'Tech sector and banking industry's continued space consolidation and reduction efforts have prompted landlords to adopt more flexible negotiation strategies'
Prime office rents in the Asia-Pacific region continued its decline in the second quarter of 2024, with results being "far from homogeneous" between China's decline and India's boom in terms of office markets.
The Asia-Pacific Prime Office Rental Index registered a 3.1% year-on-year decline in Q2, which slightly improves from the 3.2% drop from the previous quarter but extends the downward trend that has persisted for two consecutive years.
According to the Index, produced by Knight Frank, 15 out of the monitored APAC cities reported stable or increasing rents year-on-year, while the regional vacancy rate stabilised at 14.8%.
The decline in prime office rents in the second quarter was driven by Chinese mainland cities, with rents there decreasing by 10.8% year-on-year.
"This represents a steeper fall compared to the 10.0% reduction seen in Q1 2024," indicating worsening market conditions in these areas," the report read.
Vacancy rates in the mainland also climbed by 0.2 percentage points to surpass 19% in the second quarter, according to the report, with the increase coinciding with the delivery of over 700,000 square metres of new office space across Beijing, Guangzhou, Shanghai, and Shenzhen.
Despite the increase in vacancy rates, Beijing and Shanghai saw improved absorption rates as landlords prioritised occupancy over rental rates, according to the report.
"This strategy led to increased leasing activity, particularly from state-owned enterprises in Beijing, which took up significant office spaces," Knight Frank said in the report.
India's surge in office market
Amid China's challenges in the office market, India has seen "impressive momentum" with the largest office hubs there seeing a 50% surge in leasing volumes.
Bengaluru secured 4.9 million square feet of leased space in the second quarter, according to the index.
Mumba's office leasing also saw a 183.1% year-on-year increase, with approximately three million office square feet leased.
"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 read.
Australia, Southeast Asia
Meanwhile, the index said the Australian office landscape continued to evolve, with Brisbane (8.1%), Perth (7.1%), and Sydney (5.1%) recording the highest year-on-year growth in rental.
New Zealand's Auckland also saw prime office rents growing by more than two per cent year-on-year, but the report noted that its momentum is "waning after three consecutive quarters of stagnation."
In Southeast Asia, emerging markets declined by 0.6 percentage points to 24% in the second quarter.
"This modest improvement suggests a gradual stabilisation in the region's office sector," Knight Frank said.
Jakarta saw its vacancy rate climbing above 30%, while its rental growth remains subdued across most markets.
Manila registered a decline in average rents, while Singapore saw its year-on-year growth slowing 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 said.
Ho Chi Minh City, on the other hand, recorded a "significant take-up from major international tenants" thanks to its newly launched Grade A projects.
