- 72% of buildings in the Asia Pacific are not up to standard for top tenants
- 50% of office stock across Asia Pacific is considered secondary grade
- Investors need to upgrade as the flight to quality increases
Corporate tenants continue to seek out high-quality office space, with a new report finding that 72% of buildings in the Asia Pacific are not up to the standard required for top businesses, and are at risk of becoming obsolete.
The report by Cushman & Wakefield found that, unless landlords and investors look at ways to upgrade their buildings, they could find themselves unable to secure top tenants.
Cushman & Wakefield’s Head of International Research, Dr Dominic Brown, said Australian landlords are typically prepared to refurbish and improve premises.
“From an Australian perspective, while CBDs have amongst the oldest prime office stock in the region, they also have a long-standing history of refurbishment programmes and achieving high sustainability accreditation ratings,” said Brown.
“The key challenge for landlords within the prime market is how to differentiate their assets from the competition given elevated levels of vacancy in some cities.”
Dr Dominic Brown, Cushman & Wakefield’s Head of International Research
“Furthermore, there is the ongoing question of how secondary stock can remain relevant to the market given ever-increasing occupier requirements”.
High portion of secondary stock
According to the report, 50% of office stock across Asia Pacific is considered secondary grade. Of the 50% prime stock, only 43% of prime stock has any form of sustainability accreditation
The proportion of prime stock with a sustainability rating varies from over 90% in Sydney, Singapore and Melbourne to under 40% in Beijing and Bengaluru.
Brown said Asia Pacific’s growth drivers include the creation of almost 15 million new office jobs by 2030, a higher return-to-office rate than other parts of the world, potential de-densification of workspaces and younger office business districts.
The new office jobs are forecast to be concentrated in China, India, and the Phillippines, with China comprising 7.4 million of the new jobs.
The Asia Pacific was found to have a stronger return-to-office culture than other regions, with Greater China at practically 100% and Tokyo at up to 85%.
“These factors will provide a buffer against some of the more severe headwinds felt in other regions.”
Need to reposition
Timelines for upgrading or repurposing assets in order to retain valuation are compressing, given the evolution of working styles and the introduction of sustainability legislation witnessed in the US and Europe.
“Repositioning scenarios can range from obtaining the certifications needed to meet minimum environmental standards through to extensive refurbishment.”
“In all cases, staying ahead of, or at least keeping pace with, occupier demand and sustainability legislation in each market is necessary for an asset to remain relevant.”
Head of Investor Services for Asia Pacific and Europe James Young said the risk of office obsolescence, or at least the need to reposition assets, is rising across the world.
“Asia Pacific is currently benefiting from stronger office job creation and GDP forecasts than other regions, but all indicators show a clear and growing occupier preference for higher quality, better amenity stock,” said Young.
“This occupier flight-to-quality has resulted in the top grade of office stock accounting for more than half of the total office demand in Europe every year since 2019; a similar trend is expected to continue driving competition among occupiers for the approximately 30% of sustainability certified, premium office space in Asia Pacific.
“Investors who reposition their assets stand to benefit from this growing demand for sustainable, prime-grade stock; those who do not will face diminishing returns.”
