This was attributed to the anticipated global economic slowdown triggered by the consolidation of the US economy. Other challenges clouding the region's office market included the expectations of slowing demand, soaring energy prices and growing inflationary pressure that created uncertain outlook on the interest rate direction.
On the leasing front, seeing the external uncertainties mentioned above, more office occupiers were sidelined and turned less aggressive in executing their expansion plans. In 2Q 2008, many locations in the region still saw a general lack of supply, and completion schedules of some developments in the cities such as Mumbai and Ho Chi Minh City were deferred amid the uncertain external environment. With the wait-and-see attitude held by occupiers and a limited supply, office rentals kept on edging up but at a tapering off rate, seeing an average growth of 3.1% quarter-on-quarter in 2Q 2008.
On the sales front, the decrease in the number of sales transactions in Asia Pacific reflected the slowdown in investment demand in 2Q 2008. Although prospective investors remained keen to increase their exposure in the region, the general rise of funding costs and sustained yield compression were their major concerns over the near term. One of the benchmark sales transaction by institutional investor in 2Q 2008 was the sale of an uncompleted office project at 71 Robinson Road in Singapore to Commerz Real for over US$546 million, representing the most expensive office development to date on a per sq ft basis in Singapore.
"In 2Q 2008, cash-rich local purchasers were the major players in several cities' investment market in the region," said George McKay, Managing Director, Corporate Services of Colliers International, Asia Pacific Region. "Individual examples included the sale of Trade Square (a decentralized office development) in Hong Kong to a local investor for US$195 million and the purchase of Metro Centre in Beijing by SOHO China for RMB 5.5 billion."
In the next 12 months, office rentals may potentially edge up further but at a limited rate due to the prospective slowing demand. Meanwhile, office capital values will see challenging pressure due to the potential rate rise and the rising cost of credit, and vendors may reduce their asking prices over the near to medium term.
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