic rent responses to declining occupancy levels, a sharper peak-to-trough rental decline of 21.3 percent is forecast over the next 21 months,” noted Brown.
Coupled with a large number of job losses in advanced economies, the decline in office rents would negatively impact office leasing fundamentals of the region in the next 6 to 18 months. Nonetheless, office space take-up is expected to remain positive for 2020 until 2030.
This is particularly true for the Asia Pacific’s office market that has fared better than other regions. For instance, while the region’s net office absorption in Q2 2020 was only 2.9 million sq ft, that in the United States plunged to -23.1 million sq ft, and the figure is forecasted to remain in negative territory in both 2020 and 2021.
In addition, Asia Pacific faced the virus outbreak with a remarkable supply pipeline. By the end of 2022, a huge amount of new office stock is anticipated to be completed to the tune of more than 211 million sq ft, which translates to a 5 percent increase from 2017 to 2019.
As of Q2 2020, property developers started the construction of over 230 million sq ft of office space, which accounts for about 20.8 percent of Asia Pacific’s overall office stock.
“Inevitably, the combination of weaker demand and substantial new supply will push vacancy higher, which is expected to peak at 16.7 percent in late-2021 and remain elevated for the following year before decreasing more rapidly. This level of vacancy is over 500 basis points (bps) above pre-COVID-19 (Q4 2019) levels and will be the highest recorded vacancy on record,” Brown noted.
Furthermore, he believes that the prevalence of flexible workplace arrangements like work from home (WFH) do not meaningfully change the prospects of Asia Pacific’s office leasing market, as C&W forecasts that net office demand for 2022 to 2030 would drop by merely 4.5 percent due to such work arrangements.
Brown thinks that COVID-19’s negative effects will be cushioned by the expected high overall growth of the region’s office leasing sector.
“Multiple surveys of both workers and executives show that most people want to be in an office at least a few days per week, but with some changes, including increased flexibility to WFH, social distancing in the office, more private desks, more private defined space and fewer shared desks. So even with aggregate increases in WFH, not all firms plan on reducing office footprints,” he added.
