Reworking Lease Expires
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REWORKING EXPIRIES H1 2024 UPDATE
Grade A Office net absorption (msf) ONGOING ROBUST OFFICE DEMAND
Tier 1 Chinese mainland India Rest of APAC
• The demand for office space in Asia Pacific remains undiminished. In total there has been more than 128 million square feet (msf) of net absorption over the two years to Q2 2024. • The majority of demand is being experienced in Indian cities, which together account for 63% of total regional demand, equivalent to 81 msf. • After facing some headwinds in 2022 and 2023, office demand in tier 1 cities in the Chinese mainland appears to be recovering, with net absorption of almost 8 msf in H1 2024, which is over 70% of the full year total in 2023. • Office demand in the rest of the region is also positive, with Singapore, Brisbane and Ho Chi Minh City all showing relative strength.
35
30
25
20
4.8
15
3.0
10
3.2
11.6 9.4
6.3
5
3.7 4.2
2.2
-
-5
Source: Cushman & Wakefield
2
Most markets currently favour occupiers OFFICE OCCUPIER CONDITIONS
NORTH ASIA
Beijing
Seoul
Tokyo
Delhi NCR
Shanghai
Shenzhen
TENANT FAVOURABLE
Kolkata
GREATER CHINA
Ahmedabad
Guangzhou
Pune
Hong Kong
Hanoi
Mumbai
Hyderabad
NEUTRAL
Manila
Bangkok
Bengaluru
Chennai
Ho Chi Minh City
LANDLORD FAVOURABLE
Kuala Lumpur
SOUTHEAST ASIA
Singapore
Jakarta
AUSTRALIA/NEW ZEALAND
Brisbane
Perth
Adelaide
Sydney
Auckland
Melbourne
Christchurch
Source: Cushman & Wakefield
3
Proportion of markets experiencing rental growth, stability and decline (y-o-y) RENTAL GROWTH TO STRENGTHEN
100%
• Despite strong office demand across the region, rental growth has been comparatively muted. At the regional level, rents declined by 0.4% year-on year (y-o-y) in Q2 2025. Notwithstanding, 68% of the 25 markets covered showed positive, albeit mostly weak, rent growth in Q2 2024. • Rent growth has been consistently strongest in Brisbane, Hyderabad, Mumbai and Hanoi, which has ranged between 5% to 16% y-o-y over the past year. • In contrast, rents have been under downwards pressure in mainland China and Hong Kong in reflection of new supply coming to market at a time of weaker than average demand. • Similarly, there has also been negative rent growth in Manila and Bangkok over much of the past 18 months.
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Decline
Stable
Growth
Source: Cushman & Wakefield
4
INTRODUCING THE TERMINOLOGY
UNDER-RENTED
Where a tenant is paying below average market rents
• Whilst looking at movements in market rents is critical for occupiers, perhaps the most important aspect to track is the difference between the rent being paid, as per the lease terms, against the current market rental level. This will give occupiers a view on whether they have positive or negative rental exposure in the prevailing market conditions, which then prompts subsequent actions.
OVER-RENTED
Where a tenant is paying above average market rents
5
Over-rented versus Under-rented markets A WORKED EXAMPLE
SYDNEY
HO CHI MINH CITY
1,450,000
1,000 1,050 1,100 1,150 1,200 1,250 1,300
1,400,000
1,350,000
1,300,000
800 850 900 950
1,250,000
1,200,000
Lease Rent
Market Rent
Lease Rent
Market Rent
Outcome = Over-rented Lease rent 21% above market rent on expiry
Outcome = Under-rented Lease rent 8% below market rent on expiry
Source: Cushman & Wakefield
6
OVER-RENTING ACROSS MOST OF THE REGION
Level of over- or under-renting for leases expiring in Q2 2024
15%
Under-rented
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
Over-rented
-35%
Source: Cushman & Wakefield
7
CONDITIONS CHANGE OVER TIME
Forecast levels of over- or under-renting for leases expiring in 2023-27
• It is important to continually monitor market conditions, especially the direction and amount of rental change. Current analysis (slide 7) shows that 76% of markets are currently over-rented, where lease rents are higher than market rents. • However, this shifts over time such that by 2026, only 60% of markets are over-rented. This should be a signal to tenants to examine their lease rents now while conditions are favourable. • Occupiers should also consider the year-to-year changes. The highest level of over-renting (biggest discount between market rents and leases) in Shanghai is occurring now. Similarly in Melbourne, the highest over-renting is now, though the market remains over-rented through to 2027. • In contrast, the level of under-renting in Singapore is forecast to increase over H2 2024, suggesting tenants with forthcoming leases expires should act sooner rather than later.
20%
Under-rented
10%
0%
-10%
-20%
-30%
Over-rented
-40%
Lease expiry period
Melbourne
Shanghai
Singapore
Source: Cushman & Wakefield
8
IDENTIFYING THE WINDOW OF OPPORTUNITY
Dec-23 Mar-24 Jun-24
Dec-24
Dec-25
Dec-26
Dec-27
Hanoi Ho Chi Minh City Singapore Brisbane Kuala Lumpur Seoul Tokyo
Jakarta Sydney
Bangkok Shanghai Hong Kong Manila Pune Hyderabad Manila Mumbai Bengaluru Guangzhou Beijing Shenzhen Kolkata NCR Melbourne Chennai Ahmedabad
Source: Cushman & Wakefield
Over-renting
Markets broadly in equilibrium
Under-renting
9
KEY MESSAGES
88% of markets (22 out of 25) are forecast to experience rental growth by the end of 2026.
Similarly, the level of under renting in Brisbane is forecast to rise dramatically reflecting strong market rental growth. Brisbane is forecast to become the most under-rented market by early 2026.
For South East Asian cities, especially Hanoi, Ho Chi Min City, Singapore and to a lesser extent Kuala Lumpur, arguably the best time to act has past, though gaps between market rents and lease rents will continue to grow suggesting there is some benefit in bringing forward negotiations. 76% of markets in Asia Pacific are currently over-rented, but this will decline through to 2027 as ongoing rental growth takes effect. This suggests there is a window of opportunity for occupiers to act on their lease expiries before markets start to shift.
In contrast, In India, significant annual rental escalations of 5% against forecast market rent rises of 2% to 3% mean that these markets are expected to remain over-rented.
For the remaining markets, varying levels of over renting are expected to endure. However, Sydney, Shanghai, Manila and Bangkok are forecast to become under-rented toward the end of the forecast horizon. Notwithstanding, all markets should be regularly assessed to identify opportunities to rethink lease strategy and perhaps reset rents where local conditions allow.
10
AUTHOR:
DR. DOMINIC BROWN Head of International Research dominic.brown@cushwake.com
CONTACTS:
ANSHUL JAIN Head of Tenant Representation, Asia Pacific and CE India & SEA anshul.jain@cushwake.com
ARPITA SRIVASTAVA Head - Global Capability Centre Advisory & APAC Tenant Rep Advisory & Transactions arpita.srivastava@cushwake.com CHRIS CUFF Regional executive Director, Commercial Leasing chris.cuff@cushwake.com
MARK LAMPARD Managing Director, APAC Tenant Representation mark.lampard@cushwake.com
About Cushman & Wakefield Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In 2023, the firm reported revenue of $9.5 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com.
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