Office markets in APAC may turn more occupier-friendly: Cushman & Wakefield

SINGAPORE (EDGEPROP) - As landlords scramble to protect long-term tenant relationships and defend against increasingly attractive incentive packages from their competitors, occupiers may have the upperhand when negotiating for enhanced lease terms, according to Cushman & Wakefield.

Growth in Grade-A CBD rents is expected to moderate in the near future as a result of the Covid-19 pandemic’s disruption of supply chains and travel across the globe, which have caused slower growth in the US and Europe. However, this season of rental moderation may benefit forward-looking tenants who seek opportunities to adopt a flight-to-quality strategy by locking in long-term leases at favourable rates in prime buildings.

Despite lower market confidence and the likelihood of a global recession, landlords in Singapore have been able to hold their rents steady due to tight vacancies and limited upcoming supply. An annual average of 700,000 sq ft of new projects will be completed over 2020 to 2021, which is 42% lower than the historical average of 1.2 million sq ft of new supply injected annually over the past decade.

The supply crunch will only ease in 2022 when 1.9 million sq ft of prime space at Central Boulevard Towers and Guoco Midtown is completed.

Cushman & Wakefield also predicts that other markets with limited office supply, such as Taipei and Ho Chi Minh City, will be less severely impacted by the outbreak.

On the other hand, an influx of supply in China has caused downward pressure on office rents in Shanghai, Beijing and Guangzhou. In Hong Kong, the Covid-19 outbreak deals a second blow to a property market already weakened from social unrest. In these cities, the premium office market is expected to remain under pressure in the near term.

In Singapore, office space demand has been on the decline due to lack of budgets for relocation and expansion. Having said that, office rents are projected to recover after 2021 as Singapore remains an attractive destination for regional headquarters. Office leasing demand will continue to be mainly driven by finance, tech, and professional services firms.

Mark Lampard, head of regional tenant representation says: “The speed and effectiveness by which the government has responded to the current Covid-19 challenge is reinforcing the belief that Singapore is an excellent market by which to be based.”

“The virus may result in a short pause but there is a belief that firms will resume their growth plans when the virus blows over. Between now and then, landlords and co-working operators will need to cater for the short-term needs of tenants as they navigate the upcoming months,” he adds.