Slowing demand, rise in supply expected to hit Q2

The minor dip in overall office vacancy in Asia-Pacific resulted from diverging performance in markets across the region. Nearly half the countries in Asia-Pacific recorded a drop in vacancy, slightly offsetting those regions that experienced an increase in vacancy. In Asia, overall vacancy in Bangkok, Hong Kong, Shanghai and Beijing continued to decline, while Tokyo, Singapore, Kuala Lumpur and New Delhi all saw vacancy rise.

In Bangkok, the Grade-A central business district vacancy rate fell to 18.3 per cent, down from 20.5 per cent in the fourth quarter of 2011, as space in two new buildings completed in late 2011 was gradually filled. Limited future supply and steady leasing momentum will support further rental growth in 2012.

Demand for office space in other cities in Asia-Pacific weakened further in the first quarter, as corporates continued to seek opportunities to reduce real-estate costs via consolidation and/or relocation. This trend is spurring the release of secondary space in a number of key markets, which will continue to exert pressure on vacancy. Demand for large floor plates also fell during the quarter, with most leasing deals completed over the period for smaller spaces. In terms of industry sector, financial institutions – particularly major international banks – remained generally inactive. Professional services, including IT and consumption-related sectors, accounted for the bulk of office leasing demand.

New supply in Asia-Pacific anticipated to come online in 2012 will also put pressure on the overall vacancy rate. In the first quarter, new office stock of 770,000sqm was completed across Asia-Pacific, 33 per cent above the 10-year quarterly average. Completions are expected to exceed 418,000sqm in 2012, a 30-per-cent rise year on year. It should be noted that the development pipeline for 2012-2013 as a proportion of current stock varies significantly per market, ranging from as high as 44 per cent in New Delhi to virtually zero in Wellington and Bangkok. Tokyo, Seoul, Mumbai, Kuala Lumpur and Ho Chi Minh City will witness an increase in completions over 2012.

Currently, tenants looking for Grade-A CBD offices in Bangkok have a limited choice, particularly larger space users. According to CBRE Research in Thailand, there will be only 390,000sqm under construction due for completion by the end of 2014.

Bangkok’s office market is on an upward trend with grade-A rents rising by 1.6 per cent quarter on quarter amid steady demand from sectors tied to domestic consumption. Rents are starting to rise and have topped the last peak, which was 20 years ago, at over Bt850 per sqm per month at Park Ventures Ecoplex in the first quarter. Its landlord increased the rent further to Bt900 per square metre per month on Friday as more than 60 per cent of their office space have been leased, reported Nithipat Tongpun, executive director and head of Office Services, CBRE Thailand. 

John Falkiner, managing director of Transaction Services, Asia for CBRE, said that looking at occupier demand, it is important to emphasise that while decision-making is protracted it has not stalled. Balancing growth with cost and efficiency has always been, and will remain, a key consideration for multinational companies. Asian corporations remain aggressive in acquiring space in many Asia-Pacific markets.