The battle to rein in inflation has continued through 2024 and while price increases are now under control across much of Europe and North America, allowing central banks to cut rates multiple times, the picture is more varied across the Asia Pacific region. Importantly, the majority of economies in the region have taken meaningful steps forward in combatting inflation, with current levels well down from their peak. Consequently, the easing cycle is underway though Asia Pacific is lagging other regions. Less than half of the region’s central banks have cut rates and for the most part they have totalled 50bps or less compared to three cuts totalling 110bps in Europe. In part this reflects central banks not wanting to move in advance of the U.S. Federal Reserve due to foreign exchange pressures, but it also reflects that inflation remains stubbornly inflated in certain parts of the region.

Figure 1: CPI (%change y-o-y)

^{Source: Various central banks, Cushman & Wakefield}

In general, emerging markets still have the most work left to do against inflation, with recent data in India pointing to a reacceleration in pricing increases. Food pricing has been the main challenge, though energy pricing also remains volatile. Cooling inflation has been more consistent in the region’s developed economies, though again there is some variation in central bank responses. The Bank of Korea was one of the first to cut within the region. The People’s Bank of China has also been cutting rates through 2024, but this was more to stimulate economic activity than in response to tamed inflation. Headline inflation in Australia is now within target levels, primarily due to a raft of federal and state government rebates, but core inflation is still outside of the central bank’s target band of 2% to 3% and so the easing cycle has now been pushed into 2025. Lastly, to uphold price stability, the Bank of Japan has signalled measured policy rate increases, primarily to counteract rising inflation trending above its peers mostly due to the weakening yen. However, the rising risk of subdued domestic consumption and substantial government debt is likely to constrain the scale and speed of these rate hikes, offering some reassurance to long-term CRE investors.

Together this paints a mixed picture for the current state of play, but the outlook for the most part is towards more accommodative monetary policy across the region. Further interest rate cuts are expected through the year ahead and possibly into 2026. The timing and magnitude of these cuts will continue to vary and be dictated by a mixture of local, regional and global economic conditions.

Figure 2: Forecast central bank monetary policy rates

^{Source: Moody’s Analytics (December vintage baseline forecast), Cushman & Wakefield}

Despite the variance in inflation and interest rate trajectories, there is stability in regional growth. At the headline level, the Asia Pacific economy is forecast to grow at 3.8% in 2024 and 3.7% in 2025.  Beneath this regional average, ongoing strength is forecast across India and most of the South East Asian economies. India has been the fastest growing major economy in the world over the past 18 months, which is forecast to continue into 2025 with growth of 6.4%. Similarly, Vietnam, the Philippines, Malaysia and Indonesia are all expected to growth at around 5% or more for the year, a tick slower relative to 2024 but still healthy. If the economy follows this script, the level of growth is consistent with the Asia Pacific region absorbing approximately 75msf of office space in the year ahead.

The regions’ advanced economies have experienced a difficult year to date. However, they continue to work through their respective headwinds, which should yield stronger growth in 2025. In Australia this means taming the last of inflation, which can allow the Reserve Bank to pivot and become more accommodative. Japan's economy is rebounding from the temporary disruption caused by the Noto Peninsula earthquake, with stronger-than-expected net population inflows into major cities driving a cyclical upswing. Recent commentary from the central bank has also provided a slightly upbeat assessment on the outlook with the assumption of continued real wage growth extending beyond 2025. Singapore and South Korea are both reliant upon stronger demand for exports. Singapore is expected to be the greater beneficiary of the two as demand for high-end semiconductors from South Korea slows to a more sustainable pace. A common trait across all advanced economies is that the jobs market remains resilient, providing support for stronger growth in the year ahead.

The Chinese economy has been buffeted by headwinds stemming from a weak residential market over the past 24 months, though these have been somewhat offset by export demand in key sub-sectors including electric vehicles, batteries and solar panels. A raft of stimulus measures have been announced through H2 2024 to support the residential sector and help boost consumer confidence. If these prove successful, they should provide a floor for the economy to return to stronger growth.

