China leads office-space market

The firm said its Asia-Pacific Office Rent Index rose 3.7 per cent, quarter on quarter, in the second three months of the year thanks to robust occupier demand.

Rental growth slowed in a number of Asian markets, but falling vacancies in Australia provided rents with a significant boost.

Greater China continued to enjoy the strongest growth in the region with rental increases in Beijing and Guangzhou exceeding expectations on the back of strong expansionary demand. These two cities recorded brisk quarter-on-quarter growth of 20 per cent and 10 per cent respectively as tenants competed to secure quality space in prestigious locations.

Growth in Shanghai and Singapore stabilised due to supply pressures while Hong Kong saw rental growth decline as tenants became more resistant to paying high rents demanded by landlords. The growth of expansionary demand in Hong Kong and Singapore is declining as the period of rapid take-up of prime-office space, witnessed since last year, comes to an end.

Bangkok became more active in the second quarter, with clearer signs of expansion from existing tenants. Prime rents remained unchanged, but some landlords showed more flexibility as competition for tenants is set to intensify with the launch of two new buildings, Park Ventures and Sathorn Square, in the second half of this year.

Average grade A rent in Bangkok's central business district (CBD) was stable at Bt680 per square metre per month, while average grade B rent in the CBD stood at Bt467 per square metre per month.

Oversupply continued to restrain rental growth in Hanoi, Mumbai, Seoul and Kuala Lumpur despite signs of a recovery in demand. Prime rents in Tokyo fell by 1.3 per cent quarter on quarter as landlords compromised on pricing following the March earthquake and tsunami. The Tokyo office market showed signs of stabilising in May, with occupiers displaying a distinct preference for Grade A buildings with disaster-prevention features.

In the Pacific, although an increase in demand and enquiry levels reduced the level of incentives being offered, prime-rental growth continued to be driven by the local development-supply pipeline. The newly completed One Bligh Street raised the rental threshold in Sydney while a lack of supply drove rents in Melbourne.

Vacancy rates generally declined in most cities across the region during the second quarter. There were a few exceptions, however, with Shanghai, Guangzhou and Mumbai recording a rise in vacancy following the addition of a large amount of new space. The rate of decline in Beijing was faster than anticipated as demand strengthened and the supply pipeline remained tight.

Asia's substantial development pipeline continues to contrast with the lean supply outlook in the Pacific, although both regions expect the impending completion of new trophy buildings to result in further flight-to-quality activity. In Australia, the focus is on whether the pending influx of backfill space over the next five years will be absorbed, whilst in Greater China the situation is more optimistic, as potential secondary space has already been under active negotiation.

Business confidence in the region remains largely positive and companies continue to take on new staff.

The executive director and head of CBRE Research, Asia Pacific, Nick Axford, said sustained economic growth through the second half of this year and into 2012 was expected to drive rents in Asia in the short term.

"Flatter rental growth and the release of a large quantum of new space in many cities means tenants will enjoy more options and be in a stronger position to negotiate - factors which should result in the brisk absorption of office space in the months ahead. China and India are likely to continue to see the strongest expansionary demand, across multiple sectors."

However, the outlook for the regional economy continues to be overshadowed by the deteriorating economic situation in the United States and the euro zone. While economists expect Asia Pacific to record more rapid economic growth in 2012, this will be largely dependent on the revival of activity in regional laggards such as Japan and New Zealand.

Major export-oriented and resources-led economies may be more vulnerable to a future weakening of global demand, should such a scenario occur, he said.