Rethinking the Office Sector in Asia Pacific

ACROSS TWO SISTER REPORTS, CUSHMAN & WAKEFIELD HAS ANALYSED THE LEVEL OF RISK OF OFFICE ASSET OBSOLESCENCE IN THE UNITED STATES AND EUROPE. THE FINDINGS WERE STARK AND HIGHLIGHTED THE SIGNIFICANT AMOUNT OF WORK THAT LIES AHEAD FOR LANDLORDS IN BOTH REGIONS.

At the headline regional level, 43% of prime office stock in Asia Pacific lacks any sustainability accreditation, while 50% of total stock is estimated to be of secondary grade.

In the U.S., headwinds are being felt from several factors including weaker office jobs growth, a significant shift to flexible working practices and ongoing workplace densification (i.e. less space assigned per workstation). All of this is occurring while new supply continues to enter the market, with occupiers increasingly relocating to higher quality office stock. The result is expected to be 1.1 billion square feet of excess space by 2030. Furthermore, only 39% of space will be of sufficient quality to meet demand while 36% will need repositioning work and 25% will likely become obsolete and require repurposing.

The drivers in Europe differ as office vacancy is currently considerably tighter than in the U.S. and there is robust demand for space, which will exceed levels of new supply in some markets. Against this more positive backdrop, the ubiquitous “flight to quality” will prevail but be exacerbated by legislation such as Energy Performance Certificates (EPCs) and Minimum Energy Efficiency Standards (MEES) that specify sustainability criteria in order for a building to be leased. As a result, 76% of Europe office stock risks obsolescence and will likely require repositioning by 2030.

The above raises important questions for office assets in Asia Pacific and whether they too are at risk of obsolescence. At the outset, it must be recognised that the Asia Pacific region remains extremely diverse with considerable variations across key drivers and levels of maturity within the commercial real estate sector. For the most part the region faces lower risks of obsolescence, supported by strong office employment growth and comparatively youthful office market precincts. However, pressure is starting to build on several fronts including comparatively high vacancy levels, more discerning occupier space requirements and likely introduction of government legislation on sustainability requirements. The relative pressure of each factor varies by market but at the headline regional level, 43% of prime office stock lacks any sustainability accreditation, while 50% of total stock is estimated to be of secondary grade. In the following analysis we take a deeper dive into the underlying dynamics and drivers across the region’s major markets and provide a roadmap for asset optimisation.

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RETHINKING THE OFFICE SECTOR | OPTIMISING YOUR ASSET FOR A NEW ERA | ASIA PACIFIC 6