This week Jones Lang LaSalle's Asia Pacific market experts told World Property Channel that strong corporate tenant demand in emerging South East Asian economies are now driving rental growth in that region.
Jones Lang LaSalle is now forecasting 6 to 8 percent growth in grade A office rents in Jakarta this quarter and 3 to 5 percent in Manila. At the same time the bigger, more established markets which are dominated by financial services, Hong Kong and Singapore, are experiencing a decline in grade A rental values as the banking and finance sector remains focused on managing costs.
Jeremy Sheldon, Managing Director, Markets Asia Pacific Jones Lang LaSalle says, "We are witnessing a polarisation in the region. Whilst we are seeing a slowing of leasing activity levels in the established markets, there is increasing activity in South East Asia, where we are experiencing higher enquiry levels than we have seen before. Companies are taking advantage of the major labour cost arbitrage within these markets and we expect this to continue this year. Overall our forecast for grade A rents is for limited growth this year in certain markets. The market generally looks to be much slower than 2011, although last year was a record in terms of take up, surpassing even 2007 which was the last peak of the market."
Sheldon further commented, "Our outlook is positive in that the Asia Pacific region continues to experience economic growth at a faster pace than the rest of the world and this is forecast to continue this year. Current conditions may be a good opportunity for companies to find space that represents good value for money and to secure opportunities to expand and consolidate in a region that will continue to grow in economic importance globally. Much will of course be dependent on events in the Eurozone and the United States; we have already seen positive news from the latter in recent weeks and like everyone else we are keeping a close eye on the Eurozone debt crisis."
As well as the growth in Jakarta and Manila, Jones Lang LaSalle expect to see growth in Beijing in Q1 of between three and five percent. Grade A office rents in most other markets are expected to remain relatively stable, whilst the firm anticipates falls of circa five percent in Singapore, and between six and seven percent in Hong Kong this quarter.
Regional Market Overviews by Jones Lang LaSalle in Q1, 2012:
Beijing: demand remains strong on the back of on-going expansion, albeit with smaller spatial requirements in general, but quality space is still difficult to find, especially for large blocks of contiguous space. Landlords continue to set high rental expectations, but rental levels achieved in actual deals have been generally stable.
Delhi: we see sluggish new demand and vacancy levels remain high. We expect rents to remain stable or increase marginally in the near term.
Hong Kong: there is limited new leasing activity from larger occupiers in Central, although we still see some smaller new market entrants focusing on buildings with smaller floor plates. There is some limited relocation activity, focused on lower cost buildings within the same or cheaper districts. There has been an uplift in surrender and sublease space coming from distressed businesses, particularly in Central, which is adding to the pressure on rents.
Jakarta: leasing activity remains strong and tenant enquiries have not noticeably slowed down from 2011 levels. We are seeing a number of tenants struggling to secure space in the highly sought after areas of Jakarta, including the SCBD area and the preferred mixed use developments in the CBD. A significant number of the 'better' projects in town are not accepting new tenants as they prefer to keep any available space for existing clients. The most active occupiers are from the following sectors: insurance, banking, accountancy, oil and gas and consumer goods.
Manila: we expect to see 10-15 percent growth in grade A office rents over the next 12-18 months. We saw 360,000 sq. m transacted last year, which we are confident to use as the demand projection for the next five years. In 2013 and 2014 we expect to see higher demand from traditional non Business Process Outsourcing (BPO) offices which will add another 50,000 sq. m of demand on top of the BPO demand of 360,000 sq. m.
Melbourne: the downsizing of major Australian banks is creating sublease opportunities. Some large occupiers are exploring the suitability of using alternative workplace strategies to reduce their occupied footprint. We are seeing healthy levels of pre-leasing activity (up to 80% of net lettable area in upcoming projects). Tenants electing to stay put and renew leases are being charged a premium compared to new leasing transactions which need to support fit-out and relocation expenses.
Mumbai: there is limited expansion by non-IT occupiers, vacancy levels remain high and we expect rents to remain stable in the near term.
Seoul: Tenant demand has declined since Q4 2011, with less activity by domestic companies and multinational corporations becoming noticeably more cautious in decision-making. Vacancy rates in some recently completed buildings remain high, while newly vacant space is also emerging in older buildings as some tenants engage in flight-to-quality. We see stable rents along with incentives remaining at generous levels.
Shanghai: we have seen a seasonal slowdown in leasing activity, coupled with tenants being cautious with regards to expansion. Landlords have become more conservative in their rental expectations, in light of slower new leasing activity.
Singapore: new demand has softened, particularly amongst large financial services sector occupiers and we are seeing the emergence of shadow space availability in the CBD. Most firms are maintaining their headcounts, with just a few cases of significant retrenchment in the financial services sector. We continue to see some growth in headcount and spatial demand in the commodities, pharmaceutical and IT sectors.
Sydney: most global firms are putting real estate decisions temporarily on hold, despite the relative health of their Australian operations. We are seeing more relocations and increased activity from smaller tenants, particularly in the premium sector. Deal activity by major occupiers is seeing the number of large tranches of contiguous space reduce. The limited new supply in 2012 should support rental growth, albeit at a slower pace than in 2011.
Tokyo: occupiers continue to trade up to grade A buildings with better earthquake protection, and we are seeing good levels of pre-commitment in upcoming new developments. Grade A vacancies have fallen slightly on the back of this 'flight to safety', although tenants, particularly in the banking sector, are expected to look to dispose of surplus space to landlords over coming quarters. We do not anticipate any rental increases in the near term due to economic uncertainties.