Figure 3: Real GDP growth outlook

^{Source: Moody’s Analytics (December vintage baseline forecast), Cushman & Wakefield}

Following the recent elections in the U.S., former President Trump will become the 47th President of the United States on Inauguration Day, January 20, 2025. The Republican party will take control of the White House and Congress. At the current time of writing, wide-ranging policies affecting the wider macro-economic environment have been floated during the election campaign including regulatory conditions, fiscal (spending and tax) policy, trade policy, and immigration policy. The details associated with these policies largely remain unknown at this stage and that many of the policy changes have the potential to exert offsetting forces on macroeconomic growth and inflation, means that there is no easy, or clear-cut diagnosis of their impacts¹.

From a regional perspective, the looming potential of greater trade tariffs has arguably attracted greatest attention given that Asia Pacific exports are mostly directed to the U.S. and help drive the region’s growth. It is worth noting that Trump had promised 35% tariffs on Mexico and 45% tariffs on China during the 2016 campaign—commitments that ultimately never materialized.

The downside risks to the Asia Pacific outlook as it relates to trade are not insignificant. Depending on how trade policy shapes, there are certainly scenarios that could negatively impact economic growth and business confidence next year. That said, it’s worth noting that many of Trump’s policies are similar to what was put forward in his first term, and during that time, Asia Pacific’s property sector proved to be remarkably resilient. In fact, Asia Pacific’s office vacancy rates hovered in the 12% range, demand for space remained healthy, and rental rates continued to appreciate. On the capital markets, sales volumes achieved record levels in 2019 as yields drifted lower. Although it remains unclear if Trump will take more of a surgical approach to tariffs versus something closer to the severe approach he espoused on the campaign trail, only time will tell.

The recent appreciation of the U.S. dollar is also a concern for some Asian currencies which have come under renewed depreciation pressures. If this pressure continues, then it could further delay the rate cutting cycle given central banks would need to hold rates higher for longer. However, this is not a certainty given Trump’s preference for lower interest rates.

Ultimately there is undeniable uncertainty on potential policy formation and its impacts around the world. With that we recommend prudent caution and to develop a strong framework for contextualising policy changes as and when they are formally announced. Accordingly, we will continue to carefully hone our outlook as President-elect Trump and his advisors provide more post-election and post-inauguration guidance to the markets and as policy changes take shape.

The region continues to record buoyant office space demand. A further 72msf of space is expected to be absorbed across the region in 2024, up from 65msf in 2023. Sustained demand is forecast over the medium term, with net absorption averaging 75msf per annum over the 2025-29 forecast horizon.

India remains the main driver of the region’s office market, accounting for over half of the region’s demand, underpinned by the expansion of domestic companies, flexible space operations and the burgeoning global capability centre market. Consequently, the tech-focussed cities of Bengaluru and Hyderabad lead regional office demand, forecast at 12.4msf and 8.1msf respectively in 2025 and totalling 60msf and 42msf respectively over the full forecast period.

The demand picture across the remainder of the region is more variable. After several years of strong demand, the next few years in Seoul are expected to be more muted and average approximately 850,000 square feet per annum compared to the 2.75msf per annum achieved over the past four years. Similarly demand in Brisbane is expected to slow after recent outperformance in Australia as limited available space inhibits take up. Elsewhere in Australia, notably in Sydney and Melbourne, demand is forecast to improve after a lacklustre 24 months.

Tier 1 markets in the Chinese mainland are forecast to level off at a new normal over the forecast period, which is more in line with the past few years compared to the oversized demand experienced in 2016-20. Collectively this equates to annual demand of around 15msf.

Figure 5: Regional annual grade A office net absorption (msf) and vacancy rate by broad geography*

^{* Tier 1 mainland China = Beijing, Guangzhou, Shanghai, Shenzhen 
India = Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, Pune
Rest of APAC = Adelaide, Bangkok, Brisbane, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Kuala Lumpur, Manila, Melbourne, Perth, Seoul, Singapore, Sydney, Tokyo.}

^{Source: Various central banks, Cushman & Wakefield}

New supply across Asia Pacific slowed a little in 2024, with approximately 85 million square feet (msf) expected to be delivered in the year compared to a forecast 110msf. Much of this change occurred across tier 1 cities in the Chinese mainland, where new supply was originally forecast at 38msf but is now likely to land nearer to 18msf. Similarly in India, new supply has been pulled back by 13msf to 48msf in 2024. Some of the new supply we expected for 2024 will now get pushed into 2025.

