APAC office demand to reach pre-pandemic levels in 2024

This demand will be driven by strong growth in India, recovery in China and steady demand in other markets in APAC.

The Asia-Pacific (APAC) region will see a rebound in office space demand amidst a complex backdrop of 'higher for longer' interest rates and above-target inflation, which have posed substantial challenges to the global office market.

Wong Xian Yang, Head of Research at Cushman & Wakefield in Singapore & Southeast Asia, said that higher interest rates and persistent inflation would temper office demand, with occupiers becoming cautious and showing limited appetite for expansion.

However, he noted, "With anticipated interest rate cuts and receding inflation this year, we're seeing movement in the right direction, which will support APAC office demand."

Wong highlighted that driving this demand is robust growth in key areas. "India's top real estate markets have led the region in office net absorption, driven by domestic company expansion and the growth of global capability centres.”

He explained that this trend is expected to continue, coupled with a recovery in office demand in China's major cities like Beijing, Shanghai, Guangzhou, and Shenzhen. Southeast Asian markets, particularly Vietnam, the Philippines, and Malaysia, are also forecasted to see a strong uptick in demand, supported by robust economic growth.

Wong, however, pointed out that the situation with vacancy rates and rents is more complex due to varying supply-demand dynamics across different markets. While some face a supply glut, dampening rental growth, demand is broadly on the rise.

Addressing the factors contributing to this forecasted increase, Wong remarked, "Asia-Pacific's economic growth, though slowing to about 3.5% to 4% this year, will still outperform other regions like the US and the Eurozone." 

He added that gradually receding concerns over interest rates and inflation should boost confidence among occupiers. The resilience of finance, technology, and professional services sectors, along with the region's cost advantages and talent availability, continue to drive office demand.

He mentioned that a significant trend affecting office demand is the shift towards modern, high-quality office spaces. "There's an increasing demand for modern grade offices, with older stocks facing risks of obsolescence," Wong observed. 

This trend is driven by occupiers' growing emphasis on sustainability and technology adoption in their decision-making processes. "Only about 40% of offices in the region have any sustainability accreditation, and 50% of total stock is estimated to be of secondary grade," he noted, suggesting an opportunity for office asset owners to adapt to these evolving requirements.

Newer, higher quality buildings are positioned to outperform in the APAC office market. Factors like sustainability and technology integration are becoming increasingly important, with much of the region still lagging in adoption levels.

Wong advised office asset owners to consider these evolving requirements in their investment and capital expenditure strategies. "Identifying enhancement or accreditation options can significantly optimise asset lifecycle and deliver more value," he concluded.