Cost concerns drive cautious office leasing in Asia-Pacific

High-cost markets see renewed leases, while some push for premium office spaces.

Leasing volumes across the Asia-Pacific office market showed steady year-on-year performance in Q3 2024, though notable contrasts emerged between markets, according to Jeremy Sheldon, Head of Leasing Advisory at JLL Asia Pacific.

While China and India recorded leasing growth, markets with higher costs saw companies opting for lease renewals over new spaces to manage expenses.

“Those that were expansionist, like India, where the drive for good quality office space from both multinationals and domestics and even more, technology companies and other banking institutions has remained incredibly robust over the last quarter,” Sheldon stated.

India, with its resilient demand for quality spaces, attracted occupiers from the technology and finance sectors, similar to China, where businesses showed renewed activity in leasing transactions. Meanwhile, cost-sensitive regions like Tokyo faced fewer transactions due to limited available space, and high-cost cities saw many occupiers opting to renew leases rather than expand.

Sheldon pointed out that cost considerations played a central role in leasing decisions across Asia-Pacific as companies aim to lower overheads, particularly in markets with high operating costs. “In the higher cost markets, they’re obviously looking for an opportunity to lower those costs… they prefer to spend capital, obviously, on expanding their businesses,” he added.

Interestingly, “flight to quality” was a prevalent trend in markets with competitive leasing landscapes. Companies willing to relocate were drawn to high-quality spaces with green credentials and layouts conducive to talent attraction.

“There is still a big war for talent out in the marketplace, and one of the ways of being able to do that… is to have great quality office space,” Sheldon said.

Looking ahead, Sheldon expressed “cautious optimism” for Q4 and beyond, seeing expansion potential in areas like private wealth and private equity in Hong Kong and ongoing growth in India and parts of Southeast Asia. However, he cautioned that macroeconomic factors would continue influencing leasing strategies, with companies treading carefully amid the availability of both opportunities and risks.