Why flight to quality is a pervasive trend across APAC office markets

JLL outlines three primary reasons driving the trend.

It is clear that the office is here to stay but corporates are more focused on the ‘type’ of space that they occupy than expanding their total footprint. 

Flight to quality is a pervasive trend across most markets in Asia Pacific and here are three reasons why, according to JLL:

• Health and wellbeing is now the number one priority for Asia Pacific employees, replacing a comfortable salary at the top spot in JLL’s Workforce Preferences Barometer report. Quality office space allows firms to offer an array of health and wellbeing amenities and ensure employees’ needs are met. A big part of being able to live a healthier lifestyle is having some degree of flexibility in terms of when and where employees work. The vast majority (85%) of APAC HR leaders in a 2022 JLL survey acknowledged that hybrid/remote policies will be key to attracting and retaining the best talent. 

• High-specification office space also gives firms the flexibility to rethink their workspaces and incorporate innovative fit-outs, technology, and amenities. These things are especially important as corporates firm up their hybrid strategies in a bid to be future fit. 

• High-quality space is also best suited to facilitate firms’ sustainability ambitions. By occupying green-certified buildings, opting for green leases, and retrofitting existing buildings and offices with sustainability features, corporate real estate leaders can accelerate towards their net zero carbon goals through real estate. 

Here’s more from JLL:

Consistent with these themes, high-quality, premium assets are significantly outperforming the rest of the market as occupiers look to upgrade their space. JLL research data shows that since the onset of the pandemic, leasing demand has been strongest for newer vintage buildings as net absorption in buildings completed in 2010 or later has been orders of magnitude higher than in older buildings. Supply volumes are expected to peak in 2023, meaning that occupiers will continue to have multiple options to consider at new, high quality buildings and as such, net absorption will be strongest for the newer segment of the market in the coming year. 

And in some markets, upgrade demand has also driven a divergence in like-for-like rent growth since the onset of the pandemic with newer vintage buildings recording stronger rent growth. For example, rents at newer buildings in Singapore are up nearly 1.5% on a like-for-like basis since the emergence of COVID-19 while rents at buildings constructed before the year 2000 are still below pre-pandemic levels. We have observed a similar trend in some markets where rents have declined during the peak of COVID-19 with premium rents falling slower compared to their older peers. 

We see a similar trend when narrowing our analysis to Central Business District (CBD) rents and segmenting the market by building grade. Consistent with the flight to quality, rents at premium buildings outperformed their Grade A peers. While these observations will come as no surprise to astute observers of office market dynamics, they have meaningful implications for both occupiers and investors. Globally, demand is strengthening for space in high-quality buildings, and we expect to see these trends continue over the coming year.