Office Rents in Asia Demonstrate Strong Sustained Growth

Asia's office markets surged ahead in the first quarter of 2007 with most cities recording increases in prime office rents. Expansion in the financial services sector provided much of the impetus for upward momentum in the core districts of the region's leading international business hubs — Tokyo, Hong Kong and Singapore.

In Tokyo, a shortage of prime office space and robust tenant demand continued to drive rents north, further reinforcing the strong position held by Tokyo's landlords during the review period. Average prime market rents, inclusive of common area management fees, reached JPY 56,750 per tsubo (US$13.51 per. sq. ft.) per month, an increase of 2.7% q-o-q and 24.7% y-o-y. Four Grade A office buildings, totalling 2.3 million sq. ft. of net leasable space, opened at full occupancy during the quarter. The Grade A vacancy rate continued to tighten, falling by 0.7 of a percentage point to 0.7%.

Singapore's office leasing market remained active in the first quarter of 2007 in spite of the tight supply situation, and vacated pocket space was quickly taken-up. Expansion in the financial sector continued to dominate leasing deals. Although the SIF Building (59,000 sq. ft.) was completed early this quarter, it provided little respite to the tight availability situation. As a result, prime office rent rose to an average S$8.60 (US$5.62) per sq. ft. per month, an increase of 10.1% q-o-q and 53.6% y-o-y.
Demand for prestigious office space in Hong Kong's CBD continued to remain strong, with limited stock available in premium Grade A buildings. The CBD has witnessed rapid rental growth as a result of persistent demand, especially from the banking and hedge fund sectors. For example, during the period under review a hedge fund committed to 5,000 sq. ft. in Two IFC at an effective rent of HK$170 (US$21.8) per sq. ft. per month (lettable).

Mainland China's first-tier cities will see supply peak in 2007, but all three of these major metropolitan areas saw sustained strong demand, with a collective 4.4 million sq. ft. of net absorption in Beijing, Shanghai and Guangzhou recorded in the first quarter.

In Shanghai, average office rent continued to trend north, increasing 2.5% q-o-q to RMB 203.9 per sq. m. (US$2.45 per sq. ft.) per month. As no new supply came on stream during the quarter, available space was rapidly absorbed and there was significant pre-commitment activity. The citywide vacancy rate tightened 2.1 percentage points q-o-q, to 5.6%.

Relocation or expansion by MNCs continued to drive office leasing transactions in Guangzhou, with the IT and banking industries dominating the active Grade A office market. Teem Tower opened during the quarter, positioned as a premium Grade A facility. Tenants include Siemens, which rented three floors totaling 73,200 sq. ft. as its South China headquarters, and Adidas (24,400 sq. ft.).

Elsewhere in Southeast Asia, the BPO/call centre sector in the Philippines is expected to continue to drive growth in the Metro Manila office market. In the Makati CBD, strong demand and limited supply have led to further rental increases, prompting many contact centre companies to leave Makati for alternative CBDs such as Eastwood and Alabang in search of cheaper space.

The office markets in Jakarta and Kuala Lumpur were robust, with both cities recording positive growth in rentals. Meanwhile, Ho Chi Minh City's office market continued to grapple with pent-up demand in the first quarter of 2007 as occupancy levels remained at a record high of 97% across all grades, despite the 634,430 sq. ft. of new non-Grade A office space that entered the market. The prime office market in Bangkok remained sluggish due to Thailand's ongoing political instability and the uncertainty over policies regarding foreign investors. Demand was weak as many companies adopted "wait and see" attitude.

Looking ahead, we expect demand drivers to remain strong in most office markets in Asia. Corporate occupiers requiring more space as the regional business environment improves will have to pre-commit to prime buildings in the pipeline or pay a higher premium in order to stay in prestigious locations.

The trend towards decentralisation will continue in a number of cities as companies seeking lower-cost alternatives and larger floor plates move to non-core or emerging business districts or business parks.

Seed Newsvine

Bookmark this article in your preferred program

Comments

Add Comment

Popular Articles in this cathegory

This article is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.