APAC office demand rises with offshoring growth

Expansion driven by skilled labour and cost efficiencies.

The Asia-Pacific (APAC) offshoring market is projected to more than double, reaching $185 billion by 2032. This expansion is expected to increase office space demand across APAC from 4.7 to 5 million square metres annually over the next three years.

Christine Li, Head of Research, Asia-Pacific at Knight Frank, attributed this growth to several key factors, including labour costs, the availability of skilled labour, and the strategic importance of real estate costs in maintaining competitive business operations. 

She said that one primary driver behind this surge is the significant layoffs across major global markets, which have propelled companies to seek cost-effective alternatives to maintain their bottom lines amidst high inflation and labour shortages. 

"The figure has already exceeded 100,000 people as companies start to protect their bottom line," Li states, emphasising the impact of wage inflation and labour scarcity on profit margins. 

She mentioned that APAC's appeal lies in its ability to offer a solution to these challenges through lower labour costs and an abundance of skilled labour, particularly in countries like India, the Philippines, and Malaysia.

The demand for specific skill sets, especially in technology sectors such as software engineering, data analytics, artificial intelligence, and machine learning, is particularly high. With approximately 5 million software engineers, India, for example, has become a crucial part of the offshoring equation. 

"A lot of companies nowadays are not just looking at outsourcing to a third party for call centres, but they are also looking at some of the skill sets that will allow them to utilise data analytics or artificial intelligence," Li explained.

When considering the best locations for offshoring within APAC, Li highlights the importance of matching the specific needs of multinational corporations (MNCs) with the unique offerings of each market. 

Factors such as education levels, work experience, and scalability play critical roles in this selection process. English proficiency and communication skills are also essential, especially for companies aiming to serve English-speaking nations without the barrier of accent differences. This criterion makes markets like Malaysia particularly attractive.

Affordable real estate emerges as another pivotal factor in the offshoring market's growth. As the second-largest expense after salaries, constituting about 10 to 15% of operating revenue, real estate costs are scrutinised by companies aiming to make offshoring a long-term strategy. 

The focus on environmentally sustainable (ESG) real estate also reflects the evolving priorities of MNCs. Li noted, "Green building seems to be a must, even for offshoring locations," highlighting a trend towards sustainability that complements financial considerations.

Vietnam, for instance, has seen a correction of approximately 20% in real estate costs, making it an increasingly attractive market from a budgetary perspective.