However, with some of the constraints holding back international corporates dissipating, a less uncertain climate is likely to lead to more leasing activity in 2013, it predicts.
Overall the Asia-Pacific Prime Office Index grew 2% in the last quarter of 2012, up from 0.8% in the previous quarter and showed a 6.4% increase over the last 12 months.
Ten of the eighteen cities saw positive rental growth over the quarter with Jakarta leading the way, seeing premium Grade A rents increasing by 14.3% quarter on quarter and 78.2% year on year and Beijing and Jakarta have now seen prime office rents double over the last three years.
Rents decreased in eight of the 18 markets tracked, with the more open markets of Singapore, Hong Kong, Shanghai and Seoul feeling a drop in demand from the banking and finance sectors.
‘Banking and financial institutions continued to cut costs in the last quarter of 2012, impacting the major financial centres of Hong Kong, Singapore, Shanghai, Seoul and Tokyo. This has been reflected in softening rents in the first four of these markets, while the latter, Tokyo, has seen strong demand in the central three wards, as corporates have continued to trend towards centralisation,’ said Nicholas Holt, research director for Asia-Pacific at Knight Frank.
‘The vacancy rate across the region increased marginally to 11% on the back of negative net absorption in a number of markets, and new supply coming to the market. Notably Beijing saw its vacancy rates increase for the first time since the fourth quarter of 2009 as the market approaches its mid term peak,’ he added.
The index also shows that Australia saw rental levels remain steady, with sentiment in the leasing markets remaining relatively subdued. Holt said that incentive levels remain high, edging up in Sydney, as effective rents remain significantly lower than headline figures.
In India, rents remained stable in Delhi and Bangalore, while Mumbai saw a significant fourth quarter rental increase of 4.5% as net absorption in all three markets bounced back from a subdued third quarter.
‘Across the region, certain sectors have remained very active over the quarter. The legal sector has seen an increase in foreign law firm activity, most notably in Singapore and Seoul, where increasing liberalisation has presented expansion opportunities,’ explained Holt.
‘Significant new supply, cost attentive corporates and expansion delays due to global uncertainty will continue to have a dampening impact on office rental levels in some of the key gateway cities of Asia Pacific,’ he added.
But he pointed out that as the US ‘kicks the can down the road’ to avoid the fiscal cliff, the threat of a crisis in the Eurozone recedes, and Chinese growth speeds up again, corporates in the Asia Pacific region are likely to gradually become more bullish in their expansion plans as the economy moves into a new cycle.