Demand for Grade A offices forecast to return to pre-pandemic levels in 2024

Demand for Grade A offices is forecast to return to pre-pandemic levels in 2024, but record levels of new supply will cause vacancy rates to also tick upwards, according to an analysis by Cushman & Wakefield.

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The global real estate services company said in its 2024 Asia Pacific Office Outlook that the top eight Indian real estate cities were expected to cumulatively account for just over half of the region’s total demand. The combined demand forecast for Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune is around 40 million square feet (msf), which is equivalent to around 52 percent of regional demand.

Mainland China’s four key office cities—Beijing, Shanghai, Guangzhou and Shenzhen—were also expected to continue a gentle recovery, with demand of 18 msf forecast for 2024, up from the 13 msf expected by this year-end.

Southeast Asia markets would also contribute to regional topline demand, with Kuala Lumpur and Manila office markets in particular likely to benefit from their countries’ expansive economic growth outlooks, and Singapore likely to remain a steady performer.

Office vacancy rates expected to go up

Despite improvements in demand, approximately half of the 25 markets forecast will see vacancy rates increase between 2023 and 2027. The largest vacancy rate increases are forecast for Guangzhou (to almost 30% by 2027 from 20% in 2023) and Shenzhen (to almost 35% by 2027 from 27% in 2023).

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Hyderabad, Kuala Lumpur and Bangkok are also forecast to exceed vacancy rates of 25% by 2027. Singapore and Seoul are both expected to retain vacancy rates below 5% while Tokyo and Manila are forecast below 7% through 2027. Key Australian markets are likely to remain stable at around 10%.

“It is fascinating to see India coming-of-age and anchoring commercial real estate demand for the Asia-Pacific region. It is unsurprising though, given the faster-than-expected rise in GDP growth, controlled inflation, vast tech talent pool, and the recent trends of global corporations entering India. Elsewhere in Asia, demand in main cities in China improved YoY, while markets like Sydney, Melbourne, Tokyo fared positively as well. Singapore showed resilience in demand despite a tough economic environment,” said Anshul Jain, Managing Director, India & Southeast Asia and Head of APAC Tenant Representation.

“Large-sized deals, which were on hold in the last few quarters due to macroeconomic uncertainty are likely to make a come-back in 2024. With an increase in hiring and a higher return-to-office, overall office absorption is set to change. A healthy supply pipeline, meanwhile, will help occupiers maintain some rental stability,” he said.

New commercial supply to go up

Hyderabad and Bengaluru in India, and Shanghai and Shenzhen in China are all expecting more than 55 msf of new supply by 2027 – additions of between 32% and 66% of their existing stock, with Hyderabad expecting a record 15.6 million square feet (msf) in 2024. Shenzhen, Hyderabad and Ho Chi Minh City in Vietnam each expect to welcome more than fifty percent of their existing office stock in 2024.

In contrast, supply pipelines through to 2027 in each of Brisbane, Jakarta, Seoul and Singapore total less than 10% of their existing stock, the report added.