Office leasing volumes in Asia Pacific showing signs of growth
Demand for Grade A office space in Asia Pacific is beginning to revive and some markets are experiencing small increased in rents, according to the latest commercial market report for the region from JLL.
It says that as corporates became more bullish, leasing activity picked up in some markets across the region during the first quarter of the year with an average rental growth of 0.8% quarter on quarter compared to 0.2% in the fourth quarter of 2013.
While expansion demand in the region remained subdued, net effective rents grew in over half of all tier one markets. Leading the region, Singapore saw quarterly rental growth of 4.5% on the back of low and falling vacancy while Japan also saw the market strengthen with a quarterly increase of 2% in Tokyo.
‘Island wide office vacancy in Singapore is currently relatively low and consequently many of the major developers and investors have portfolios with occupancy rates in excess of 95%,’ said Chris Archibold, head of Markets, JLL Singapore.
‘There are three new office buildings coming to the market at the end of this year, two in the CBD (South Beach Tower & CapitaGreen) and one decentralised project (Westgate Tower). These projects are seeing a strong level of interest from major MNCs,’ he explained.
‘The next wave of supply does not come on line until the end of 2016, effectively a two year gap. As a result of this combination of factors we expect the Singapore office market to see rental growth over the coming 12 months,’ he added.
On the back of this improved occupier sentiment, rents also edged up in Beijing by 0.2% quarter on quarter for the first time since the third quarter of 2012 and started to stabilise in Hong Kong Central with a 0.6% rise and Seoul with a 2.1% rise.
Rents remained flat or recorded small increases in Shanghai, India and emerging South East Asia where Jakarta’s growth moderated to 1% quarter on quarter despite outperforming the region on an annual basis with 18.4% growth year on year.
Sydney and Melbourne saw effective rental increases of between 1% and 3% over the quarter but declines were noted in most other Australian cities with the biggest quarterly fall of 12% in the resources city of Perth.
‘Given the improvements in the region’s overall leasing activity over the first quarter, we are cautiously optimistic that leasing volumes will continue to grow, anything between 10% and 15% for the full year,’ said Jane Murray, head of Asia Pacific research at JLL.
‘There are, however, some downside risks to this forecast including the ongoing unrest in Ukraine and possible impacts relating to the military coup in Thailand and elections in Indonesia,’ she warned.
Whilst rental growth is likely to be limited in most markets in the short term, the firm expects single digit growth for the full calendar year, with Singapore and Tokyo likely to see the biggest increases as vacancy remains low. ‘Markets in Hong Kong and Beijing should continue in their recovery but we predict that Jakarta rental growth will be sharply lower than last year as corporates remain cautious,’ added Murray.
The report also shows that throughout the quarter, capital values remained resilient, increasing moderately in most markets across the region with aggregate growth of 1.6% quarter on quarter and 5.6% year on year.
While Jakarta is, again, the regional leader on an annual basis with growth of 15.5%, Taipei at 5.5%, Sydney at 5.1% and Tokyo at 4.8 saw the biggest quarterly increases on the back of rising rents and strong investor sentiment.