Diverging Fortunes of Western Versus APAC Banks Impacting Asia Office Markets

Diverging Fortunes of Western Versus APAC Banks Impacting Asia Office Markets

Commercial News » Hong Kong Edition | By Michael Gerrity | August 29, 2016 10:00 AM ET

APAC Institutions Driving Major Office Leasing Demand in Asia

According to CBRE's Asia Pacific Financial Sector Trends Report for Q2 2016 -- globally -- the financial sector is facing multiple challenges, including tighter regulations, economic uncertainty and technological changes.

Within the Asia Pacific region, there is a contrast between the fortunes of APAC-based institutions and Western financial institutions. Western institutions in particular face more business challenges and are in cost-saving mode, while conversely, APAC institutions remain positive and are expanding their presence across the region.

The contrasting fortunes for Western and Asia Pacific financial institutions in recent years have been reflected in headcount growth. Western financial institutions reduced 13% of their global workforce between 2009 and 2015. Over the same period, Asia Pacific financial institutions grew their workforces by 34%, and have continued to add new headcount in 2016.

Headcount growth among financial institutions

"Shifting patterns in headcount growth have impacted office space requirements. Real estate accounts for an average of 9% of financial institutions' total operating costs. It is therefore crucial for financial institutions to implement more effective real estate and workplace strategies to manage occupancy costs and headcount volatility," said Ada Choi, Senior Director of Research, CBRE Asia Pacific.

APAC Financial Institutions Leasing Demand Solid

Office leasing demand from Asia Pacific financial institutions remained solid in Q2 2016 and Asia Pacific financial institutions are displaying a strong appetite for premium grade new office buildings.

"Asian banks are expanding into emerging markets, particularly in Southeast Asia, supported by the liberalization of regulations covering foreign banks. The Philippines saw five regional banks open new offices, including Japanese-based Sumitomo. Meanwhile, Chinese banks have been particularly active in expanding in CBD areas of Hong Kong, Singapore and Sydney. In Hong Kong, mainland financial institutions, especially midsize commercial banks and investment houses, have been a key driver of office leasing demand for Grade A buildings in core areas in recent years," said Ms. Choi.

Western Financial Institutions: Renewal and Space Optimization

Western financial institutions have traditionally been large space users, particularly in prime office locations. However, in recent years, headcount reduction and numerous business challenges have prompted many firms to continuously review their long-term space requirements against their real estate portfolio. Leasing activity among such firms has been dominated by renewals, which have partly been a short-term cost-saving tactic involving negotiating better terms.

International investment banks and commercial banks have been reducing their office footprint in prime areas, a trend that has resulted in a decline in the average size of office leasing transactions in gateway cities such as Beijing, Tokyo, Hong Kong and Singapore. In Singapore, Sydney and Melbourne, western banks have sub-leased their excess space.

Expansionary demand in 2016 has been confined to insurance firms, which continue to enjoy business growth on the back of the rise of the Asian middle-class. However, their office space requirements are generally smaller than investment and commercial banks, and they do not necessarily seek space in core locations.

"We see that Asia Pacific institutions currently have a stronger preference for buying, while Western financial institutions constantly evaluate lease-versus-buy decisions in markets where they have a relatively large presence. However, most prefer to have asset-light portfolios and thus prefer to lease. In contrast, Asian financial institutions tend to have a stronger preference for owner-occupation," added Ms. Choi. 

In Hong Kong, China Everbright purchased Dah Sing Financial Center, and China Life Insurance bought One Harbour Gate West Tower as their overseas headquarters. These purchases followed major self-use acquisitions by Citibank and Manulife in Kowloon East over the past three years.

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