Key Takeaways
- • Asia office demand surged 25% year-over-year as of Q3 2025, reaching 25% above the long-term average, with developed Asia vacancy rates compressed to 8.5% and demand exceeding supply for the first time since the pandemic.
- • Australia office market shows inflection signs despite elevated 15%+ vacancy rates: new supply is collapsing, cap rate spreads have tightened to near the 3% long-term average, and Hines Research's pricing framework indicates the sector is currently undervalued with Sydney positioned to outperform nationally over the next five years.
- • Japan's office fundamentals remain robust with rental growth accelerating 10% year-over-year as of Q3 2025, but Hines assesses values as "over their skis," suggesting the market has fully priced in current strength and may lack upside.
- • Significant regional disparities exist within Asia: developed markets outside Australia and Hong Kong show sub-4% vacancy, while Australia remains elevated, creating a bifurcated investment landscape with distinct risk-return profiles.
Summary
The Asian office sector demonstrated resilience and momentum in 2025, establishing a clear divergence between developed and lagging markets. Overall Asia office demand registered a robust 25% year-over-year increase and sits 25% above the long-term average as of the third quarter, according to Hines Research. For the first time since the pandemic, demand exceeded supply in developed Asian markets, with vacancy rates compressing to 8.5% on a stock-weighted basis across Australia, China, Hong Kong, India, Japan, New Zealand, Singapore, South Korea, and Vietnam.
However, geographic performance varies significantly. Developed Asia markets excluding Australia and Hong Kong achieved remarkably tight fundamentals with sub-4% vacancy rates, reflecting strong occupier demand and limited new supply. Australia presents the inverse profile, maintaining elevated vacancy above 15%, yet showing early signs of stabilization. New office supply is falling sharply and expected to accelerate its decline through 2026–2027, suggesting a normalization trajectory ahead. Sydney office space is forecast to outperform the national average in both rent and price growth over the next five years. Cap rate spreads over 10-year bond yields have improved to approximately 3%, near the long-term average, and Hines Research's proprietary pricing framework currently indicates Australian office is undervalued relative to fundamentals.
Japan epitomizes the tension between strong fundamentals and valuation risk. Office demand remained robust with rental growth accelerating 10% year-over-year as of Q3 2025. Hines acknowledges these "heady fundamentals" are well-recognized by the market and fully reflected in current pricing, suggesting limited upside potential. This valuation intensity contrasts with Australia's perceived discount, indicating that investors navigating Asian office exposure in 2026 must exercise selective geography-specific positioning rather than applying a uniform regional strategy.
However, geographic performance varies significantly. Developed Asia markets excluding Australia and Hong Kong achieved remarkably tight fundamentals with sub-4% vacancy rates, reflecting strong occupier demand and limited new supply. Australia presents the inverse profile, maintaining elevated vacancy above 15%, yet showing early signs of stabilization. New office supply is falling sharply and expected to accelerate its decline through 2026–2027, suggesting a normalization trajectory ahead. Sydney office space is forecast to outperform the national average in both rent and price growth over the next five years. Cap rate spreads over 10-year bond yields have improved to approximately 3%, near the long-term average, and Hines Research's proprietary pricing framework currently indicates Australian office is undervalued relative to fundamentals.
Japan epitomizes the tension between strong fundamentals and valuation risk. Office demand remained robust with rental growth accelerating 10% year-over-year as of Q3 2025. Hines acknowledges these "heady fundamentals" are well-recognized by the market and fully reflected in current pricing, suggesting limited upside potential. This valuation intensity contrasts with Australia's perceived discount, indicating that investors navigating Asian office exposure in 2026 must exercise selective geography-specific positioning rather than applying a uniform regional strategy.
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