Prime office rental growth in Asia Pacific led by south east Asian cities

Southeast Asian cities led prime office rental growth in the fourth quarter of 2013, most notably a recovery in Singapore, according to the latest index from Knight Frank.

The international real estate firm also points out growth in Jakarta and in Bangkok despite uncertainty due to unrest in the Thai capital.

Overall Knight Frank’s Asia Pacific Prime Office Rental Index edged up 0.8%  and only six markets saw rental declines over the period, as net absorption bounced back, increasing 19% on the previous quarter to give a strong end to the year.

The index now sits 3.1% above its pre-crisis peak of 2008 and 13 of the 19 prime office markets tracked saw prime rents increase or remain steady in the last three months of 2013.

Region wide vacancy rate increased slightly to 12% on the back of significant construction completions
Jakarta and Tokyo’s Grade-A office markets saw 8.4% and 4.2% rental growth respectively, the two highest growth rates in the region over the quarter and in Bangkok Grade-A rents grew by 1.7% over the quarter.

The index report says that although the uncertainty caused by ongoing events in Bangkok is likely to soften demand over the coming months, the lack of new supply is likely to underpin further rental growth in 2014.

Jakarta is likely to see continued rental growth, the report points out that the upcoming election and significant new supply coming to the market in 2014 are likely to slow this growth over the coming months.
Elsewhere in Southeast Asia, Malaysia and Vietnam look to be at the bottom of cycle, and while there is a feeling that things can only get better in Vietnam, the Kuala Lumpur office market is likely to remain sluggish, with a high vacancy rate.

Recovery in the office market continued in Tokyo, as prime rents increased 4.2%, with corporate earnings boosted, leasing activity up and vacancy rates down across all wards.

The report also says that China’s slowdown has led to mixed performance across its Tier-1 cities. Beijing and Guangzhou saw prime rents soften slightly while Shanghai saw rents increased by 0.7%, although the significant amount of new supply scheduled between 2014 and 2020 continues to fuel worries of future oversupply in some areas.

Meanwhile, Hong Kong central office rents have continued to soften as occupiers remain costs conscious and net absorption remains subdued. Looking forward, Grade-A office leasing is set to remain stable throughout 2014.

India saw rental stagnation in the three main cities tracked, with economic difficulties and the upcoming election continuing to cause some uncertainty. Knight Frank’s inaugural Real Estate Sentiment Index showed that stakeholders are sceptical and anticipate a contraction in demand over the next six months.
 
Australia continued to see the rental market soften with rising incentives in all major CBDs. With GDP growth below trend and the investment phase of the mining boom having passed its peak, a key concern is how the country can encourage broader based growth.

‘While the global economy is showing more green shoots of recovery, with a strengthening of western economies likely to stimulate multinational occupier demand in the region, the tightening of monetary conditions still poses a threat in certain markets,’ said Nicholas Holt, Knight Frank head of research for Asia Pacific.