Leasing activity in Asia Pacific’s tier one office markets remained subdued in the third quarter of 2013, according to the latest Jones Lang LaSalle Asia Pacific Office Index, as a result of on-going corporate caution and a focus on cost saving.
Whilst take-up of grade A office space contracted in many markets across the region, particularly in the financial centres of Hong Kong and Singapore, the report shows positive take up in Tokyo and across the emerging economies of Southeast Asia.
Net effective rents experienced slowing across the region in the third quarter of the year. Of the 27 markets monitored in the Jones Lang LaSalle Index, 11 saw a quarterly increase while the remainder either stabilised or declined. While this saw aggregate rents across the region move into negative territory, declining by 0.2 percent quarter on quarter, growth was still up 0.8 percent on a yearly basis.
Jakarta once again saw the largest quarterly (4.4 percent) and annual (33 percent) rental increase in the region while rents also grew in other emerging Southeast Asian markets such as Bangkok which experienced a 2.2 percent increase quarterly and 11.5 percent annually. Rents, q-o-q, also edged up in the major financial centres of Singapore (1.1 percent) and Tokyo (0.9 percent) but remained flat in Hong Kong (0.2 percent). Leasing activity continued to slow in Beijing causing rents to decline by 1.3 percent q-o-q following a 5.3 percent fall in the first half of the year and, on the back of weak demand, effective rents fell in most Australian cities, with Brisbane recording the largest quarterly decline at -5.1 percent.
Looking forward into next year, Jeremy Sheldon, Managing Director, Markets, at Jones Lang LaSalle said: “We have started to see the beginnings of more new activity and positive sentiment in the market, particularly in the core financial centres. In Singapore, we have just witnessed the first deal of over 100,000 sq ft completed in the CBD since mid-2011, while Hong Kong is experiencing a similar uplift. Banks are becoming more optimistic, particularly the medium sized occupiers and the Chinese Banks with most insurance groups also looking to expand.”
“This trend is particularly prevalent in India and China where demand for office space has stabilized over the last few quarters and is now showing positive upward movement. We believe that this may be the first signs of some occupier confidence returning to the market as we move into 2014.”
Throughout the third quarter, capital values in Asia Pacific recorded modest aggregate growth with 6.3 percent year-on-year but slowing to 0.7 percent q-o-q, down from 1.7 percent in Q2 2013. Jakarta continued to outperform with the biggest yearly increase (37 percent) and one of the strongest quarterly increases (3.9 percent), while slight quarterly growth was also seen in a further 15 of the 27 featured markets. Capital values declined or remained flat in the 11 remaining markets with Seoul recording the biggest q-o-q fall at -3.8 percent.
Dr. Jane Murray, Head of Asia Pacific Research, Jones Lang LaSalle commented: “Looking at market activity for 2014, we expect Jakarta to continue to outperform the region. While monetary policy and uncertainty ahead of the 2014 elections has led to us to lower our forecast for the City, demand will continue to outpace supply, maintaining rental growth in this exciting emerging market. In the region’s other markets, we anticipate single digit growth in rents and capital values with some further mild yield compression in some markets (the main exceptions being Hong Kong, Singapore, Shanghai) as capital values increasing slightly faster than rents.”