MANILA, which remained the third-cheapest prime office market among 23 cities in the Asia-Pacific (APAC) region in the second quarter (Q2), saw a 3.2% decline in occupancy cost compared with the same period last year, according to real estate consultancy Knight Frank.
The average prime office cost in Manila was $27.93 per square foot for the second quarter, down from $28.28 per square foot in the previous quarter, data from the latest Knight Frank Asia-Pacific Office Markets report showed.
Manila’s decline of 3.2% slightly exceeded the regional average decrease of 3.1% during the period.
“The average rents fell in Manila as downward adjustments from older prime projects outweighed rental increases for the period,” the firm said.
Knight Frank noted that Manila saw a vacancy rate of 11% in the second quarter and is expected to experience further rent declines in its 12-month outlook.
Kuala Lumpur ($17.99) was the cheapest, followed by Jakarta ($22.99). Rounding out the bottom six were Phnom Penh ($34.13), Guangzhou ($34.38), and Bengaluru ($36.35). The most expensive were Hong Kong ($154.76), Singapore ($118.93), and Sydney ($97.42).
Meanwhile, APAC’s vacancy rate stabilized at 14.8%, halting an upward trend that had been ongoing since the third quarter of 2022.
The consultancy firm said that Brisbane recorded the highest year-on-year rental growth rate at 8.1%, while Beijing saw the largest drop, falling 11.1% in the second quarter of 2024.
In APAC, prime rents continued to decline, reflecting ongoing challenges impacting the occupier market.
“The downward trend has persisted for two consecutive years. Mainland Chinese cities remain the primary drivers of this decline, with rents there decreasing by 10.8% year on year,” the consultancy firm said.
The firm anticipates that APAC’s prime office sector will remain tenant-favorable in 2024.
“The current trend reflects a business cycle downturn. Major office sectors, such as finance and technology, continue to downsize amid ongoing uncertainty in the business environment,” said Tim Armstrong, global head of occupier strategy and solutions at Knight Frank.
“This selective approach will likely keep demand for office spaces restrained.”
Mr. Armstrong added that lease renewals will remain popular, while companies may also consider consolidating their office spaces due to falling rents, prompting a flight-to-quality move.
The report said that the APAC Grade A office inventory stands at 189 million square meters (sq.m.), with 11.3 million sq.m. of new supply expected in 2024. Knight Frank anticipates a 6% increase in office inventory this year.
“No doubt, occupiers face a slate of competing factors, balancing new office culture and ESG objectives against business considerations,” Mr. Armstrong said.
He noted that despite reduced capital expenditure, occupiers are encouraged to stay aware of the region’s ample supply pipeline to explore quality options and capitalize on current conditions by securing favorable rates.
“Given that new supply is expected to tighten due to high interest rates impacting future construction,” he added. — A.R.A. Inosante
