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Asia Office Cap Rates to be Stable as Markets Shift Towards Landlords

blog CVAS apac office cap rates likely to be stable 3x2

The gradual recovery in Asia Pacific office markets will support demand and rents in many cities.

Major office leasing markets in Asia Pacific (APAC) are starting to recover, especially in China. Among the Asian gateway cities, rents are close to bottoming out in Hong Kong SAR¹, Singapore, Beijing and Shanghai. Various cities are now shifting close to the point of favouring landlords.

Several markets may see capital values and rents pick up concurrently over the next year or so, suggesting that cap rates should remain broadly stable. However, there may also be markets like Seoul in Q2 2021, where strong demand for assets drives renewed cap rate compression.

So, how are some office markets tilting towards favouring landlords?

Current trends suggest that APAC office markets are starting to shift




Aggregate net absorption of leased office space in the 16 key APAC cities we have examined grew 100% year-on-year (YOY) and 1.4 times half-on-half (HOH) in H1 2021.

Demand in Beijing and Shanghai registered stronger-than-expected growth, whereas demand in Tokyo weakened, reflecting partial cancellations or non-renewal of lease contracts and an increasing trend towards working from home.

At this juncture, we see 2021 full-year net absorption more than trebling to 3.43 million square metres from 2020; this is 23% above the 2019 level, which suggests a return to pre-COVID-19 levels of demand.


Aggregate new supply from these 16 cities grew 37% YOY, but shrank 32% HOH. This level of supply was much lower than expected, although a rebound looks likely in H2 2021. Over 2022 to 2023, supply should decline in many cities, but is set to stay high in Shanghai and Shenzhen. In Tokyo, while the annual average supply for 2021–2025 should be smaller than the 2016–2020 average, significant new supply in 2023 should cause a supply-demand imbalance in that year.  


"Major office leasing markets in Asia Pacific are starting to recover, especially in China. Various cities are now shifting close to the point of favouring landlords."



Weighted average net effective rents fell by 5.4% in Q1 2021, but by only 1.0% in Q2 2021. Rents rose over H1 2021 in Taipei and Seoul, but dropped 5% or more in Sydney CBD, Tokyo and Manila.

Over H2, we expect rents to stabilise or trend up in Beijing, Shanghai, Hong Kong and Singapore. Over 2021 to 2025, we expect the popular occupier centres of Sydney, Melbourne, Auckland and Singapore to register average rent growth of over 3.0% per annum (p.a.).

In contrast, Tokyo should see the weakest five-year rent growth outlook.


Aggregate vacancy rose to 11.8% at the end of H1 2021 and should peak at 15.1% by the end of 2023. Vacancy in Chinese cities was lower than expected, reflecting firm demand from technology, financial and healthcare companies.

Looking ahead, vacancy rates should rise in Shenzhen and Tokyo. However, vacancy in Tokyo at end-2025 should be at 6.5% – far below the forecast APAC aggregate level of 13.2%. Singapore should hold its vacancy rate below 5.5% over 2021 to 2025.  


Office rents and cap rates to stabilise

Strong investment demand to underpin valuation of APAC office assets

Demand for real estate assets in the region remains very firm. Private equity funds have emerged as the largest net acquirer of APAC real estate so far in 2021, and APAC private equity funds have close to USD46 billion of undeployed capital to invest. At the same time, companies have become increasingly active in direct property investments, and have made up 12% of total acquisitions and 18% of total sales in APAC so far in 2021.

While these factors will affect all property market segments, office assets are still popular, and as investment demand is expected to stay firm, capital values should remain well supported.

Related content: A Brave New World: Investing Beyond the Momentary Squall

Rents near the point of bottoming out

We expect to see an 8.4% decline in aggregate APAC office rents in 2021. However, the rate of decline should drop to 1.0% in 2022, and from then on aggregate rents should be essentially stable.

It is important to note that the aggregate APAC data are skewed by Tokyo – the largest office market with 24% of combined stock in H1 2021 among the 16 APAC markets we have analysed – which seems to be entering a cyclical market downturn due to pressures on demand, contributing to rising vacancy.

Among the other Asian gateway cities, rents are close to bottoming out in Hong Kong, Singapore, Beijing and Shanghai (where CBD rents are already turning upwards). These and other APAC cities are shifting close to the point where they are favouring landlords over tenants (refer to the chart above for 19 APAC cities, including Indian cities).


Cap rates likely to remain broadly stable

Looking forward, it seems probable that capital values and rents in several Asian cities will rise together over the next year, suggesting that cap rates and net operating income yields should remain broadly stable.


"Several markets may see capital values and rents pick up concurrently over the next year or so, and this suggests that cap rates should remain broadly stable."


Cap rates had been very stable across the region in Q2 2021; only seven of the 21 cities surveyed had seen quarter-on-quarter movements. Of these seven cities, Seoul had witnessed the sharpest cap rate movements due to intense competition for investment assets, notably in the industrial and logistics sector.

Over the next year or so, there may be other markets like Seoul where investment demand drives up capital values faster than rents, leading to renewed cap rate compression, even if this is more likely to be observed in the industrial and logistics sector than the office sector.

Related content: Asia Pacific Cap Rates | Q2 2021

To see what could be for your next office valuation or forecasting task, or for strategic advisory on investments across Asia Pacific, reach out to our Valuation & Advisory Services experts.


1Special Administrative Region [of the People's Republic of China]


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Hong Kong SAR China

CK Lau

Managing Director | Hong Kong & Managing Director | Asia CVAS

Managing Director's Office | Hong Kong

Hong Kong

CK Lau is the Managing Director | Hong Kong and also leads the Valuation & Advisory Services business as Managing Director | Asia.  He has over 30 years’ property experience in valuation, real estate consultancy and investment sales in Hong Kong, mainland China and the Asian region. 

His expertise includes development consultancy; government lease modification application and premium negotiations; investment and development sites sales; litigation valuation advice and expert witness in the High Court/Lands Tribunal/arbitration; portfolio valuations; REIT property advice; rental determination; and valuation due diligence services.

He writes regularly on topics relating to land use and development in Hong Kong since 2010. His collection of over 200 articles in the Hong Kong Economic Journal and other publications can be viewed through the following link:

CK is also a member in the following publications:

• “The HKIS Valuation Standards 2017 & 2020”

• “HKIS Guidance Notes on Valuation of Development Land” published in 2016

• “Surveyors acting as experts in commercial rent determinations” Joint guidance note Hong Kong prepared by the HKIS and RICS Hong Kong” 1st edition 2015


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