Asia Office Market Overview Q1 2014

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Cushman & Wakefield, the world’s largest privately-held commercial real estate services firm, in its latest Asia Office Q1 2014 report, highlighted that the emerging cities continued to dominate the rental growth in the region with Jakarta (Indonesia) witnessing the highest office rental growth (yoy) among 33 cities in Asia, followed by Manila (Philippines) at 2nd position and Shenzhen (China) at 3rd and Pune (India) at 4th position.

In the Core markets, Singapore (5th) and Tokyo(7th) stood out with positive leasing activity driven by improving business sentiment. While emerging markets with strong domestic economies continued to lead the region in terms of rental growth, a constricted supply pipeline in the core markets such as Tokyo and Singapore were conducive to rental growth. However, for the majority of the region, rental growth remains muted with flat or decreasing rents.

RANKING OF ASIA PACIFIC RENTAL GROWTH

Rank

Location

Q1 2013

Q1 2014

RENTAL GROWTH

(YOY)

1st

Jakarta

Rp/sq.m./mo

353,092.70

449,446.00

27.29%

2nd

Manila

PHP/sq.m./mo

798.00

938.50

17.61%

3rd

Shenzhen

RMB/sq.m./mo

305.45

358.60

17.40%

4th

Pune

INR/sf/mo

51.43

59.95

16.57%

5th

Singapore

S$/sf/mo

8.66

9.90

14.32%

6th

Guangzhou

RMB/sq.m./mo

261.18

283.62

8.59%

7th

Tokyo

JPY/tsubo/mo

25,000

26,500

6.00%

8th

Bangkok

THB/sq.m./mo

769.31

803.45

4.44%

9th

Taipei

NT$/ping/mo

4,550

4,745.00

4.29%

10th

NCR

INR/sf/mo

86.60

89.97

3.89%

11th

Hyderabad

INR/sf/mo

45.09

46.31

2.71%

Sigrid Zialcita, Managing Director of Research for Asia Pacific said, “Office market conditions showed a mixed performance in the region. Rental growth was slightly up across Asia Pacific over the year, with an overall regional rental rise of just 2.8% in Q1 2014.

The recovery in the U.S. and Eurozone, reforms and election in some of the countries would provide a boost to overall sentiment and bode well for office market conditions in Asia.  We expect the regional economy to grow at a decent pace, and in turn, support absorption gains across most markets through the rest of 2014.”

Sigrid further added, “Limited availability of Grade A space should enhance landlord leverage and sustain rent increases in some of the core markets this year; However, mounting supply in the emerging markets of Delhi NCR, Kuala Lumpur and Ho Chi Minh City means that these cities will continue to remain favorable to occupiers.”

Jakarta ranked at 1st position to witness highest rental growth in the region

Jakarta witnessed a rental growth of over 27% the highest in the region as the market continues to see the expansion of companies as vacancies tightened to 6.6%. With no new supply delivering in Q1 2014, along with a number of withdrawals due to redevelopment, occupancies in the capital's office have continued to witness upward pressures. Leasing enquiries and transaction activities were mostly for spaces under 300 sq due to limited availabilities.

Manila witnesses 2nd highest rental growth and the lowest vacancy in Asia in Q1 2014

The Philippines’ economy continued to be the brightest spot in Southeast Asia, with GDP growing in the region of 7% for the first quarter of 2014. Manila, supported by healthy demand from BPO firms witnessed a rental growth of 17.6% (yoy), among the top in the region along with the lowest vacancy of 2.6% in Asia. A number of BPO firms took large space of over 100,000 sqm. which contributed to driving the rents higher.

Shenzhen saw 3rd and Guangzhou 6th highest rental growth in Asia

With rental growth of 17.4%, Shenzhen witnessed the 3rd highest rental growth in the region.

Rental growth was strongest in the tier-1 cities of Guangzhou and Shenzhen. Healthy economic growth is spurring companies to expand in Shenzhen with strong leasing demand from the professional services, financial and hi-tech sectors. Rents in Guangzhou grew for the first time in five quarters, supported by robust demand from the banking, finance and pharmaceutical industries.

Taipei among top 10 rental growth markets in Asia

The office market in Taipei has recovered gradually with overall vacancy rates at a very manageable 7.5%. With occupiers gravitating towards well located quality spaces, rental growth was mainly contributed by Grade A offices.

Pune witnessed the 4th highest rental growth in Asia, NCR ranked at 10th

Rents in Pune also increased by nearly 19% in a year, primarily due to significant growth in the demand of Grade A buildings Limited supply of stock and sizeable pre-commitments have resulted in these buildings commanding higher rentals, thereby contributing to increase in overall Pune rentals.

The demand for office space in NCR increased by nearly 5 times in Q1 2014 compared to Q1 2013 driven primarily by large size transactions  of more than 100,000 sf from IT-ITeS and Consulting sector, leading toa  rise in rents.

A significant proportion of demand was in the off-CBD submarket,  which accounts for nearly 56% of the Grade A availability in Delhi-NCR – the rise in rents  of available spaces in this sub-market added to the overall increase. Furthermore, an addition of 0.45 msf of office space in the Delhi International Airport submarket at relatively higher rents pushed up weighted average rentals.

Singapore witnessed the highest rental growth among core markets and 5th highest across Asia, markets. With rental growth of 14.3%, over last year Singapore rentals reached S$9.90 /sf/m. Limited new supply of Grade A space in the core CBD (Marina Bay, Raffles Place and Shenton Way) has elevated occupancies in properties located there to an average of 96%. The leasing market was active in the first quarter of this year with the number of enquiries in the market at a generally healthy level. There were no new major building completions during the quarter and coupled with the healthy take-up levels, the vacancy rate for grade A offices in the five submarkets declined.

Rental growth in Tokyo among top 10 in Asia, first time post the global financial crisis.

Relocation and expansions fuelled by a continuing positive economic momentum in Japan have pushed up occupancies and rentals particularly for trophy properties in Tokyo that are newer and earthquake resistant.  Occupancy costs in Tokyo have started to increase gradually for the first time post the global financial crisis.

The city has seen robust appetite for Grade A buildings, with economic recovery gradually filtering into office demand over the last one year. Demand for premises with the latest specifications, Grade A and brand new buildings have tightened availabilities in these buildings with new supply entering the market achieving higher than usual occupancy levels in Q1 2014. A large proportion of the Grade A new supply in 2013 has seen healthy pre-commitments and are currently running at almost full occupancy levels.

Australian markets witness drop in rental, among the highest in the region.

Office markets in the major cities of Australia are facing supply side pressures as well as a petering out of the resource boom, which have led to a softening leasing market. Vacancy rates are likely to increase for in most of the office markets and rents to continually soften.

In Vietnam, Ho Chi Minh City’s vacancy fell to 9% across A & B Grade buildings signifying a stabilisation of rents in the City. Within 12 months the CBD and fringe will have received a further 175,000m2 of stock equivalent to 22% of the current market size resulting in renewed period of pressured rents in the Country’s commercial centre.

The Capital saw vacancy increase to 23% in Q1. Grade A rents continued to soften with a 3.5% decrease.  Grade B asking rents grew 1.6% due to higher-than-average asking rents of new buildings.  An additional 300,000m2 of space is due to enter the market by year end however which will result in a correction of B Grade asking rents and continued pressure across all Grades and submarkets” said by Alex Crane-  National Head of Commercial Agency