Office rents in correction phase

Jones Lang LaSalle’s market leasing experts predict that Hong Kong and Singapore are entering a rental level correction phase, with anticipated percentage falls in average grade A rents in the final quarter of the year of five to six per ent in Hong Kong and around four per ent in Singapore (to US$1,643 per sqm and $786 per sqm per annum respectively). 

Some office markets are expected to experience continued rental increases in Q4, albeit at a slower rate than previously, including Beijing (about five per cent to $814 per sqm per annum) and Sydney (4-5 per cent to $470 per sqm per annum). In the middle ground Jones Lang LaSalle expects to see a number of markets where rents will remain largely static quarter on quarter, including Melbourne, Mumbai, Delhi, Seoul and Tokyo. 

Jeremy Sheldon, managing director for markets Asia-Pacific at Jones Lang LaSalle said: “Overall rental growth is expected to soften this quarter. The stand-out trend across many key markets is a softening of demand from occupiers, as firms are applying caution in light of economic difficulties in the United States and the euro zone. We expect corporates in Asia-Pacific to remain cautious for the remainder of this year and into next as they wait to see how the region will be impacted by what is happening elsewhere. We do expect to see continuing demand in certain markets where there is a strong domestic focus – China, Japan and India and emerging markets in Southeast Asia – however the more transparent markets are where occupiers are far more cautious.”

 

Hong Kong 

There is clear delineation between Central and other submarkets. Leasing activity in the banking and finance sector has slowed considerably and Jones Lang LaSalle expects to see some firms in this sector looking to downsize in 2012, though not to the same degree as in 2008 and 2009. The firm is seeing some very moderate expansion amongst law firms and some other businesses that are choosing to relocate to lower cost buildings. Rental growth is not expected in the fourth quarter as a result of low vacancy rates and the decentralisation trend.

 

Singapore 

Jones Lang LaSalle is witnessing a weakening in net new demand, and secondary supply that is being returned to the market is being absorbed quite slowly. Although some surplus space has become available from major financial institutions, there have been no major headcount reductions in any of the key business sectors.

 

China 

In Shanghai, landlords continue to have higher rental expectations in light of the low vacancy rate and limited new supply. Tenants, particularly multinational corporations, have recently been more cost conscious due to growing concerns about a slowdown in China’s economy. 

In Beijing, rents have continued to rise at a slower pace than their rapid increase over the past 12 plus months. Leasing demand remains strong on the back of expanding space requirements from existing tenants and more new set-ups, though some landlords are being more flexible with leasing terms in specific cases.

 

Bangkok 

The recovery process in the Bangkok office market was interrupted by the recent flooding, As companies were focusing primarily on business continuity plans in order to deal with possible impacts of the flooding, the market saw a marked slowdown in leasing activity between October and mid-November. However, as central Bangkok where most of the office buildings are located has been safe from the disaster, leasing activity has resumed as the flood has receded.

 

Australia 

In Sydney, there is continued rental growth, driven by tightening premium supply coupled with activity by larger users upgrading and/or relocating to the CBD. Decision-making is becoming more protracted but relocation decisions are still being made by tenants with definitive needs. There is sustained demand in the 4,000 to 10,000sqm and sub-500sqm range, but there is also a slight increase in sub-lease space. 

In Melbourne, there is cautious demand and tenants are exploring the suitability of using alternative workplace strategies to reduce their occupied footprint. Development activity is continuing, but there is very limited speculative supply.

 

Japan 

Landlords in central Tokyo have seen good demand for new developments in the aftermath of the earthquake and given low vacancy rates, rents are unlikely to fall further. However, the market is not expected to support any rental increases over the next one to two quarters given the impact on demand of the strong yen, uncertainty in the euro-zone economies and a possible global economic slowdown.

 

Korea 

There is healthy demand from domestic firms but multinational corporations are becoming noticeably more cautious. Many recently completed buildings in Seoul have high vacancy rates, which is putting pressure on rents in the Central Business District. Any economic downturn is likely to exacerbate the current over-supply situation and delay rental recovery (especially in the CBD where most foreign financial institutions are located).

 

India 

In both Mumbai and Delhi there is sluggish new demand, and rents are not likely to increase over the quarter due to ample supply. In Mumbai, some tenants are deferring decisions regarding relocation to the Secondary Business District as a result of perceived uncertain economic conditions.