The relatively firm economic backdrop could
aid a broad-based rebound in office demand in the majority of the top 30 cities
tracked in Asia Pacific in 2015.
New
supply, totaling an estimated 93 million square feet, will hit its first peak
next year but driven by healthy demand for office space, overall vacancy rates
is estimated to edge up by just 0.6 percentage points. Consequently, the
availability of quality space and expanding corporate activity will propel
absorption to increase by over 20%, from an estimated 62 million square feet in
2014, to reach a seven-year high next year.
Highest absorption gains are expected in Beijing, Tokyo’s 5 Central
Wards and Shanghai among core markets; and Bangalore, Manila and Chengdu for
emerging markets.
Absorption
gains in the emerging markets, where over 70% of new supply next year will be
in, are expected to be most pronounced. Established growth drivers such as
information technology, business process outsourcing, and professional and
business services making bigger market plays at a local level will in turn also
fuel the expansion of other supporting office-using sectors.
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| Silversea, Singapore |
“The
competitive cost structures in emerging Asia will remain a linchpin of a thriving
outsourcing industry and fast-rising manufacturing hubs outside of China,” said
Sigrid Zialcita, Managing Director of Research for Asia Pacific, Cushman &
Wakefield. “In addition, the commitment to structural reforms will
progressively squeeze inefficient industries and pave the way for the growth of
stronger institutions across many sectors needed to drive leasing activity.”
Indeed,
the IT outsourcing sectors in the global BPO hubs of India and Manila will
drive a large part of the demand. With businesses infused with renewed
confidence after the elections, leasing activity in India has picked up
significantly. While Flipkart’s three million square feet in Bengaluru and Tata
Consultancy’s 1 million square feet of space in the capital this year are done
deals, activity is expected to gain further momentum as companies like
Accenture, Standard chartered and a Consulting Major are reportedly on the hunt
for spaces totaling over a million square feet each.
Manila’s
booming BPO sector is also fueling growth in other sectors, fostering the rise
of an increasingly tech-savvy generation that embraces social media and
e-commerce, which tech giants are anxious to tap into. Google, which opened its
office in Manila last year, is also looking to expand its presence as it takes
advantage of the talent base in the country to grow its back office services.
In
the core markets, Beijing and Shanghai will account for the bulk of absorption,
as a teeming supply pipeline will bring relief to occupiers there. High-quality
office premises continue to see strong demand from domestic companies as the
tertiary sector continues to expand its proportion of the economy. Internet
finance companies have also emerged to be a major occupier of office space in
these cities.
Having
been a strong pillar of leasing activity in the region in 2014, new tech
companies are expected to remain active in the coming year. Overall, the Asia
Pacific region remains the growth leader globally, which will allow economies
to breed a wealthy consumer base, especially in emerging countries, and the
critical mass needed to sustain the sector’s long-term viability over the next
decade.
“There
are good reasons to believe that the immense upside potential of the new
technology sector in Asia Pacific will be sustained, with a young population
base, particularly in emerging markets, that are more open to innovative
mediums, rising domestic consumption, urbanization fostering the rise of the
mobile commerce platform,” said Miss Zialcita.
Tokyo
will also remain in the spotlight in 2015 with strong demand from occupiers to
remain intact amid an expanding corporate sector.
“Japanese
companies are performing very well on account of the weak yen”, said Miss
Zialcita. “While the continual uptrend, still at an early stage, could be
patchy, recent policy moves indicate that growth remains Japan’s top priority
and key to instilling confidence among corporates, which in turn, will be
critical to sustaining the current positive momentum in the property markets,”
she added.
Supply
additions will be keeping pace with the rising trend in demand through 2015
except in Chengdu, Kolkata, Ahmedabad, Delhi NCR, Pune and Hanoi, where
vacancies will remain in excess of 20.0%.
Single-digit
rent growth is expected across the top 30 cities tracked in the region for
2015. For core markets, Grade A rents are forecasted to rise another 1.0-2.0%
per annum, with Tokyo posting the highest rent growth on the back of ultra-low
vacancies. Rents in Singapore are expected to move up once again in a favorable
supply/demand environment in the prime office market, but the pace will be
slower relative to the 10%.
For
emerging markets, average rents are expected to be flat to declining in the
majority of the emerging markets as rampant supply will restrain landlord
leverage. Jakarta, Shenzhen, Manila, Chennai and Bangkok will buck the trend
with above-average annual rent growth of 3.0-5.0%, though this pace represents
the third consecutive year of slowdown for most of these markets.
“For
the region as a whole, 2015 will be another year of diminished rent growth
expectations. Still, while annual rent increases have moderated since 2011,
tenants with three-year leases will, by and large, face slightly higher renewal
rates in 2015. On average, rents will be up 6-7% for core and 7-8% for emerging
markets from 2012,” elaborated Miss Zialcita.
COUNTRY
SNAPSHOTS
China
Massive
projected new supply is the defining trend in China’s key office markets.
Across the Shanghai, Beijing, Chengdu, Guangzhou and Shenzhen markets,
anticipated supply of high quality office premises in CBD areas in 2015 stands
at a record high of about 30 million square feet, followed by a further 45
million in 2016. As such, developers are keen to deliver as quickly as possible
before the bulk of supply hits, which should see a potential for huge
relocation deals. High quality office premises continue to see strong demand
from Chinese companies.
