Prime office rents in the Asia-Pacific region saw a 3.1% decline in Q2 2024, driven by a sharp drop in Chinese cities. Conversely, India experienced a surge in office leasing, with significant growth in Bengaluru and Mumbai. Australia’s market grew, while Southeast Asia and New Zealand had mixed results.
In the second quarter of 2024, the prime office rental market in the Asia-Pacific region showcased mixed results, with China experiencing a notable decline and India witnessing a surge in office leasing activity. The Asia-Pacific Prime Office Rental Index, produced by Knight Frank, recorded a 3.1% year-on-year decline, slightly improving from the previous quarter’s 3.2% drop but continuing a two-year downward trend.
China’s Office Market Challenges
Chinese mainland cities have been at the forefront of this decline, with prime office rents plummeting by 10.8% year-on-year, accelerating from the 10.0% reduction in Q1 2024. Vacancy rates in mainland China also rose by 0.2 percentage points, exceeding 19%, driven by adding over 700,000 square meters of new office space across major cities like Beijing, Guangzhou, Shanghai, and Shenzhen.
“This represents a steeper fall compared to the 10.0% reduction seen in Q1 2024,” noted the report, emphasizing the worsening market conditions. However, despite rising vacancy rates, cities such as Beijing and Shanghai saw improved absorption rates as landlords focused on maintaining occupancy levels over rental income. “This strategy led to increased leasing activity, particularly from state-owned enterprises in Beijing, which took up significant office spaces,” Knight Frank highlighted.
India’s Office Market Boom
Contrasting sharply with China’s struggles, India has emerged as a vibrant market with significant growth in office leasing. The country’s major office hubs have experienced a 50% surge in leasing volumes. Bengaluru led the way with 4.9 million square feet of leased space in Q2, while Mumbai’s office leasing soared by an impressive 183.1% year-on-year, totalling approximately three million square feet.
“With a pro-business leadership set to continue at the helm of the government for a renewed term of five years, the Indian office space market looks on course to conclude 2024 on a new high,” the report projected, reflecting the positive business sentiment driving this growth.
Mixed Performance Across Other APAC Markets
The Australian office market also showed signs of growth, with Brisbane, Perth, and Sydney recording year-on-year rental growth of 8.1%, 7.1%, and 5.1%, respectively. In contrast, New Zealand’s Auckland saw moderate growth of over 2%, though its momentum appears to wane after three-quarters of stagnation.
In Southeast Asia, the office market demonstrated modest improvement, with a decline in vacancy rates by 0.6 percentage points to 24% in Q2. However, Jakarta’s vacancy rate climbed above 30%, and rental growth remained sluggish across most markets. Manila experienced a decline in average rents, while Singapore’s growth rate slowed for the fourth consecutive quarter.
“The tech sector and banking industry’s continued space consolidation and reduction efforts have prompted landlords, particularly in Singapore, to adopt more flexible negotiation strategies to maintain occupancy levels,” Knight Frank explained. Meanwhile, Ho Chi Minh City saw a “significant take-up from major international tenants” thanks to its newly launched Grade A projects, providing a glimmer of optimism in the region.
Conclusion
The APAC prime office rental market is experiencing divergent trends, with China’s market facing significant challenges while India capitalizes on strong leasing momentum. The varying performance across other APAC markets underscores the region’s complex and evolving office landscape, shaped by local economic conditions and sector-specific dynamics. As 2024 progresses, stakeholders will closely monitor these trends to navigate the shifting tides of the APAC office market.
