Knight Frank has released its Asia-Pacific Prime Office Rental Index for Q2 2022. The index is up 1.0% quarter-on-quarter (QoQ), after rising by 0.8% in the prior quarter, indicating that economic recovery has sustained for three consecutive quarters, despite inflation rising to unprecedented levels and aggressive rate hikes by the Feds to curb it. The overall index is up 2.0% year-on-year.
Vacancy dropped by 1.9% as the flight-to-quality trend continued into Q2, propelled by the tech sector. According to the Google mobility index, Asia-Pacific has shown an extraordinary growth of workplace footfall from an average of 5% below pre-Covid levels in March 2022 to 13% above pre-Covid levels as of June.
Highlights for Q2 2022:
- Of the 23 cities tracked by the index, 17 cities recorded stable or increased rents this past quarter
- Rents for almost half of the cities tracked in the index have returned to pre-pandemic levels
- Bengaluru recorded the highest year-on-year rise in Q2 2022 at 12.1% among the cities tracked by the index, while Melbourne declined for the first time since Q4 2019 by 3.8% for the same period
- In the Chinese Mainland, only Shanghai sustained a dip in rent by 0.3% QoQ due to city-wide lockdowns that forced all employees to work-from-home from March to June.
- Among all the cities tracked in the Index, Singapore is the only city to have sustained rent expansion since Q3 2021.
- Hong Kong SAR saw prime rent rising by 0.4% in Q2 2022 QoQ, sustaining past two quarters of recovery. However, vacancy rate increased on the back of a flight to quality office spaces, on top of efforts to right size. The prime rent is expected to increase in the next 12 months.
Tim Armstrong, Global Head of Occupier Strategy and Solutions, Knight Frank, said: As we move into the second part of the year, we expect utilization rates to increase as office re-occupancy rates continue to nudge upwards. While hybrid working is here to stay, adoption in the region will likely be more gradual, with most occupiers expected to embrace an office-first approach; work culture in most of the region will also tend to tilt strategies towards those that continue to emphasize the importance of the centralised office. As occupiers orient and pilot workspace design around such strategies, it will facilitate and consequently bolster a return to the office. APAC is still in a relatively good position to handle the volatility in the short term despite the multiple headwinds in the macro-environment. Leasing momentum is expected to remain more resilient as economies recover from the pandemic. However, should inflation stay elevated and central banks’ tightening continue to outpace growth, the post-pandemic recovery could weaken, and occupiers may take a wait-and-see attitude towards lease commitments.”
Christine Li, Head of Research, Knight Frank Asia-Pacific, said: “The region’s rental trajectory remained firmly in the recovery phase, as vacancies tightened at a faster clip on the back of rebounding leasing activity as well as lower completions. Consequently, the window of opportunity for occupiers to secure favourable leasing terms has continued to contract. While the Fed’s hawkish tilt has clouded the outlook for economies, we expect demand from corporates in the region to withstand the rise in interest rates. Occupiers will continue to seize opportunities for premium quality spaces before rents peak. With the rollout of more supportive economic policies, leasing activity in the Chinese Mainland can be expected to pull out of a trough and see a potential uplift in the latter part of the year.”
Martin Wong, Director and Head of Research & Consultancy, Knight Frank Greater China, said “Due to the Sino-US trade war, social unrest and COVID-19, Grade A office rents in the core area of Hong Kong have dropped by more than 30% since the peak in 2019. As the future office supply in the core area is relatively low, companies are taking advantage of the current low rents to occupy prime office space, which has supported the office rents and vacancy. With the "re-centralisation" trend becoming more obvious, we expect the prime office rents in the core area will further increase in the second half of the year, going up by 5-10% over 2022.”