Reworking Lease Expires

Taking the same approach but expanding it across the region’s top 25 markets and setting lease expiry at Q2 2023 reveals that most markets are over-rented (Figure 3). The situation is most severe in Hong Kong, which has experienced cumulative market rent decline of almost 25% over the past three years, the length of an average lease in the market. Such decline reflects local headwinds in 2019 and then the effects of the COVID-19 pandemic. Indeed, while the region continued to record positive net absorption through the pandemic years, the majority of cities saw market rents fall which explains why 88% (22 out of 25 markets) are currently over-rented. The three exceptions are Ho Chi Minh City, Hanoi and Seoul, though Singapore is arguably at equilibrium with just 0.4% over-renting. The example of Ho Chi Ming City has been worked above, with Hanoi following a similar trajectory. Seoul has been particularly resilient and has shown considerable market rent growth, even during the pandemic which as been sufficient to exceed the standard 3.5% annual rental escalation covenant. Rent growth in Singapore has occurred more recently due to tight vacancy and limited new supply coming to market.

FIGURE 3: LEVEL OF OVER- OR UNDER-RENTING ACROSS 25 ASIA PACIFIC MARKETS, Q2 2023 LEASE EXPIRY

Source: Cushman & Wakefield

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CUSHMAN & WAKEFIELD

REWORKING LEASE EXPIRIES