Offshoring in APAC to drive demand for office space in four key hubs, says Knight Frank

Knight Frank's report on March 28 says the Asia-Pacific offshoring market is forecast to more than double to US$185.1 billion(S$249.8 billion) by 2032. The growth in offshoring is expected to lead to an increase in office demand of between 4.7 and 5 million sqm (50.6 million to 53.8 million sq ft) annually for the next three years.

Globally, offshoring is forecast to grow to US$544.8 billion in 2032, reflecting an 8.5% compound annual growth rate (CAGR). Although North America will continue to retain its dominant market share, Asia-Pacific is expected to record the highest CAGR globally at 10.2%, says Knight Frank.

According to Tim Armstrong, Knight Frank's global head of occupier strategy and solutions, the Asia-Pacific offshoring industry is witnessing an unprecedented growth momentum. "The region has transformed into a thriving hub for offshoring," he says. Within the region, India, the Philippines, Malaysia, and Vietnam have established themselves as offshoring centres worldwide.

Based on Knight Frank Research, Asia Pacific offers companies considerably lower operating costs, at nearly 70% less than the US. Occupiers can expect to save an average of US$70.86 psf in the four cities of India, the Philippines, Malaysia, and Vietnam compared with mature markets, according to Armstrong. "This translates to a staggering 54% cutback in occupancy costs annually," he adds.

With the decline in confidence towards the office sector, most pronounced in the US, occupiers are turning to Asia-Pacific. High-quality premium office space in city centres and ESG-compliant buildings remain highly sought after by occupiers in this region as they prioritise 2030 net-zero targets.

Global companies increasingly seek cost-effective solutions to minimise expenses, and a growing number are now looking towards offshoring functions as a strategic move.

"Offshoring has emerged as a critical driver propelling office demand in these four hubs as they steadily expand their footprint," says Christine Li, Knight Frank's head of research for Asia Pacific. "We anticipate the potential cost savings to encourage offshoring activities."

According to Knight Frank Asia-Pacific, regional rents declined 2.4% in 4Q2023, with the average vacancy rate increasing by 1.24% for the full year. Though there has been a gradual improvement in market sentiment, Li highlights that it remains susceptible to changes in the economic landscape.

"Occupiers are still cost-conscious due to the challenging macro environment," she adds. "The silver lining is that corporate occupiers continue to prioritise offshoring functions, fuelling headcount growth in regions that offer growth and innovation at a lower cost while maintaining efficiency in pricier locations."