Asia Pacific Office Rental Activity Contracts

Jones Lang LaSalle is monitoring Asia Pacific commercial rental markets and is forecasting contraction as some areas go through a pricing correction phase while others see less spending …

Jones Lang LaSalle is monitoring Asia Pacific commercial rental markets and is forecasting contraction as some areas go through a pricing correction phase while others see less spending from international clientele. Rents in Hong Kong and Singapore are expected to fall between 4% and 6%, and slower growth in the Beijing market; however lower supply and steady demand is expected to keep rents higher in Shanghai and Sydney. Meanwhile, several areas including Tokyo, Soul, Mumbai, Delhi and Melbourne will likely maintain neutral growth.  For more on this continue reading the following article from Property Wire.

Office property markets in Hong Kong and Singapore are entering a rental correction phase and grade A rents are expected to fall in the final quarter of 2011.

Preliminary figures from international consultants Jones Lang LaSalle also indicate that the sector will see slower growth elsewhere in the Asia Pacific region.

Jones Lang LaSalle’s market leasing experts predict that Hong Kong and Singapore are entering a rental level correction phase, with anticipated percentage falls in average grade A rents in the final quarter of the year of 5 to 6% in Hong Kong and around 4% in Singapore to US$1,643 per square meter and US$786 per square meter per annum respectively.

Some office markets are expected to experience continued rental increases in the quarter, albeit at a slower rate than previously, including Beijing, around 5% to US$814 per square meter, and Sydney at 4 to 5% per square meter per annum.

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In the middle ground Jones Lang LaSalle expects to see a number of markets where rents will remain largely static quarter on quarter, including Melbourne, Mumbai, Delhi, Seoul and Tokyo.

‘Overall rental growth is expected to soften this quarter. The stand out trend across many key markets is a softening of demand from occupiers, as firms are applying caution in light of economic difficulties in the United States and the Eurozone,’ said Jeremy Sheldon managing director, Markets Asia Pacific at Jones Lang LaSalle.

‘We expect corporates in Asia Pacific to remain cautious for the remainder of this year and into next as they wait to see how the region will be impacted by what is happening elsewhere. We do expect to see continuing demand in certain markets where there is a strong domestic focus such as China, Japan and India and emerging markets in South East Asia. However the more transparent markets are where occupiers are far more cautious,’ he added.

The consultants found that in Hong Kong there is clear delineation between Central and other sub markets. ‘Leasing activity in the banking and finance sector has slowed considerably and we do expect to see some firms in this sector looking to downsize in 2012, though not to the same degree as in 2008 and 2009. We are seeing some very moderate expansion amongst law firms and some other businesses that are choosing to relocate to lower cost buildings. We do not expect to see rental growth in quarter four 2011 as a result of low vacancy rates and the decentralisation trend,’ the report says.

In Singapore there is a weakening in net new demand and secondary supply that is being returned to the market is being absorbed quite slowly. ‘Although we are seeing some surplus space become available from major financial institutions, we have not seen any major headcount reductions in any of the key business sectors,’ the report explains.

In China Shanghai landlords continue to have higher rental expectations in light of the low vacancy rate and limited new supply. ‘Tenants, particularly multi-national corporations, have recently been more cost conscious due to growing concerns about a slowdown in China’s economy. In Beijing rents have continued to rise at a slower pace than their rapid increase over the past 12 plus months. Leasing demand remains strong on the back of expanding space requirements from existing tenants and more new set ups, though some landlords are being more flexible with leasing terms in specific cases,’ the report adds.

In Australia in Sydney there is continued rental growth driven by tightening premium supply coupled with activity by larger users upgrading and/or relocating to the CBD. ‘Decision making is becoming more protracted but relocation decisions are still being made by tenants with definitive needs. There is sustained demand in the 4,000 to 10,000 square meters and sub500 square meter range, but we are also seeing a slight increase in sub-lease space,’ the report says.
 
‘In Melbourne there is cautious demand and tenants are exploring the suitability of using alternative workplace strategies to reduce their occupied footprint. Development activity is continuing, but there is very limited speculative supply,’ it adds.

The report points out that landlords in central Tokyo have seen good demand for new developments in the aftermath of the earthquake and given low vacancy rates, rents are unlikely to fall further. ‘However, the market is not expected to support any rental increases over the next one to two quarters given the impact on demand of the strong yen, uncertainty in the Eurozone economies and a possible global economic slowdown,’ it says.

In both Mumbai and Delhi there is sluggish new demand, and rents are not likely to increase over the quarter due to ample supply. In Mumbai some tenants are deferring decisions regarding relocation to the Secondary Business District as a result of perceived uncertain economic conditions.

This article was republished with permission from Property Wire.

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