Office leasing activity in Asia Pacific on pause in April as occupiers face cash flow uncertainty

In the Asia Pacific region, the first two weeks of April saw 73% of the region’s 15 major office markets record a fall in leasing activity. Manilla, Guangzhou, Shenzhen, and Hong Kong were the only markets that registered stable leasing activity during that period, according to a report by Knight Frank.

The report, published on April 29, is titled “Asia-Pacific April 2020 Market Bulletin: Covid-19 and its impact on real estate”.

According to this research by the international consultancy, the fall in leasing activity comes as many international commercial occupiers postpone leasing deals. They cite uncertainty around global demand, supply chains, and cash flow as the factors leading to a delay in decisions.

“The need to preserve cash and reduce capital expenditure is inevitably putting a hold on corporate real estate decisions such as strategic relocations or fit-out projects which require significant capital outlay,” says Tim Armstrong, head of occupier services and commercial agency at Knight Frank Asia Pacific.

However, he reckons occupiers are pausing rather than cancelling planned leasing activities. “We are [already] witnessing steady demand from food retailing, telecommunications, online education, and some manufacturing firms in some markets,” he adds

Armstrong notes that the markets which saw an uptick in activity over the first two weeks of April were mainland China, which he says is “firmly in recovery”, as well as South Korea.

The e-commerce logistics sector continues to be active in southern China, while Taipei still sees market balances in favour of landlords, the report states. In Taiwan, office demand continues to outstrip supply and a “flight to quality” trend indicates that rents can be expected to continue growing.

Large-scale work-from-home arrangements also do not herald the decline in office demand, says Armstrong, adding that “a physical office – one that is separate from our homes – creates a much-needed barrier between work and home life. The current crisis won’t eliminate the need for office space but will help us appreciate its social value”.

Anticipating the end of social distancing measures, Knight Frank also unveiled a roadmap to help businesses prepare themselves in re-occupying offices. It highlights five areas: understanding employee base, reviewing employee journey within the workplace, evaluating social distancing options, determining occupancy impact and developing protocols.

Neil McLocklin, head of strategic consultancy at Knight Frank, says: “Businesses will be keen to return to the office as soon as possible, but their staff will need assurance that it is a safe environment to do so.”

He adds: “We will need to adapt to a new normal, at least for the foreseeable future, which combines both the importance of collaboration, social interactions and conducting business, whilst mitigating fear and protecting the workforce.”

Source: EdgeProp, 29 April 2020