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How office rentals are tracking in Kuala Lumpur and the rest of Southeast Asia

How office rentals are tracking in Kuala Lumpur and the rest of Southeast Asia

The APAC office market is projected to remain favourable to tenants in the next 12 months.

The downbeat sentiments from Q3 2022 seemed to have been lifted slightly as the highly anticipated news of the reopening of the Chinese Mainland's economy and borders finally arrived in Q4 2022 and Q1 2023. This led to rental growth for the majority of Southeast Asian (SEA) markets tracked in Knight Frank’s latest Asia-Pacific prime office rental index, led by Bangkok at 3.3% quarterly, and Singapore at 5.5% yearly.

However, across the board, vacancy rates dipped as a large amount of completions were not recorded.

Keeping in mind projections for Southeast Asia's economic challenges this year, rental growth is, in fact, expected to slow as demand moderates. A modest future pipeline supply will help to keep vacancies steady or rise slightly.

Overall, across 23 key markets of Asia Pacific in Q4 2022, rental performance of prime office properties dropped by 1% quarter-on-quarter, marking the second consecutive quarterly decline since Q2 2022. This indicates that businesses are tightening their capital expenditures in preparation for potential market downturns. Despite the quarterly dip, the overall index is still up by 0.8% year-over-year.

The vacancy rate expanded for the second consecutive quarter (0.8%), as Q4 of 2022 saw some supply entering the market, which, coupled with weak leasing demand and spaces being retired, contributed to the upward trend.

Out of the 23 cities tracked, 16 cities reported stable or increasing rents in Q4 2022, an increase compared to the 15 cities in the previous quarter Auckland led the quarterly rental growth at 4.9%, followed by Bangkok at 3.3% Seoul once again registered another record-low vacancy rate of 1.1%

Tim Armstrong, Global Head of Occupier Strategy and Solutions at Knight Frank, is expecting 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 added. 


Market outlook: Bangkok


Market outlook: Ho Chi Minh City


Market outlook: Jakarta


Market outlook: Kuala Lumpur


Market outlook: Manila


Market outlook: Phnom Penh


Market outlook: Singapore


All images / Knight Frank’s latest Asia-Pacific prime office rental index

ALSO READ: 4 trends shaping the future of employee compensation in APAC and globally

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