Despite the economic downturn, 16 out of 23 cities in the Asia Pacific recorded stable or increasing rents in Q4 2022. Data from independent global property consultancy Knight Frank indicates that macroeconomic challenges like the rise in inflation and the region’s public debt, descending GDP growth forecasts, and monetary policy tightening did not seem to manifest as barriers for leasing activities in most cities.

Christine Li, head of research at Knight Frank Asia-Pacific, said: “Although Q4 of 2022 did not show an uptick in rents, the full-year rental growth for prime Grade A office spaces remained positive at 0.8%. This marks a reversal of the negative growth seen during the pandemic years, demonstrating the sector’s resilience as it vigilantly navigates through a macroeconomic slowdown. With the much-anticipated reopening of the Chinese Mainland, we expect the entire region to benefit from it in 2023, thus stimulating growth in the APAC office market.”

Leading the quarterly rental growth, Auckland stood at 4.9% in this quarter compared to 0.0% in Q3 2022. Following it is Bangkok at 3.3% up from -1.0% . This growth most likely stems from the return to office post-pandemic. However, another predicted market nosedive has pushed businesses to restrict their capital expenditure leading to a quarterly dip of 1%.

Rental growth in major cities last quarter.

Tim Armstrong, global head of occupier strategy and solutions at Knight Frank, said that although steady demand and limited supply are currently propping up rental and occupancy levels, the ongoing shift to flexible work combined with cost control measures from companies will slow things down in the near future.

“We expect growth in office rents to moderate as occupiers continue to adopt more flexible strategies and be more prudent with their spending. The trend towards flight-to-quality buildings with sustainable features and varied amenities will continue to gain momentum as businesses work towards their ESG goals,” he said.

As rentals move down in the priority list of businesses, landlords will certainly have to ensure competitive rent prices. Additionally, it is expected that shadow spaces, or leased space that is not being used by tenants, will see an increase, leading to expansion in the current vacancy rate of 0.8% in this quarter. Therefore, in 2023, the market conditions will likely be more favourable toward tenants.