72% of office stock across Asia Pacific will not meet the needs of top corporate tenants - Cushman & Wakefield

The risk of office stock becoming outdated in Asia Pacific is not as high as in Europe or North America. However, investors and landlords might have less time to get the most out of their assets due to the increasing demand for high-quality and sustainable buildings.

Cushman & Wakefield (NYSE: CWK) recently released a report that revealed almost half of the current office buildings in the region are not up to standard. Out of the prime quality buildings, less than half have any sort of sustainability accreditation. This indicates that only around 28 percent of the current stock meets the requirements for top corporate occupants. The rest of the buildings will need to be improved to remain competitive in the market.

Cushman & Wakefield's recent studies reveal that a large percentage of office buildings in the US and Europe could become obsolete or require significant changes to stay relevant. In the US, factors like low office return rates, slower job growth, and more crowded workspaces due to new construction could create a surplus of 1.1 billion square feet of office space by 2030. In Europe, laws requiring energy-efficient buildings before leasing has led to an increased risk of obsolescence, particularly with the recent rise of hybrid and remote work and a focus on high-quality buildings.

The report titled "ReThinking The Office Sector: Optimising Your Asset for a New Era" examines several factors to evaluate the possibility of obsolescence in ten key markets in Asia Pacific. These factors include the average age of prime office assets, the proportion of prime stock to total stock in a particular market, the rate of employees returning to the office, the accreditation of sustainability, and the density benchmarks for employees. The report also highlights that the Asia Pacific market is poised to experience fewer challenges related to obsolescence when compared to other regions.

According to Dr Dominic Brown, who is in charge of International Research in Asia Pacific and wrote the report, the region is expected to experience strong growth due to several factors. By 2030, almost 15 million new office jobs will be created, and the return-to-office rate is expected to be higher in Asia Pacific compared to other parts of the world. Additionally, there is potential for workspaces to become less crowded, and younger office business districts are emerging. All of these factors are expected to reduce the negative impact of economic challenges felt in other regions.

According to Brown, changes in the way people work and new laws promoting sustainability in the United States and Europe could mean investors will have less time to either improve or find a new use for their assets located in the Asia Pacific region in order to maintain their value.

Different ways to change the purpose of an area can vary from acquiring the necessary qualifications to fulfill environmental requirements to carrying out extensive remodeling. Regardless of the method chosen, it is important to always keep up with occupant demands and environmentally-friendly regulations in each location to ensure the asset stays current.

James Young, who is in charge of Investor Services in Asia Pacific and Europe, stated that the likelihood of offices becoming outdated or needing to be renovated is increasing worldwide. Although Asia Pacific is experiencing better office job opportunities and GDP predictions than other areas currently, all signs indicate an increasing preference for better quality and more amenity-rich office spaces among tenants.

The preference of occupiers for high-quality office spaces has caused a significant shift in the market. Since 2019, top-grade office spaces have accounted for more than 50% of the total office demand in Europe. This trend is also expected to continue in the Asia Pacific region, which may lead to fierce competition among occupiers for the roughly 30% of premium office spaces that are certified as sustainable. Investors who upgrade their assets to meet this growing demand for sustainable, top-grade office spaces are likely to profit from this trend. Conversely, those who fail to do so will face decreasing returns on their investments.

Important discoveries for the Asia Pacific region include: - The majority of consumers in the region prefer to shop at physical retail stores rather than online. - Smartphone usage is increasingly popular in the region, with a growing demand for mobile payments and services. - The e-commerce market is rapidly expanding, especially in China and India. - Urbanization and a growing middle class are driving consumption in many of the region's countries. - Traditional cultural values are still important to many consumers in the region, even as they become more connected to the world through technology.