• Tenant appetite remains strong for premium quality office spaces in prime locations, as occupiers prioritize future proofing their real estate portfolio through employee-centric workplace solutions and sustainability features.

• With approximately 6.4 million sqm of new office supply expected by the end of 2025, early lease planning is essential to manage costs, mitigate competition for high-quality space and navigate the evolving economic environment.

• Office investment volumes in Asia Pacific increased by 31% year-on- year, reaching USD 16.4 billion, with Japan being the most active choice for office investment.

Asia Pacific Office sector exhibited resiliency, achieving a 3% y-o-y growth in leasing volumes in the first quarter. Limited availability of premium space in and strong pre-leasing activity in upcoming supply drove aggregate rents up by 0.7% q-o-q, marking the fifth consecutive period of growth. Net absorption improved by 20% y-o-y to 5 million sqm, fueled by relocations and upgrades led by finance and technology firms. Despite the positive momentum, economic uncertainty fostered cost consciousness, lengthening lease negotiation timelines as some large occupiers opted to renew their existing leases amidst rising fit-out costs.

Regional vacancy rate stood at 14.5% with 1.2 million sqm of new stock being delivered this quarter, primarily in Japan and India. Tenant demand remained healthy overall. In Tokyo, demand was driven by wholesale trade and manufacturing in Tokyo; while co-working and technology firms were active in India. Australia also experienced firm leasing momentum supported by pre-commitments and centralization activity among large corporates. In contrast, Seoul saw softer leasing volumes due to limited availability and rising costs while tenant favorable market conditions continued to persist in Mainland China.

Cross-border transactions surged by 168% y-o-y, with diverse capital sources actively investing in Japan, which remained the top destination for office investment in the region, accounting for nearly half of the regional volume, followed by South Korea and Australia. Investor sentiment is expected to be polarized as buyers become increasingly selective in their asset choices, favoring stabilized assets with strong income growth through well located prime grade stock.

Outlook
Uncertainty surrounding U.S. trade policy and rising geopolitical tensions are expected to weigh down on decision-making; however, healthy market fundamentals in Asia Pacific suggests the sector is well-positioned to withstand short-term volatility. Despite a robust supply pipeline, flight to quality will continue to create a divergence in leasing demand, intensifying competition for new office space in many markets. Vacancy rates are expected to remain elevated in older buildings, increasing the risk of obsolescence and leading to more repositioning and conversion activity.