Bengaluru leads APAC region with QoQ rental growth of 5.8% in Q1 2022: Knight Frank Asia-Pacific Prime Office Rental Index Q1 2022

Mumbai, April 27, 2022 (GNI): Knight Frank, in its recent edition of the Asia-Pacific Prime Office Rental Index for Q1 2022 noted that amongst all cities of the region, Bengaluru saw the highest growth in rental values in the first quarter at 5.8% in Q1 2022 as compared to the previous quarter. The APAC regional index registered an increase of 0.8% quarter-on-quarter (QoQ), rising by 0.3% 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% year-on-year. 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 US$ 186/sq ft/year. Delhi-NCR was the 9th most expensive market at US$ 60/sq ft/year (INR 376/sq ft/month). While Mumbai at US$ 50.9/sq ft/year (INR 318/sq ft/month) and Bengaluru at US$ 26.7/sq ft/year (INR 167/sq ft/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% 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% 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
With an increase of 5.8%, 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 US$ 26.7/sq ft/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%.

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% 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 US$ 60.1/sq ft/year (INR 376/sq ft/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%.

Mumbai Metropolitan Region (MMR)
The prime office market of the MMR witnessed a de-growth of 1.9% 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 US$ 50.9/sq ft/year (318/sq ft/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%.
Asia Pacific Prime Office Rents for Q1 2022 (ranking provided basis Quarterly changes)
CITY ANNUAL CHANGE (YOY %) QUARTERLY CHANGE (QOQ %) FORECAST NEXT 12 MONTHS
Bengaluru 3.60% 5.80% Increase
Seoul 4.20% 2.20% Increase
Jakarta -1.80% 2.00% Decrease
Shanghai 4.20% 1.90% Increase
Singapore 1.90% 1.20% Increase
Auckland -3.60% 1.00% Decrease
HCMC 1.00% 0.70% Increase
Bangkok -1.40% 0.70% Decrease
Hong Kong 1.10% 0.60% Increase
Perth 1.00% 0.60% Increase
Sydney 0.60% 0.50% Increase
Phnom Penh -8.40% 0.50% Flat
Brisbane 1.50% 0.00% Increase
Manila 1.20% 0.00% Decrease
NCR 1.00% 0.00% Flat
Melbourne 0.00% 0.00% Increase
Taipei -0.10% 0.00% Flat
Mumbai -1.90% 0.00% Flat
Kuala Lumpur -2.10% 0.00% Decrease
Beijing -1.10% -0.30% Increase
Guangzhou -1.00% -0.40% Flat
Tokyo -4.00% -1.30% Decrease
Shenzhen -4.50% -1.40% Decrease
Source: Knight Frank Research
APAC Prime Office location – Rank by Occupancy cost (US$/ Sq ft/ Yr)
RANK CITY Q1 2022 OCCUPANCY COST (US$ / SQ FT/ YEAR)
1 Hong Kong SAR 186.0
2 Singapore 105.0
3 Tokyo 101.2
4 Sydney 98.6
5 Beijing 84.8
6 HCMC 72.0
7 Shanghai 71.2
8 Melbourne 60.9
9 NCR 60.1
10 Shenzhen 57.7
11 Perth 56.2
12 Brisbane 55.3
13 Guangzhou 54.9
14 Taipei 51.2
15 Mumbai 50.9
16 Auckland 43.4
17 Bangkok 41.7
18 Manila 36.2
19 Phnom Penh 33.7
20 Jakarta 28.1
21 Bengaluru 26.7
22 Seoul 26.5
23 Kuala Lumpur 19.4
Source: 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.”

Highlights for Q1 2022:
• Of the 23 cities tracked by the index, 21 cities recorded stable or increased rents this past quarter, as compared to 13 in the previous quarter.
• Shanghai recorded the highest YoY rise in Q1 2022 at 4.2%, among the cities tracked by the index, while Shenzhen continued its decline trend by 4.5% YoY for the same period.
• On a quarterly basis, Bengaluru saw rent increasing by 5.8%, accelerating from the 1% QoQ improvement the quarter prior.
• The Index will now track Ho Chi Minh City from Q1 2022 onwards. Rent grew 0.7% QoQ and stayed flat on a yearly basis.
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