Amongst all cities of the region, Bengaluru saw the highest growth in rental values in the first quarter at 5.8 percent in Q1 2022 as compared to the previous quarter. The APAC regional index registered an increase of 0.8 percent quarter-on-quarter (QoQ), rising by 0.3 percent in the preceding quarter, as most countries in the region are now opening up for global business leading to stability in economic activities. The overall index is up 0.2 percent year-on-year, according to Knight Frank's recent edition of the Asia-Pacific Prime Office Rental Index for Q1 2022.
Of the 23 cities tracked by Knight Frank’s Asia-Pacific Prime Office Rental Index, 21 cities recorded stable or increasing rents in Q1 2022, as compared to 13 in the previous quarter.
Hong- Kong SAR continued to be Asia’s most expensive office market with a cost at $186 per sq ft per year. Delhi-NCR was the 9th most expensive market at $60 per sq ft per year (Rs [1] 376 per sq ft per month). While Mumbai at $50.9 per sq ft per year (Rs 318 per sq ft per month) and Bengaluru at $26.7 per sq ft per year (Rs 167 per sq ft per month) held positions of 15th and 21st positions in terms of most expensive office locations respectively. This is despite a turbulent Q1 with accelerating inflation and the Russian invasion of Ukraine weighing down on market sentiment. Vacancy rate, declined for the second consecutive quarter, is at 13.1 percent in Q1 2022 for the APAC region. This should start to reduce further as more Asia-Pacific markets start to open their economies and employees steadily return to work in the CBDs.
Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “The Indian office market scenario has started to improve since the removal of COVID related restrictions. More companies are recalling their staff to office. Further, with the IT/ ITeS sector hiring upwards of 20 per sq ft per new staff in the last 18–24 months, demand for office space is expected to rise further. Bengaluru and NCR have seen a rise in leasing activities in Q1 2022 with the cities recording transactions of 3.5 million square feet (msf) and 2.3 msf respectively. The rental outlook for Bengaluru is strong, indicating a possible increase in values in the coming year, based mostly on the expected rise in demand.”
Bengaluru, best performing prime office market in APAC
With an increase of 5.8 per sq ft per, Bengaluru was the best performing prime office market in the APAC region in terms of rental growth in the last quarter.
According to APAC Prime Office Rental Index, the current occupancy cost for prime office in Bengaluru was stated to be $26.7 per sq ft per year. With the change in the COVID – 19 protocols, which are now leading more and more companies to call back their employees, there has been an uptick in transaction activities in the city. Adding to that, new completions have been deliberately kept low, keeping the values intact in the city. The city is expected to see an upward trend in its rental value over the next 12 months. Bengaluru currently has an office inventory of 17.5 mn sqm with a vacancy level of 12.6 percent.
No change in rental values in Q1 2022 in Delhi-NCR
The prime office market of Delhi-NCR witnessed no change in rental values in Q1 2022 over the previous quarter, however recording an annual rental value growth of 1 percent in Q1 2022. According to APAC Prime Office Rental Index, the current occupancy cost for prime office space in Delhi-NCR was stated to be $60.1 per sq ft per year (Rs 376 per sq ft per month). The rental value is expected to remain stable over the next 12 months. Delhi-NCR currently has an office inventory of 16.3 mn sqm with a vacancy level of 14.7 percent.
Mumbai Metropolitan Region (MMR) witnesses de-growth
The prime office market of the MMR witnessed a de-growth of 1.9 percent in Q1 2022 on an annual comparison. The rental values remained stable over the previous quarter in Q1 2022.
According to APAC Prime Office Rental Index, the current occupancy cost for prime office market of MMR was stated to be $50.9 per sq ft per year (318 per sq ft per month). The rental value is expected to remain stable over the next 12 months. MMR currently has prime office inventory of 14.6 mn sqm with a vacancy level of 20.6 percent.
Asia Pacific Prime Office Rents for Q1 2022 (ranking provided basis Quarterly changes)
APAC Prime Office location | Knight Frank Research
Sharing an overview of the prime office performance in the APAC region, Tim Armstrong, Global Head, Occupier Strategy and Solutions, Knight Frank, said: “Optimism at the start of the year was tampered by multiple resurgences of COVID-19, which resulted in Hong Kong and several tier-1 Chinese mainland markets, re-tightening movement restrictions. The sustained economic recovery post-COVID in the region is also challenged by the Russia-Ukraine war which led to the surge in energy prices and inflationary pressure. As such, the growth forecasts for the region could be lower than what has been projected. Nevertheless, the Asia-Pacific market is not as directly impacted by the macroeconomic uncertainties as other regions. Particularly in countries where there is sustained optimism over re-opening, corporates are choosing to take more decisive leasing decisions in view of the rising material costs and construction delays.”
