Report | Adaptive Spaces
Flight to Quality in the Asia Pacific Office Market
June 13, 2024 3 Minute Read
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Recent CBRE Asia Pacific Research shows that office occupiers in the region generally remain cost cautious amid a period of slower economic growth, high interest rates and elevated fit-out costs. Leasing activity over the past two years has therefore been dominated by renewals as companies seek to avoid incurring extra CapEx upon lease expiry.
More occupiers are conducting “stay vs go” studies to evaluate options. Having decided to relocate, occupiers prioritise space quality over size. Occupiers usually seek more core office locations and better quality space while capitalising on the opportunity to save costs.
We are seeing a flight to quality trend playing out in many Asia Pacific office markets, regardless of how office size changes after relocation. While occupiers in Japan, Singapore and Australia are displaying the strongest demand for core office locations, the preference for higher quality office space is widespread across the entire Asia Pacific region.
This report examines the flight to quality patterns and drivers across key markets in Asia Pacific, and analyses how these trends have impacted prime and Grade A office rents and occupancy rates across the region. The report also explores the implications of these findings for both occupiers and landlords.
Implications for occupiers and landlords
Recommended Occupier Strategies- Periodically Review Office Portfolios: Evaluate the cost and benefits of flight to quality moves by reviewing the location, building quality and amenities of office portfolios against employee preference to ensure space remains competitive and can facilitate talent attraction and retention.
- Pursue Workplace Transformation: Transform to high performance workplaces or reconfigure offices to foster collaboration among employees. Adopt flexible workspaces featuring wellness and sustainability aided by new technology to support new ways of working.
- Perfect Market Timing: Understand market timing and how flight to quality moves could impact rents and demand for high quality space in certain areas. Engage in flight to core or building upgrades when a market still favours tenants or rents are still below pre-pandemic levels.
- Adopt a Proactive Approach to Pre-leasing: Understand the existing and future competitive landscape of prime office markets, which are always tightly occupied. Adopt a proactive approach towards pre-leasing space in strategically located assets and high-quality new builds.
Recommended Landlord Strategies
- Selectively Commit to New Projects: Carefully consider new development projects in light of the polarisation of rental performance, occupancy and tenant quality between prime and non-prime office buildings. Adopt a holistic and innovative approach towards designing futureproof buildings suited to tenants’ requirements.
- Invest in ESG: Invest in or develop office buildings with ESG features to align with tenants’ net zero targets.
- Consider Asset Enhancement Initiatives: Pursue asset enhancement initiatives to upgrade features such as flex space, wellness amenities, ventilation, technology (e.g. internet infrastructure, smart lifts and touchless technology) and car parking.
- Prioritise Occupancy in Aged Office Portfolios: For those landlords with older office portfolios, prioritise occupancy rather than rents by offering attractive terms to secure tenants, especially in oversupplied markets.
- Consider Asset Conversion: For those landlords with older properties in less desirable locations, consider office conversion to other usage such as residential, senior or student housing.
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Research Contacts
Henry Chin, Ph.D.
Global Chief Operating Officer, Research and Global Head of Investor Thought Leadership
Advisory & Transaction Services Contacts
Luke Moffat
Head of Advisory & Transaction Services, Asia Pacific
Richard Stevenson
Managing Director, Head of Office Occupier, Asia Pacific
Hugh Hamilton
Managing Director, Advisory & Transaction Services, Asia Pacific
Rohini Saluja
Managing Director, Head of Consulting and Integrated Client Solutions, Asia Pacific
Sidharth Dhawan
Executive Director, Head of Alternatives, Asia Pacific
