Jones Lang LaSalle Issues Q2 Asia Pacific Office Rental Market Update
By Jones Lang LaSalle
SINGAPORE, 31 May 2012 - Jones Lang LaSalle's Markets experts have shared their expectations for the office leasing markets in Asia Pacific in the second quarter of 2012. In those markets that were experiencing office rental declines in previous quarters, the Markets teams are anticipating a slowdown in the rate of decline, for example a three to four percent fall in Grade A office rents this quarter in Hong Kong compared to an actual 6.3 percent decline in the first quarter. Similarly, in Singapore a fall of three percent is anticipated by the end of the current quarter, compared to an actual 5.2 percent decline in Q1 2012.
Elsewhere in the region it is once again a mixed picture; the Jones Lang LaSalle Markets teams are predicting:
- Some growth in Grade A office rents in Shanghai, Beijing, Jakarta, Manila, Mumbai and Delhi)
- Grade A office rents to remain stable and show little movement in Tokyo, Seoul, Sydney and Melbourne
- Some declines in Singapore and Hong Kong but at a slower pace than previous months; three percent and 3-4 percent respectively. A decline of around two percent is expected in Ho Chi Minh City.
Jeremy Sheldon, Managing Director, Markets Asia Pacific Jones Lang LaSalle commented: "We continue to see the majority of Multi National Corporation's across Asia Pacific adopt a 'wait and see' stance on expansion, given economic uncertainties, which is having a delay effect on their property decisions. This is translating into static rents in some markets, and smaller rental declines in others. We are finding those landlords who can afford to "sit" are doing so, thus holding fairly firm on asking rents. This is resulting in stability in rents for now. Of course each market has very different dynamics, and the one market which stands out again this quarter in terms of the rental growth is Jakarta. The demand for space from companies as a result of the very healthy economic outlook in Indonesia is creating activity in all sectors and locations in Jakarta. For the second half of the year, the economic frailties of the Eurozone and a hard versus soft landing in China will be the determining factor on overall office take-up in the region. However, as inter-regional trade continues to grow and domestic Asian companies perform, we remain positive for the full year."
Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, states: "With the Indian financial economy's cues not being very encouraging, office occupiers continue to defer expansion plans across major Indian cities. The trend of slowdown in growth of office rentals witnessed in Q1 across Mumbai, Delhi and Bangalore continues in Q2. Given the pressure, we expect rentals to remain stable for most micro-markets. Mumbai and Delhi are expected to add significant office supply over the next six quarters, and we have started seeing increasing signs of delayed construction. The next two quarters will decide if the supply side can appropriately accommodate the demand slowdown. However, on a macro scale, the Indian office asset story remains on a positive trajectory as compared to most Asia Pacific office markets."
- Beijing: Grade A office rents expected to grow c. five percent in Q2. Companies are looking at more creative ways to fit more people in their current space and overall rental increases are being impacted by deals being agreed with rental caps in place. If these rental caps were not being offered, the rental increase would most likely be higher. Nonetheless, the lack of Grade A office supply should support rents in the foreseeable future.
- Delhi: Grade A office rents expected to grow 0 - 1 percent in Q2. Companies are expected to remain interested in office space in the SBD (Secondary Business Districts), though the suburbs will continue to offer competitive rents, thus providing an alternative location to firms looking for new office space.
- Ho Chi Minh City: Grade A office rents expected to decline c. two percent in Q2. We can see signs of accelerating rental declines in the second quarter as some new developments have started pre-leasing with competitive offers. The two newest Grade A buildings in the city continue to face downward pressures in rents due to high vacancy levels, although moderate leasing activity should help to limit rental declines. More mature Grade A buildings should continue to maintain healthy occupancy levels and more stable rents.
- Hong Kong: Grade A office rents expected to decline 3-4 percent in Q2. Limited demand at the top end of the Grade A market is maintaining pressure on rents. There is limited new leasing activity from larger firms in Central, although we are still seeing some smaller new market entries focusing on buildings with smaller floor plates. There is limited relocation activity, mainly focused on lower cost buildings within the same district.
- Jakarta: Grade A office rents expected to grow 7-9 percent in Q2. We are expecting a similar level of take-up of space compared with Q2 last year and pre-commitment levels continue to increase in upcoming projects. As Grade A vacancy continues to fall to below three percent some firms are being forced to Grade B space.
- Manila: Grade A office rents expected to grow c. two percent in Q2. Take-up is expected to improve as companies are starting to pre-commit to space in office developments again. New demand is coming from the space requirements of a few large MNCs that are choosing to consolidate their global back-office operations to the Philippines. Rental growth is being supported by sustained demand, especially from the offshoring and outsourcing sector.
- Melbourne: Grade A office rents expected to remain stable in Q2. We are currently seeing lower enquiry levels compared with previous quarters and leasing decisions are taking more time. Large tenants (with requirements larger than 3,000 sq. m) are investigating the suitability of activity based working (ABW) models.
- Mumbai: Grade A office rents expected to grow 1-2 percent in Q2. We expect only marginal rental increase in 2Q12. Developers are likely to refrain from increasing rents to encourage occupiers to finalize transactions that have been on hold for some time (due to caution amongst corporates generally) and also given the high vacancy rates in suburban markets.
- Seoul: Grade A office rents expected to remain stable in Q2. There is sustained demand from domestic firms, particularly in some recently completed CBD buildings, but lower levels of enquiries from Multi-National Corporations (MNCs); some relocations are being postponed/cancelled and a small number of MNCs are handing back some space. We expect CBD rentals to reach the bottom of the cycle this year, but rental gains in the CBD are unlikely until next year due to further new supply additions and space coming back onto the market in some buildings as tenants move out.
- Shanghai: Grade A office rents expected to grow 2-3 percent in Q2. Although many tenants still remain conservative in regard to expansion plans, leasing market sentiment is starting to improve as evidenced by higher levels of enquiries and tenant interest. In addition the tight supply situation in the core CBD area is also supporting moderate rental growth.
- Singapore: Grade A office rents expected to decline c. three percent in Q2, less than in the first quarter of the year. Rentals are mostly taking place in new buildings, but there have been very few transactions in the current quarter to date. Landlords of buildings with high occupancy levels remain firm on their rents, which is why we are projecting only minor declines in Grade A rents this quarter. Headcounts remain stable but many companies are adopting a ‘wait and see’ approach towards leasing decisions which is equating to sluggish new demand, particularly amongst large financial services firms.
- Sydney: Grade A office rents expected to remain stable in Q2. Sentiment is being impacted by on-going delays in the completion of larger leasing deals, coupled with less relocation demand. Owners are more willing to increase incentives in order to attract or retain tenants. Limited new supply in 2012 should support rental growth, though the impact is yet to be reflected in rents.
- Tokyo: Grade A office rents expected to remain stable in Q2. Companies continue to prefer buildings with good earthquake protection, so this 'flight to quality and safety' is supporting demand for Grade A office buildings in prime locations, and consequently Grade A vacancy is falling slightly. This desire for Grade A space is also helping to buoy demand for new developments due for completion this year, though it is resulting higher vacancies in the wider office market.