APAC Office Fit Out Cost Guide 2023

ASIA PACIFIC OFFICE FIT OUT COST GUIDE 2023

MARKET REVIEW & OUTLOOK

KEY HIGHLIGHTS

Consequently, commodities pricing has declined from the peaks seen in 2022, which has reduced pressure on energy and fuel pricing. Supply chain stress is easing (Figure 1), together with the declining cost of shipping, is flowing through to lower producer price inflation in Asia Pacific, which has declined from a peak of over 10% to sit at below 4% as at Q4 2022. However, the majority of these indicators still sit above their long-term averages and so core inflation (removing the more volatile items) is proving sticky, while labour markets across the majority of the region remain uncomfortably tight. This means further rate rises are practically inevitable, which will stymie economic growth in the near term. At the global level, this means growth slowing from 3.0% in 2022 to 2.0% in 2023, with the U.S. and Europe likely to dip into mild recession s.

The past 12 months have proven to be yet another turbulent year. While the public health impacts of the COVID-19 pandemic have lessened as a greater proportion of the population has been vaccinated, the economic impacts of record fiscal stimulus and stressed supply chains are now being felt more acutely. The Russia-Ukraine conflict has had an immeasurable toll on the local Ukrainian population, which needs to be acknowledged first and foremost, though has exacerbated rampant cost pressures. The result being that from an economic view, all eyes are on inflation and therefore also on interest rates and their impact on global economic growth. Within this, there are a number of factors to reconcile. In fundamental terms, the impacts from central banks raising interest rates and therefore trying to take excess demand out of the system are starting to take effect. Headline inflation in many economies has peaked or is close to peak – noting that inflation pressures came to Asia Pacific later than Europe and the U.S., and for the most part have been less severe.

In contrast, economic growth in Asia Pacific is forecast to be stronger in 2023 than 2022 at 3.8% compared to 3.2%, mainly due to recovery in Mainland China. Demand is expected to recover more strongly in India in 2024, helping to drive regional growth to 4.9%. Once again, Asia Pacific is forecast to recover from a downturn earlier than other regions, and occupiers should keep an eye on the trajectory of this rebound. absorption across the region’s top 25 markets estimated at 65 million square feet (msf), up 3% from 2021. In part this has been due to strength across markets in India, with further support from across Southeast Asia. However, for the most part, office markets remain in favour of occupiers and as a result, market rents have not kept pace with inflation, remaining largely flat over the past year. Given the choppy economic outlook, the regional office market is expected to track mostly sideways over the year ahead. This translates to office demand of approximately 71msf, up 9% year-on-year as the recovery in China gathers momentum, but rental growth is likely to remain sluggish and well below current levels of inflation in most markets as forthcoming supply, delayed from during COVID-19, is finally brought to market. This potentially provides occupiers with a window of opportunity to capitalise on softer market conditions before stronger growth resumes. Turning to the office market, regional office demand has remained robust, with net

Supply chain stress easing as COVID-19 impacts lessen and demand declines.

Inflationary pressure at or near peak but will take time to fully abate.

Slow economic growth over the year ahead, but for Asia Pacific to rebound earlier than other regions.

Labour supply shortages to endure over the near-term.

Office demand to remain robust, though economic volatility and uncertainty are likely to delay occupier decision making.

FIGURE 1:

SUPPLY CHAIN STRESS IN CHINA AND THE U.S.

60 70 80 90 100 110 120 130 140 150 160

More stressed than pre-pandemic

Less stressed than pre-pandemic

China

United States

Source: Moody’s Analytics

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Cushman & Wakefield

Cushman & Wakefield Singapore Office