- The Asia Pacific office market remained resilient, being the only region to record consecutive quarters of positive net absorption since the pandemic
- Mainland China Tier 1 markets experienced record office demand in 2021
- Total regional investment volume in 2022 is expected to be on par with the recent 2019 peak at around $180bn
- Long-term opportunities for retail assets remain for China, India, SE Asia
HONG KONG SAR - Media OutReach - 8 December 2021 - The Asia Pacific economy is set to rebound in 2022 and regain top position in the second half of the year with an expected 4.5% real average annual GDP, while growth in the other two major regions normalizes, according to Cushman & Wakefield's latest report titled Catch '22 - Asia Pacific Commercial Real Estate Outlook 2022.
"India is forecast to lead regional growth in 2022, averaging over 9% for the year, in large part due to restrictions being lifted and a resultant leap in domestic consumption and production," said Dr. Dominic Brown, Head of Insight & Analysis, Asia Pacific at Cushman & Wakefield. "Similarly, Singapore, Japan and South Korea are all forecast to experience above average growth in 2022 driven by strong demand for exports. We are also expecting rebound growth in Australia."
Growth in mainland China in 2022 will normalize somewhat following a particularly strong 2021. Hong Kong SAR is forecast to perform closer to average economic growth rates of the 5-years prior to the pandemic.
Although unemployment remains elevated across the region, levels in most markets are well below their respective pandemic peaks and forecast to sit at or below their respective five-year average over the year ahead. However, aggregate figures of unemployment hide finer details – the "K-shaped" recovery path revealed weakness in retail, tourism and service-oriented sectors compared to tight labour conditions in professional services, IT, finance and manufacturing. Furthermore, countries that are reliant on immigration to boost labour pools, such as Singapore and Australia, are more exposed to labour shortages at least until global migration flows regain momentum. As such, there is an increasing mismatch between required business skills and available labour force which has intensified the war for talent.
There is also mounting evidence that the current trend of more workers actively considering changing jobs within the next 12 months — the so-called "Great Resignation" — may arrive in parts of Asia Pacific. Fundamentally the key message is that corporate occupiers should prioritise talent retention and attraction in the immediate term as well as enhancing productivity through investment in technology and real estate.
Office market outlook: Upbeat as region shows resilience through the pandemic
According to the Catch '22 report, the Asia Pacific office market has shown remarkable resilience, being the only region to record consecutive quarters of positive net absorption since the onset of the pandemic. Although regional vacancy has edged upwards, it is only marginal and primarily driven by supply exceeding demand, which in turn has exerted only a modest downward pressure on rents.
The outlook for the region is similarly upbeat, with office demand for the full year in 2021 expected to reach 55 million square feet (msf). This is 77% above 2020 levels despite much of the region re-entering prolonged lockdowns as the Delta variant emerged, and this is also in no small part due to record demand in Tier 1 markets in mainland China.
Looking to 2022, demand is expected to increase further to 72 msf – reflective of a stronger recovery across the entire region – before returning to pre-pandemic levels of around 83msf in 2023. Although flexible working practices are likely to be more widely adopted across the region, their impact on demand is expected to be minimal as more employees are already returning to office reflecting the than in the U.S. and Europe. This is especially the case in China, where employees' desire to work frequently from outside of the office is markedly lower.
Looking ahead, projected employment growth and a gradual return to office-based working is likely to offset the underlying headwind from remote working. Although the regional vacancy level is forecast to increase to 18% in 2023, this disguises the fact that many markets across the region are entering a period of restrained supply over the next two years.
Shaun Brodie, Head of Occupier Research, Greater China, Cushman & Wakefield, said: "Office demand is expected to pick up across most markets in 2022, as occupiers increasingly make decisions around their corporate footprints, although mainland China is likely to moderate somewhat following the record demand levels seen in 2021. On the supply side, many markets are forecast to receive below average amounts of new supply. New supply in mainland China Tier 1 cities is currently around 20% below average.
Keith Chan, Head of Research, Hong Kong, Cushman & Wakefield, said: "In contrast to the undersupply position in mainland China, Hong Kong is set to welcome robust levels of new supply in the coming two years. With almost 5 msf of new completions coming to the market, we expect the city's rental levels to remain competitive for the next 12 to 24 months. This actually provides a window of opportunity for occupiers to secure premium space at affordable prices, and for landlords to revisit their tenant profiles for sustainable growth."
Consequently, rents across most of the region's markets are now forecast to reach a trough in late 2021 through to early 2022, approximately 12 months earlier than envisaged at the start of this year.
Investment outlook: On track to set another new record in 2021
Although the investment market has not been immune to the negative impacts of the pandemic, it has also been comparatively quick to rebound. Investment volumes in 2022 are forecast to match record levels seen in 2019 at around USD180bn. Key drivers include: still ultra-low interest rates despite modest increases in the past year, real estate as an inflation hedge, record amount of dry-powder and an intensified focus on capital deployment by investors.
While we expect the investment market to remain highly active, a greater focus on industrial assets may dampen average deal size, hence greater transaction activity may not result in higher overall volume. On the upside, total volume may exceed the USD180bn forecast should sufficient high-quality assets or large portfolios be brought to market.
Catherine Chen, Head of Capital Markets Research, Greater China, Cushman & Wakefield, said: "Emerging asset classes such as data centers, multifamily and life sciences have also gained traction among investors seeking higher yields and/or lower volatility. All have strong growth outlook prospects and offer good diversification benefits. These asset classes are expected to be increasingly sought-after by the investor community, with the multifamily sector starting to gain traction in certain cities in mainland China."
Finally, despite the undoubted impact of the pandemic, the retail and leisure/tourism sectors show few signs of distress. Non-discretionary retail constantly proves itself largely recession-proof. The strength of rebound in domestic consumption and tourism flows will determine the outlook for discretionary expenditure. However, several markets across the region, specifically mainland China, India and South East Asia, remain under-served by physical retail space and so longer-term opportunities in these markets should not be ignored.
Click here to download Catch '22: Asia Pacific Commercial Real Estate Outlook 2021-22.
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries. Across Greater China, 22 offices are servicing the local market. The company won four of the top awards in the Euromoney Survey 2017, 2018 and 2020 in the categories of Overall, Agency Letting/Sales, Valuation and Research in China. In 2019, the firm had revenue of $ 8.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit