Strong corporate tenant demand in rising South East Asian nations is currently driving rental growth in that region, according to Jones Lang LaSalle's Asia Pacific market analysts. house for sale
This quarter, Jones Lang LaSalle predicts a 6 to 8% increase in grade A office rates in Jakarta and 3 to 5% in Manila. At the same time, grade A rental values are declining in the larger, more established cities that are dominated by financial services, such as Hong Kong and Singapore, as the banking and finance sector continues to focus on cost management.
Jones Lang LaSalle's Managing Director of Markets Asia Pacific, Jeremy Sheldon, adds, "The region is becoming increasingly polarized. While leasing business in known markets is declining, we are witnessing increased activity in South East Asia, where we are seeing higher levels of inquiries than we have seen previously. Companies are profiting from the significant labor cost arbitrage in these areas, and we expect this trend to continue this year. In general, we expect grade A rentals to expand slowly this year in some areas. The market appears to be moving considerably more slowly than in 2011, despite the fact that last year's take-up set a new high, surpassing even 2007's peak."
Sheldon went on to say, "Our prognosis is upbeat since the Asia Pacific region continues to expand faster than the rest of the world, and this trend is expected to continue this year. Companies may be able to obtain space that is good value for money and secure possibilities to expand and consolidate in a location that will continue to increase in economic importance internationally under current conditions. Much will, of course, rely on events in the Eurozone and the United States; we've already seen some encouraging news from the latter in recent weeks, and we're keeping a careful eye on the Eurozone debt issue, just like everyone else."
In addition to the growth in Jakarta and Manila, Jones Lang LaSalle expects three to five percent growth in Beijing in the first quarter. In most other cities, grade A office rents are likely to stay essentially steady, while the business forecasts drops of around 5% in Singapore and between 6% and 7% in Hong Kong this quarter.
Jones Lang LaSalle's Regional Market Overviews during Q1 2012:
Beijing: Despite the fact that demand is still strong due to ongoing expansion, though with lesser spatial requirements in general, quality space is still hard to come by, particularly for huge blocks of contiguous space. Landlords continue to have high rental expectations, while actual rental levels have remained rather consistent.
New demand is modest in Delhi, and vacancy levels are high. In the near future, we estimate rents to remain steady or slightly increase.
Hong Kong: New leasing activity from big occupiers is limited in Central, however some smaller new market entrants continue to focus on buildings with lower floor plates. There has been some minor relocation activity, with the concentration on lower-cost buildings in the same or lower-cost districts. Surrender and sublease space from failing enterprises has increased, notably in Central, putting upward pressure on rents.
Jakarta: Leasing business is still high, and tenant inquiries haven't decreased significantly since 2011. A lot of tenants are having difficulty securing space in Jakarta's most desirable districts, including as the SCBD and desired mixed-use buildings in the CBD. A large percentage of the city's 'better' projects are refusing to accept new tenants, preferring to maintain any available space for existing renters. Insurance, finance, accounting, oil and gas, and consumer goods are the industries with the most active occupiers.
Manila: Over the next 12-18 months, we anticipate a 10-15% increase in grade A office rents. Last year, we transacted 360,000 square meters, which we are confident enough to use as the demand prediction for the following five years. We foresee increasing demand from traditional non-Business Process Outsourcing (BPO) offices in 2013 and 2014, which will add another 50,000 sq. m to the 360,000 sq. m BPO demand.
Sublease opportunities have arisen as a result of major Australian banks' downsizing. Some corporate occupiers are looking into the possibility of reducing their occupied footprint by implementing alternate workplace techniques. Pre-leasing activity is at an acceptable level (up to 80 percent of net lettable area in upcoming projects). Tenants who choose to stay put and renew their leases pay a higher rent than those who sign new leases, which must cover fit-out and relocation costs.
Non-IT occupiers are constrained in their expansion, vacancy levels are high, and rents are expected to remain constant in the short term.
Seoul: Tenant demand has decreased since Q4 2011, with domestic enterprises being less active and multinational organizations being more cautious in their decision-making. Vacancy rates in some recently built buildings are still high, and freshly available space is appearing in older buildings as some tenants seek higher-quality options. Rents are expected to continue constant, with incentives staying attractive.
Shanghai: We've witnessed a seasonal slowdown in leasing activity, as well as tenants that are hesitant to expand. Landlords have been more cautious in their rental expectations as fresh leasing activity has slowed.
Singapore: fresh demand has slowed, notably among significant financial services sector occupiers, and shadow space is becoming available in the central business district. With the exception of a few cases of major retrenchment in the financial services sector, most companies are maintaining their headcounts. In the commodities, pharmaceutical, and IT industries, we continue to see modest rise in manpower and spatial demand.
Despite the relative strength of their Australian business, most global companies are deferring real estate choices for the time being. In the premium market, we're seeing more relocations and increasing engagement from smaller tenants. The number of huge tranches of continuous space is decreasing as a result of major occupiers' deal activity. Rental growth in 2012 should be supported by restricted new supply, but at a slower pace than in 2011.
Tokyo: Occupants are continuing to trade up to grade A buildings with superior seismic protection, and pre-commitment in new constructions is high. Grade A vacancies have decreased marginally as a result of this 'flight to safety,' but tenants, notably in the banking industry, are expected to seek out landlords to sell surplus space in the coming quarters. Due to economic uncertainty, we do not foresee any rental hikes in the near future.