Regionally, 121msf of new supply is forecast to enter the market next year, with a further 110msf in 2026 and 2027. Cumulatively this increases the region’s stock by 11% to over 2.3 billion square feet in 2027 – practically doubling the regional total since 2016. While much of this new supply will enter the region’s largest markets of Shanghai and Bengaluru, notable increases are also forecast in Tokyo, Shenzhen, Guangzhou, Hong Kong and Chennai in the year ahead. However, rising replacement costs are impacting the pace and volume of new supply. For instance, Tokyo's replacement costs have surged by over 30% since 2019, significantly outpacing the nearly flat rent growth over the same period.

In developing markets, both Hanoi and Ho Chi Minh City, especially, have a large pipeline of supply compared to the level of existing stock. In contrast, pipeline supply in Australia looks considerably muted, especially in Brisbane and Perth, which are not expecting any new supply before 2028.

Figure 4: New supply 2025-29 (msf) and % of existing stock

^{Source: Cushman & Wakefield}

Analysing demand against supply reveals that regional vacancy is expected to continue to climb to approximately 20%, from just 11% in 2016. In absolute terms this means in excess of 450msf of vacant space across the region.

An important differentiation to make, though, is the quality of vacant space versus the quantity of it. While overall vacancy is elevated and is expected to rise, the trends at the local sub-market level are highly variable. This is especially the case across cities that are expanding rapidly, namely across India, South East Asia and China. Selectively across these cities, vacancy levels average approximately 20%, though range from 10% to 31%. However sub-market analysis reveals that high demand locations such as BKC in Mumbai and Outer Ring Road in Bengaluru have considerably tighter vacancy levels. The message being here is that occupiers need to strongly consider all local market conditions.

This is also true in some more mature markets too. In Sydney there have been clear trends of occupiers relocating to the city core² such that occupiers with large space requirements are now struggling to find options available with contiguous floors.

Elsewhere around the region, Singapore, Tokyo and Seoul are expected to remain the tightest markets. All three cities have vacancy levels below 5.5% for the full forecast period, with Tokyo reporting sub-3% vacancy in most sub-markets.

Figure 6: Net absorption (msf) and vacancy rate, 2025-29

^{Source: Cushman & Wakefield}

Bringing these factors together suggests there will be comparatively little upward pressure on near-term rental growth at the aggregate level. Weighted rental growth across the region is expected to remain below 2% through to 2026 before moderately lifting but remaining below 2.5% for 2027-29.

Sub-regionally, the outlook is more nuanced. The strongest rental growth over the past couple of years has been in Brisbane and select cities in India, namely Hyderabad and Mumbai. These cities are expected to remain at the top over the next 12 months, with growth of around 5%, though the pace of growth is expected to ease from 2026 onwards. In contrast rental growth pressure is forecast to build in Jakarta, Melbourne, Singapore and Sydney as vacancy declines and so most growth is forecast later in the forecast period. Robust growth is also forecast in Ho Chi Minh City and Tokyo for the year ahead.

Limited rental pressure is expected across the Chinese mainland, Kuala Lumpur and Hong Kong over the near term in reflection of either weaker demand and/or strong levels of new supply. Guangzhou and Shenzhen are forecast to experience rental decline of 7% to 8% over the year ahead, though this moderates from 2026 onwards.

Again, it is important to note that In-demand locations will continue to outperform city averages. This means excess rental growth in cities with a strong rental outlook, or at a minimum, avoiding rental decline in cities forecast to experience softer conditions.

Figure 7: Rental outlook by market, 2025 (% y-o-y) and 2024-29 (% per annum)

^{Source: Cushman & Wakefield}