Office stock in Asia Pacific faces a lower risk of obsolescence than that in Europe or North America, with Australia well-placed due to its long-standing history of refurbishment programs and achieving high sustainability accreditation ratings.    

A new Cushman & Wakefield report found that approximately half of the Asia Pacific region’s existing office stock was secondary grade while only 43% of the prime-grade stock had any form of sustainability accreditation.  

This meant that approximately 28% of existing stock met specifications for top corporate occupiers; the remaining 72% would require some form of optimisation to remain relevant.   

“From an Australian perspective, while CBDs have amongst the oldest prime office stock in the region, they also have a long-standing history of refurbishment programs and achieving high sustainability accreditation ratings,” Cushman & Wakefield Head of International Research Asia Pacific and report author Dr Dominic Brown said.  

“The key challenge for landlords within the prime market is how to differentiate their assets from the competition given elevated levels of vacancy in some cities. Furthermore, there is the ongoing question of how secondary stock can remain relevant to the market given ever increasing occupier requirements.” 

Approximately 70% of office stock in Asia Pacific will need some form of optimisation to remain relevant to top corporate occupiers. Source: Cushman & Wakefield

Cushman & Wakefield research showed that 85% of office buildings in the United States and 76% in Europe either risked obsolescence or would require some form of repositioning in order to remain relevant. 

The drivers were different: in the US, low return-to-office rates, weaker office jobs growth and the densification of workplaces, exacerbated by new supply, meaning 1.1 billion square feet (sf) of excess office space was predicted by 2030.  

In Europe, sustainability legislation that stipulated minimum energy requirements be met before a building can be leased had accelerated the risk of obsolescence caused in part by an ongoing flight-to-quality and made more pronounced by the rise of hybrid and remote work.   

Dr Brown said Asia Pacific’s growth drivers included the creation of almost 15 million new office jobs by 2030, a higher return-to-office rate than other parts of the world, potential de-densification of workspaces and younger office business districts.  

“These factors will provide a buffer against some of the more severe headwinds felt in other regions,” he said.   

The weighted median age of prime stock across key Asia Pacific markets is 16 years. Source: Cushman & Wakefield

However, Brown highlighted that the evolution of working styles and the introduction of sustainability legislation witnessed in the US and Europe could shorten the time available to investors to either reposition (upgrade) or repurpose (find a new use for an asset or site) their Asia Pacific assets to retain their valuation. 

“Repositioning scenarios can range from obtaining the certifications needed to meet minimum environmental standards through to extensive refurbishment. In all cases, staying ahead of, or at least keeping pace with, occupier demand and sustainability legislation in each market is necessary for an asset to remain relevant,” Dr Brown said.  

Sydney sees further bifurcation among prime and secondary office stock

While there has been a long-standing divide between prime and secondary stock in Sydney, there was also bifurcation within each of these grades as well, according to the research.  

Within the secondary market, B-grade stock accounted for over-two thirds of the total, with lower grades (C- and D-grade) the remaining 31%, equivalent to 6.5 msf. These assets were at the highest risk of obsolescence in the office market, as they averaged in excess of 70 years of age and for the most part lacked a sustainability rating.

Often these were historical buildings and so repurposing would need to take this into consideration. B-grade stock risked obsolescence, but there were greater opportunities for repositioning as evidenced by asset improvements in recent years. The pressures on prime quality were slightly different.  

The proportion of prime stock to overall office stock by key market. Source: Cushman & Wakefield

The report said that large corporate occupiers were becoming increasingly astute in their space requirements with regard to grade, sustainability, wellness, amenity and more recently technology. This placed an onus on landlords to meet these minimum criteria to be considered for any space requirement. Secondly, it had come at a time when not only vacancy was above average on a relative basis at 11%, but was also at its highest level on record in absolute terms at 4 msf. In an increasingly competitive environment, there was more pressure on landlords to differentiate their assets from their competitors’. 

The recent City of Sydney legislation, which came into effect in January 2023 and affects all grades of stock, meant that new developments and major redevelopments of existing buildings would need to comply with minimum energy ratings and achieve net zero energy output by 2026.