Trump election victory could hit commercial property markets in Asia Pacific

hongkong

The result of the US election is likely to lead to more uncertainty in the commercial property market in the Asia Pacific region with many markets already seeing rents fall.

Overall prime commercial rents increased 0.6% quarter on quarter and 1% year on year at the end of the third quarter of 2016, according to the latest Asia Pacific prime office rental index from international real estate firm Knight Frank.

But the index report points out that while the increase in the index was the result of rising rents in eight of the markets over the quarter, six of the 19 markets tracked saw rents fall.

‘While it is still early days, the results of the US election is likely to lead to more uncertainty across the region, with the likely end of the TransPacific Partnership (TPP) a blow to export dependent economies,’ said Oliver Holt, Asia Pacific head of research.

‘Over the next 12 months, we expect rents in 14 cities out of the 19 tracked to either remain steady or increase, which is the same as last quarter’s forecast but Donald Trump’s election victory is likely to dampen the region’s economic prospects with a subsequent impact on office demand,’ he explained.

‘Following a stable quarter for the majority of the Asia Pacific office markets, the probable end of the far reaching trade deal, and other policy uncertainties emanating from the US will continue to provide mixed signals for many occupiers, and while some could seize the opportunity to upgrade into superior space, many are likely to take a more cautious approach,’ he added.

In terms of rental performance, Tokyo led growth with rents up 6.5% quarter on quarter driven by a desire to upgrade to higher quality office space and centralisation towards the Central 5 wards. However, the index report says that moving forward, it is difficult to project a sustained strong growth with a large supply in the pipeline and a static office workforce.

Seoul saw more moderate growth of 1.5% quarter on quarter and a slowing global economy continued to affect the Singapore office market where rents were down 2.8% from the last quarter and 12.8% year on year.

In Kuala Lumpur and Jakarta, demand remained muted while fresh supply poured in, contributing to a gloomy 12 month outlook and the report adds that in these three Southeast Asian markets more flight-to-quality leasing activities may happen as occupiers seek to take advantage of the compressed rents.

Bangkok, however, stood out with rising rents and decreasing vacancy while in Phnom Penh rents were relatively flat quarter on quarter and year on year. In Greater China, Beijing and Shanghai experienced rental declines, due largely to the significant new coming into the market.

The report points out that in Shanghai some 250,000 square meters of supply has recently been introduced, in Beijing, a similar amount of new supply is due to come next quarter and in Guangzhou three new Grade A office buildings were completed, imposing pressure on vacancy rate and rentals.

In Hong Kong, Grade A office rents in some areas are expected to see downward pressure in 2017 with 200,000 square meters of office supply coming online in Kowloon East. In these markets, tenants probably have more rooms for negotiation and chances to upgrade their office spaces, the report adds.

Rents in Taipei have been stable and are expected to remain so going forward while in India prime office rents have been rising for the past 12 months, although quarter on quarter no markets registered any rental movement except Mumbai which recorded a 1.3% decline. Vacancy rates in Mumbai and New Delhi remained above 20%, creating opportunities for office space upgraders. In general, the outlook for Indian office market is optimistic, the report says.

In Australia rents had been growing moderately on the back of improving economic climate and tightening office supply in some markets. Sydney has seen unprecedented stock withdrawals and about 585,682 square meters will be permanently withdrawn in the next four years, enhancing rental growth prospects.

In Melbourne, with no new gross supply for the past two quarters, rents are similarly under upward pressure. In Perth and Brisbane, vacancy rates were relatively high, at 18.8% and 15.7% respectively with a number of tenants looking at relocating into better quality space.

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