APAC Office Fit Out Cost Guide

ASIA PACIFIC OFFICE FIT OUT COST GUIDE 2024

MARKET REVIEW AND OUTLOOK

KEY HIGHLIGHTS

ECONOMY

In economic terms, the focus for most Asia Pacific economies over the past 12 months has been squarely on taming inflation. This has necessitated many central banks to undertake one of the most aggressive rate hiking cycles, in speed if not absolute interest rate rises, seen in decades and certainly in the post-Global Financial Crisis era. The positive news is that inflation is well down on the peaks experienced in late-2022 as the impacts of higher costs of capital have reigned in excess expenditure. Notwithstanding that inflation is above many central banks’ target bands, it is widely believed that for the most part, the current hiking cycle is over. Rather, the debate has turned to when interest rate cuts will be introduced to help reinvigorate slowing economic growth.

The cost of greater economic resilience in 2023 has been a longer hiking cycle, which has pushed the economic trough into H1 2024. Consequently, economic growth in 2024 is forecast to be slower than the previous year. Asia Pacific growth is forecast at approximately 3.5% in 2024, compared to an estimated 4.3% in 2023. As economic recovery gains momentum in H2 2024, this should drive stronger growth into 2025. Intra-regionally, growth trajectories vary most evidently between advanced and emerging economies. Vietnam, Philippines, India, and Malaysia are forecast to lead the way, supported by infrastructure development, strong domestic consumption, and foreign investment. Singapore and South Korea are expected to benefit from an improvement in trade. Elsewhere, China’s outlook is a little more undetermined, reflecting soft domestic consumption and a tempered property market.

Australia and Japan are likely to trail the region. High interest rates in Australia are curtailing domestic consumption, while in Japan real wage growth remains a key issue to watch. Upside and downside risks to this outlook abound. Support for stronger growth can be found in tight labour markets, which have been fundamental to the resilience shown to date. In contrast, geo-political tensions continue, which have placed further stress on supply chains, complicated economic policy, and driven more cautious risk appetites. Against a volatile economic backdrop, the Asia Pacific office market remains steadfast and continues to grow. Over 63 million square feet (msf) of Grade A office stock was absorbed across the region’s top 25 cities in 2023, an 11% improvement on last year’s 57 msf. On the other side of the leger, new supply totalled 103 msf, outstripping demand and causing vacancy to tick upwards to 16.8% from 16.1% in Q4 2022. Rental growth has subsequently turned negative to -0.2% y-o-y on a weighted average basis. The outlook remains broadly skewed to the positive 1 . Demand is forecast to increase to 83 msf in 2024 and to 87 msf in 2025, which would match pre-pandemic performance. However, waves of new supply are also expected, with nearly 235 msf of completions forecast over the next two years to place further upward pressure on vacancy, which is now expected to peak at 18.4% in 2024 and then hold steady through 2025. This will keep downward pressure on rents which are likely to remain flat in 2024, at the weighted regional average level, before slowly accelerating from 2025. Accordingly, the window of opportunity remains open for occupiers over the near term 2 . OFFICE MARKET

Inflation has eased significantly but still sits outside target bands in most economies.

Interest rates are largely estimated to be at peak, attention is turning to when central banks will pivot to rate cuts.

Economic growth to slow over the year ahead, but for Asia Pacific to remain more resilient than other regions.

Heightened economic uncertainty and geo-political tensions to complicate decision making.

REAL GDP GROWTH (% AVERAGE ANNUAL) FOR SELECT MARKETS IN 2023 AND 2024

8%

2023 2024

7%

6%

5%

4%

3%

2%

1%

0%

1 https://www.cushmanwakefield.com/en/insights/ asia-pacific-office-outlook 2 https://cushwake.cld.bz/reworking-lease-expiries

Source: Moody’s Analytics; Cushman & Wakefield

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