Savills Spotlight Research March 2024: The Ups and Downs of Market Cycles
Savills examines the cycles of growth, supply, take-up and vacancy in key Asia Pacific office markets that investors need to be aware of in 2024.
As the first quarter of 2024 winds down, cyclical patterns that are shaping prime office sectors in APAC have come into focus. Though offices remain a core asset for many investors, the sector remains under pressure from economic and structural trends. APAC, however, has proven resistant to many of them. Savills examines the current stage for key markets.
Economic Growth Tied to Rental Growth
Increased commercial activity has traditionally been tied to strong economic performance. That includes demand for and take-up of office space. The emergence of hybrid or flexible working models has had an impact on that demand. Adoption of hybrid working varies, and can be influenced by factors including transport infrastructure, home size and business culture. The impact of hybrid working has been significant in Europe and North America. In APAC, however, the trend is less entrenched. As such rental demand and growth are expected to be steady in 2024.
Asia Pacific Remains the Global Bright Spot
Despite a softening relationship, demand based on growth remains a key driver. The APAC region is forecast to post GDP expansion of 3.5% this year. That figure dwarfs Europe’s projected growth of just under 1%, and 2% for the United States. India is projected to grow by 5.8%, followed by Vietnam at 5.1% and Indonesia at 4.75%. APAC rents are positioned for modest growth or negligible losses in 2024.
Most Markets Poised for Positive Cycle Position
Cycles are as diverse as APAC cities themselves. Currently, nine prime office sectors are in a cycle where rental growth is moderating. These include Sydney, Hanoi, Taipei and Bengaluru. Another six are in the early downswing of falling rents. Despite this, financial services and technology sector demand supports market size, take-up and stability. However, high-spec amenities and ESG-compliance are increasingly the basis of rental premiums. Only Tokyo, Shenzhen, Jakarta and Hong Kong are in late downswings. Landlords may be offering incentives to avoid lowering rents.
The Remainder of 2024 Emerging as a Tenants’ Market
Positive GDP growth across the region will translate to strong office demand. Take-up will generally increase amid manageable disruption from hybrid working. Vacancies are also expected to increase, leading to a tenants’ market in almost all major APAC cities. Rental gains will be modest, but so too will be decreases. The exception is Hong Kong, whose overbuilt market faces softening demand. Rents could drops as much as 10%. Nonetheless, it would still be the most expensive city of occupiers in APAC.
Read the complete “The Ups and Downs of Market Cycles” report at: http://sav.li/8s5
