PETALING JAYA (May 18): The Asia-Pacific prime office rents witnessed a continued recovery in the first quarter of 2022 (1Q22), according to the latest Knight Frank Asia-Pacific Prime Office Rental Index for 1Q22.

Zooming into the Malaysia office market, Knight Frank Malaysia executive director of office strategy and solutions Teh Young Khean said in a press release: "The pace of recovery in the [Malaysia] office sector will continue to pick up this year in tandem with the uptick in economic activities and improved business sentiments. Demand for space is expected to increase with more workers returning to the office and as organisations firm up their physical workplace planning.

"Endemic trends indicate that organisations opting for hybrid work models are likely to see several advantages, hence having good infrastructure and facilities to support the new way of working is crucial," he added.

Knight Frank Malaysia executive director of research and consultancy Judy Ong said: "The [Malaysia] office market, however, remains tenant-led as existing and incoming supply continue to outpace demand.

"An estimated 495,850 sq m of space is scheduled to enter the Kuala Lumpur market by the end of 2022, and this will continue to exert pressure on rentals. Notable upcoming completions include Merdeka 118 Tower, PNB 1194, Felcra Tower, Aspire Tower @ KL Eco City and The MET Corporate Towers," she added.

Meanwhile, the report highlighted several contributing factors to the rental recovery of the Asia-Pacific office sector, which is up 0.8% quarter-on-quarter (q-o-q), after rising by 0.3% in the preceding quarter, indicating that economic recovery is sustained from 4Q21, despite a turbulent 1Q22 with accelerating inflation and the Russian invasion of Ukraine weighing down on market sentiment. The overall index is up 0.2% year-on-year (y-o-y).

According to Knight Frank, vacancy remains elevated at 13.1%, similar to that of 4Q21. This should start to reduce further as more Asia-Pacific markets start to open their economies and tenants in the tech industry continue to seize opportunities for premium quality spaces in the CBD at low rents.

Some of the highlights of the office market in Asia-Pacific from 1Q22: Of the 23 cities tracked by the index, more cities recorded stable or increased rents in 1Q22, more specifically, 21 compared with 13 in 4Q21.

Meanwhile, in other Asia-Pacific cities, Shanghai recorded the highest y-o-y rise in 1Q22 at 4.2% among the cities tracked by the index, while Shenzhen continued its decline trend by 4.5% y-oy for the same period.

On a quarterly basis, Bengaluru saw rent increase by 5.8%, accelerating from the 1% q-o-q improvement in the prior quarter.

The Index tracked Ho Chi Minh City from 1Q22 onwards, and it saw rent grow 0.7% q-o-q, and stayed flat on a yearly basis.

Knight Frank global head of occupier strategy and solutions Tim Armstrong said, "Optimism at the start of the year was tempered by multiple resurgences of Covid-19 which resulted in Hong Kong and several Tier 1 Chinese mainland markets retightening 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 have 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 reopening, corporates are choosing to take more decisive leasing decisions in view of the rising material costs and construction delays," he added.

Knight Frank Asia-Pacific head of research Christine Li said: "There are still mixed signals particularly in developing countries where office leasing demand is still in a state of flux. As economic recoveries hinge significantly on foreign direct investments, the macroeconomic environment now is making things more unpredictable than ever before.

"Nevertheless, the drop in rents during the entire pandemic was not as deep compared to previous crises, and we also do not expect supply-side pressure on both rents and occupancies in the coming quarters in Asia-Pacific. With hybrid working being the way forward, occupiers are likely not overcommitting to space the way they did in the past, which could modestly support stable leasing demand in markets that are already out of the woods," she said.