Australia, Japan Defy Trend as APAC Office Markets Face Falling Rents: Knight Frank

Prime office rents in Asia Pacific fell 1.6 percent in 2024, narrowing from a 2.4 percent drop the previous year, as key markets in Australia and Japan showed resilience amid a regionwide downtrend, according to Knight Frank.

Brisbane emerged as a bright spot, with the Queensland capital leading APAC with 11.8 percent rent growth in 2024, the consultancy said in its latest Asia Pacific office report. Other Australian markets experienced milder growth, with rents rising 3.3 percent in Perth and up 2.6 percent in both Sydney and Melbourne, boosted by sustained occupier demand and landlords pushing higher rents to support valuations, Knight Frank said in a release.

Tokyo recorded 3.9 percent growth on the year, suggesting that potential workspace expansions by Japanese firms could strengthen leasing activity, according to Knight Frank. Beijing turned in APAC’s weakest showing, with prime rents down 14.7 percent, while Shanghai and Hong Kong saw respective declines of 11.3 percent and 5.2 percent. Mainland China markets were challenged by a large supply pipeline and slow economic growth.

“Although the region’s rent is expected to decline in 2025, much of the weakness is largely concentrated in Chinese mainland markets,” said Christine Li, Knight Frank’s APAC research head. “The rest of Asia Pacific is still expected to see moderate increases of 1 to 2 percent, with leasing volumes anchored by markets in India. Leasing activity will also remain healthy in Tokyo, as strong demand for new office developments will gradually tighten availabilities in the city.”

Vacancy Rate Eases

Despite the overall dip, 16 of 23 cities tracked by Knight Frank reported stable or increasing rents last year, as China weakness weighed heavily on regional performance.

Regionwide vacancy fell for a second straight quarter in the last three months of 2024, dropping 0.3 points to 14.5 percent. Knight Frank credited tightening availability in Southeast Asian markets and India. Seoul enjoyed the lowest fourth-quarter vacancy rate at 1.9 percent, while Kuala Lumpur had the highest reading of unused space with 25.9 percent.

The region is projected to add 12.8 million square metres to Grade A office inventory this year, bringing the total to 203 million square metres (2.2 billion square feet). The ample development pipeline presents a chance for occupiers to redesign workspaces with a focus on enhanced employee productivity and engagement, said Tim Armstrong, global head of occupier strategy and solutions at Knight Frank.

“While sustainability and access to talent remain primary drivers of occupier decisions, proximity to amenities and connectivity are rapidly becoming key differentiators, particularly for companies aiming to increase office attendance,” Armstrong said.

Defensive Stance

In the year ahead, geopolitics will be the key variable as inflation concerns subside in APAC, according to Li.

“This shift in focus is likely to influence occupier behaviour, with many adopting a defensive stance and showing a strong preference for renewing leases rather than relocating,” the analyst said. “The region’s softening rents and ample new supply will be conducive to those looking to upgrade their office spaces.”

Knight Frank forecasts a decline in prime rents of 2 to 3 percent regionwide in 2025. A 7 percent jump in the region’s prime Grade A office stock is expected, up from 4 percent in 2024, with more than 40 percent of the new supply to be delivered in mainland China markets.

“Despite challenges in Chinese mainland markets, office space demand across Asia Pacific is expected to remain resilient,” Armstrong said. “The region is well positioned for growth, with strong office utilisation driven by sustained employment growth and stabilising workplace arrangements.”