Office leasing activity subdued in Asia Pacific as corporates remain cautious

Asia Pacific’s tier one office markets have continued to experience subdued leasing activity in the second quarter of 2013, according to the latest Jones Lang LaSalle Asia Pacific Office Index.

Corporates remain cautious in their occupancy strategies and take up of grade A office space was slow across most markets in the region, particularly in the financial centres of Hong Kong, Singapore, Tokyo and Sydney.

However, the report shows steady take up in the emerging markets of South East Asia, notably Manila, in the second quarter of the year.

Mirroring the trend in the first quarter of the year, net effective rents in the second quarter of 2013 were either flat or recorded only modest growth. Of the 27 markets monitored in the Jones Lang LaSalle Index, 14 saw a quarterly increase while the remainder either stabilised or declined. Aggregate rental growth across the region averaged 0.2%quarter on quarter, slowing further on the 0.4% growth of the previous quarter.

While Jakarta continued to lead the region with the largest quarterly rise at 9.8% and annual rise of 37% in rental growth, Singapore at 0.6% and Hong Kong at 1.5% experienced quarterly rental increases for the first time since 2011.

Rents also increased slightly quarter on quarter in Tokyo, Seoul, Shanghai, Manila and Bangkok, while leasing activity continued to slow in Beijing causing rents to decline by 1.6% following a 3.7% fall in the first quarter of the year.

Effective rents also fell in most Australian cities, with Melbourne recording both the largest quarterly fall of 6.4% and annual fall of 10.6%, followed by Sydney, Brisbane and Perth.

‘The demand for office space has remained slow throughout the second quarter of this year and, while we have seen some renewed activity from local corporates and specific sectors such as pharmaceutical and technology, there is still an overriding emphasis on maintaining costs,’ said Jeremy Sheldon, managing director of markets at Jones Lang LaSalle.

‘That said, for many markets the supply side remains tight which has kept rents relatively flat. Even as some activity returns to the markets, driven by smaller occupiers, we remain cautious over any significant growth for the remainder of the year,’ he added.

Throughout the quarter, capital values remained more resilient, increasing moderately in most markets across the region with aggregate growth of 1.7% quarter on quarter and 6.8% year on year.
While Jakarta was, again, the regional leader with quarterly growth of 10.2%, Seoul and Singapore also recorded capital value increases during the second quarter of 2013, up 5.8% and 1.9% respectively on the previous quarter.

‘As we saw in the first quarter of the year, landlords remain cautious on asking rents which reflects an on going reluctance from corporate occupiers to pay higher rents. As such, we expect only single digit rental growth during the remainder of the year with the biggest uplift likely to take place in Jakarta while some markets, such as Beijing, Sydney and Melbourne, may experience further slight declines,’ said Jane Murray, head of Asia Pacific research at Jones Lang LaSalle.

‘Similar to this quarter’s activity, continued interest from investors will drive capital values to increase faster than rents, resulting in yields holding firm or compressing further in most markets across the region,’ she added.