Demand for Asia Pacific’s office market is seen to further weaken, as cost saving remains at the top of occupier agenda, according to a report by global real estate services firm CBRE.
The report noted that occupier demand in the region weakened in the third quarter of 2015, with net absorption declining by 30 percent quarter-on-quarter to 11.2 million square feet.
CBRE noted, however, that year-to-date net absorption remained on track at 34.5 million square-feet net floor area.
“Companies turned more risk-averse and demand weakened in most markets, with the exception of Shenzhen, Taipei, Seoul and New Delhi,” said CBRE. “Decision-making took longer and most requirements were for spaces under 10,000 square feet.”
CBRE added that strong expansionary demand displayed by domestic occupiers in recent years is expected to moderate, with many companies already taking longer to commit to new space for expansion.
The report noted that the bulk of leasing activity took place in decentralized areas, a different turn from the beginning of the year, when most of the demand came from the central business districts.
CBRE said the technology, media and telecommunications (TMT) sector continued to be the main driver of office leasing demand in the Asia Pacific region, while demand from Information technology (IT) firms were composed of upgrading and expansionary requirements, which were seen in the decentralized areas of China and India.
Despite tech firms and domestic financial services companies being the main drivers of leasing activity, CBRE said demand from these sectors is likely to moderate after several years of strong growth.
“The big global banks will continue to downsize, surrender space, and in some cases, close parts of their operations in the region,” said the report.
Meanwhile, vacancy rates in Asia slightly declined to 8.2 percent, as the number of new completions also decreased in the third quarter of the year.
However, the report noted that the large volume of new office supply in the pipeline is expected to push vacancy rates up in the coming quarters.
CBRE said the large volume of supply would challenge landlords in terms of retaining tenants.
“Competition between new buildings and existing buildings is expected to intensify,” CBRE said. “Rental growth is therefore set to weaken next year and will enter a period of stagnant growth.”