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Office rental market reaching peaks in certain Asian locations

Regional office markets have shown an incredible degree of resilience during volatile times with Hon Kong, Singapore, Shanghai, Sydney and Tokyo all registering gains, says the Asia Pacific Property Digest from Jones Lang LaSalle.

Bangkok, Kuala Lumpur, Manila and Jakarta are also performing well with trading just off their previous peaks in 1997, the report also shows.

Demand is broad-based with the banking and finance sectors leading occupier enquiries, followed by professional services such as accounting and law firms.

Consumer business and IT companies were equally keen to expand, and though their requirements were not necessarily for Grade A properties, some were willing to pay the premium to stay in core locations.
Overall rents in Bangkok CBD rose by 2.9% over the last quarter or 12.2% from last year.

In Hong Kong, rental rates jumped by 8.9% quarter-on-quarter or 39.8% from a year ago.

This is the eleventh consecutive quarter of growth and the longest streak in 20 years.

Rents in Sydney registered an increase of 10.2% from a year ago while in Singapore they grew by 13.5% from the previous three months or 44.4% year-on-year.
Leasing activity in most cities is hampered by the lack of supply rather than a lack of demand.

This was particularly the case in Singapore, Tokyo and to a lesser extent Shanghai with the majority of newly completed projects pre-committed.

Some occupiers are willing to seek alternative accommodation outside the core districts given the surge in rents.

This suggests that soaring rents are starting to impact on margins. However, given the lack of new supply, many have opted to renew at the higher rates, pushing rents further up,’ said Jane Murray, Head of Research, Asia Pacific at Jones Lang LaSalle.

The Chinese cities of Beijing and Shanghai saw increasingly active leasing markets as further deregulation of China’s money markets and business services sector is driving greater demand for office space.

Similarly, in India, the core markets of Delhi, Mumbai, Bangalore and Chennai witnessed a surge in enquiries with rents in some of the core cities reaching the levels of Singapore despite the lack of professional property management on the premises.

The market is expected to remain robust.
‘This is supported by buoyant business sentiment and expansions.

Investment activity remains solid with significant flow of funds from the US, Europe and the Middle East.

The expanding Asian economies will also underpin demand for prime office space in the second half of 2006 and increasingly into 2007.

With new quality supply remaining tight and demand strengthening, rents should increase further,’ added Murray.