China and Australia lead office property slowdown in Asia Pacific
Prime office markets in the Asia Pacific region showed a notable slow down in the second quarter of 2013, with China and Australian rents proving to be the most susceptible.
Details from the latest Knight Frank Asia Pacific Prime Office Index show that it decreased for the first time since the fourth quarter of 2009, down 0.1% and ending a run of 13 consecutive quarterly increases.
Eight of the 19 prime office markets tracked saw prime rents decrease in the first three months of 2013, with 10 of the 19 seeing rents soften over the last 12 months.
Jakarta continued to see the strongest rental growth, with prime rents increasing by 12.4% in the second quarter of 2013, the index also showed.
Despite the drop in the index, rents are expected to drop in only six of the 19 markets monitored over the next 12 months, with much dependant on the wider global economic landscape.
The fall in the index reflected a drop in demand from occupiers in a number of countries that are undergoing slow downs or multi speed recoveries. Overall activity across the region has also been down in 2013. Net absorption in the major cities of Asia Pacific in the first half of 2013 was 22.8% lower than the same period of last year and 13.9% lower than the second half of 2012, with a number of markets recording negative demand for the period.
In China, the general slowdown of the economy has trickled down to the office market, where prime rents in Beijing, Guangzhou and Shanghai declined over the quarter. The current rebalancing of the economy has caused some uncertainty and has impacted business expansions into new office space.
Knight Frank says that a key driver of the health of the Australian economy remains China, given the strong trade ties. With the Chinese slowdown, all major city CBDs in Australia are seeing negative absorption and declining effective rents in the lead up to the election in September.
In Japan, the prime office rental market edged down slightly following two quarters of strong rental growth. The ongoing impact of Abenomics and the continuing move towards prime, earthquake tolerant office accommodation however is likely to ensure solid prime rental growth over the next 12 months.
Similarly in India, rents have moved sideways and are expected to continue to do so, given the significant new supply that is expected to come online. With the expectation that markets are at the bottom of the rental cycle, prime rents remained stagnant in Seoul, Singapore, Kuala Lumpur and Ho Chi Minh City.
Other markets remain on the upward trajectory of the rental cycle, such as Bangkok and Jakarta, the latter continuing to be the stand out market with rents increasing by 12.4% over the quarter.
‘While the decrease in the index in the second quarter is perhaps not too surprising, ultimately the office rental markets are driven by supply and demand. While demand is difficult to accurately forecast in these uncertain times, analysis on the future pipeline can be conducted to foresee the potential demand supply imbalances which will impact rents going forward,’ the report says.