Tech Firms Set to Lease 20% of APAC Office Space as Mainland Giants Expand

Technology occupiers led by Chinese groups are poised to transform Grade A office markets in Asia Pacific, accounting for at least a fifth of regional leasing demand from 2020 to 2025, according to research from Colliers International.

The need for space for Asia’s growing tech firms is expected to exceed 5.5 million square metres (59.2 million square feet) over the six year period, or more than 20 percent of the regional total of 26.4 million square metres.

Demand from China’s tech titans alone will make up 4 million square metres or 15 percent of the region’s total, Colliers said in its Asia Pacific Property Markets: Themes for 2021 report released on Monday.

“Colliers expects Asian technology occupiers, led by expanding large Chinese groups, to dominate office leasing markets in 2021 and coming years, helping determine rents, incentives and deal structures,” the property consultancy said.

Singapore Attracts Giants

In 2020, Singapore emerged as a focal point for Chinese tech giants as e-commerce firms, game developers and others looked to expand in Asia Pacific. The year saw several announcements by big players setting up regional headquarters or expanding in the city-state, and the theme has continued into 2021.

E-commerce colossus Alibaba signalled its ambitions last May when it agreed to acquire a half stake in the AXA Tower from a consortium led by Perennial Real Estate Holdings in a deal valuing the office property at S$1.68 billion ($1.2 billion).

Already an anchor tenant in the downtown-core building, Alibaba is teaming up with the consortium to demolish the 1.05 million square foot property and redevelop it into a mixed-use project of as much as 1.55 million square feet of gross floor area.

Last October, Bloomberg reported that ByteDance, the owner of video-sharing app TikTok, had signed an agreement to lease three floors encompassing over 60,000 square feet at One Raffles Quay. A day later came news that WeChat owner Tencent would lease 10,000 square feet of co-working space at OCBC Centre East at Raffles Place for its first Singapore office.

Then last month, Lazada, a Southeast Asia-focused online marketplace owned by Alibaba, reportedly leased 140,000 square feet at 5One Central in Bras Basah, spanning more than half the building, while TikTok took up two floors totalling 58,000 square feet at Guoco Tower in Tanjong Pagar.

Outsized Importance

Leading Chinese tech firms like Alibaba, Tencent, Meituan, JD.com, Baidu and Xiaomi are some of APAC’s fastest-growing groups and are changing the shape of office demand in the region, the report said. The tech companies in this echelon occupy 2 million square metres of office space region-wide for headquarters purposes, representing 10 percent of prime office stock in key Chinese markets like Beijing, Shanghai, Shenzhen and Hangzhou.

As competition for recruitment increases in the technology sector, occupiers will need to focus on attracting and retaining talent. Market forces are likely to bid up salaries across the board, and appealing office spaces could be a selling point to lure new hires.

From an investment perspective, Colliers predicts that the continued growth trajectories of tech occupiers will make them attractive to building owners.

The agency expects increasing demand for grade A space in mainland China tech hubs like Zhongguancun and Wangjing in Beijing, as well as in Shanghai’s Caohejing and Zhangjiang areas and sections of Shenzhen’s High Tech Park.

In the broader region Bengaluru’s Whitefield neighbourhood, and locations around the city’s outer ring road are expected to be centres of office leasing activity for tech firms, as will Singapore’s Shenton Way and Tanjong Pagar locations.

This demand is helping to drive a preference among office investors, which Colliers notes, for key tech locations like Sydney, Melbourne, Bengaluru and Hyderabad. India’s office market in particular is already heavily dominated by technology, with global and local tech firms accounting for over 40 percent of leasing demand.

Tech’s importance was underlined again by last week’s IPO of Brookfield India REIT, which sought to raise INR 3,800 crore ($520 million) en route to becoming the third real estate investment trust to trade on the Indian stock exchanges. The REIT’s seed portfolio includes an office park in an IT special economic zone of Mumbai and three campus-style tech parks in Gurugram, Noida and Kolkata.