“Tenants
will likely hold off on office relocations now and wait until new supply comes
on in 2016, to examine their long term occupancy requirements. There will be a
flight-to-quality over the next several years as tenants upgrade from aging
buildings that do not have the infrastructure to support their needs,” said Michael
Stacy, Executive Director, Tenant Advisory Group, China.
India
The
top eight cities have a robust supply pipeline of nearly 35 million square feet
for 2015. This supply is likely to favor tenants, presenting them a variety of
quality options to choose from and negotiating power in the short term. Still,
overall vacancies, which is estimated to rise by about 0.1-0.2 percentage
points to 18% next year, will likely be contained as demand will be fuelled by
companies in the IT-ITeS, banking, financial services and insurance sectors
(BFSI), pharmaceutical and manufacturing sectors due to an anticipated
improvement in India’s economic scenario. Bengaluru will lead with an estimated
11.1 million square feet of net absorption against a supply pipeline of 14.4 million.
“Further
improvement in occupier sentiment is anticipated next year as occupiers pursue
growth strategies. Relocations and consolidations will also continue with
occupiers increasingly adopting innovative workplace strategies to attain
efficiency in operations and costs. Rents in suburban and peripheral locations
will be largely range-bound next year due to steady infusion of supply but are
expected to start firming thereafter as the supply pipeline shrinks,” said Ritesh Sachdev, Executive Director, Tenant
Advisory Group, India.
Japan
Tokyo
will remain in the spotlight in 2015. Recent policy moves indicate that growth
remains Japan’s top priority with the recent downturn expected to bite
less-than-expected. The initiative is aimed at reclaiming Tokyo’s status as a
major international metropolis by creating an environment conducive to
attracting foreign corporations. Consequently, we believe the office market
recovery, while patchy at time, is still in an early stage and will improve
gradually.
“Office
market rents are forecast to rise further and landlords are bullish on
realizing rent increases for lease renewals and relocations. Renegotiating
occupier leases now includes rent escalation protection clauses as an optimal
strategy. The current market is compelling occupiers to actively implement
workplace strategies as a means to control occupancy costs. Tokyo will remain a
destination for global capital through the 2020 Olympics,” said Todd Olson,
Executive Managing Director, North Asia.
South Korea
In
the first half of 2014, leasing activity in Seoul were driven by relocations,
as corporations move into newly completed office buildings at expanded
footprints. Still, average office vacancy rate in Seoul increased due to the
influx of new supply in the second half of 2014 and current market conditions
will require landlords to continue offering incentives. However, the supply
spigot will decrease across all major districts in 2015. We should see the
current market tilt in the landlords favor in the next two years.
“Despite
the additional office building supply, the net take-up increased significantly
with all major districts experiencing an improvement as large-scale tenants
expanded. For these reasons, rent rolls will likely increase while rent-free periods
will be cut back. Tenants should renew their contract periods on a long-term
basis to save costs. Occupiers should take advantage of the prevailing market
conditions to negotiate new leases,” said Tony Yoon, Senior Director, Head of
CIS
Hong Kong, Singapore
With
high occupancy costs and limited availability in both of these markets, the
overarching theme in both of these markets is for tenants to better utilize
their office space to keep costs down. Dwindling options in Singapore core
business districts will continue to push activity towards fringe and suburban
locations in 2015. On the upside, the Shanghai-Hong Kong Stock Connect scheme
has the potential to lead to a huge increase in capital flows both into and out
of China while Singapore is expected benefit from the implementation of the
Asean Economic Community.
“Major
office occupiers have fast-changing needs when it comes to their talent and
cost requirements. They need flexibility to adjust their space needs without
significant difficulty or costs. The quality and location of office space is
becoming a critical factor, particularly in a rental market upswing. Prime
rents in Singapore are forecast to increase in 2015 although at a slower pace
than in 2014 as market anticipates a strong supply in 2016. With new supply
located in distinctly different micro-markets, this will reduce any dramatic
rental fluctuations,” told Toby Dodd, Managing Director, Singapore.
“It
remains to be seen when office demand will recover due to occupiers’ focus on
containing costs and the slower economy. However, we expect the office vacancy
rate to remain relatively stable at around 6% through 2016. There will be
limited new supply of office space for lease and rents will not fluctuate
significantly. More supply and better demand in 2017–18 will likely stimulate
tenant activities,” said John Siu, Managing Director, Hong Kong.
Developing Southeast Asia
Jakarta
and Manila will continue to be attractive to corporate giants hoping to gain a
foothold in the region. Among the favorable demographic shifts is the rise of
an increasingly tech-savvy generation that embraces social media and
e-commerce, which tech giants are anxious to tap into. Google, which opened its
office in Manila last year, is also looking to expand its presence as it takes
advantage of the local talent base to grow its back office services.
“The
2015/2016 new office supply pipeline will finally bring some relief to
corporate occupiers, as well as provide more expansion and relocation
alternatives to meet market demand, which has remained tight,” said David
Cheadle, Managing Director, Indonesia.
“The
strength of the O&O industry makes the office market an attractive
investment choice for both local and foreign investors. Capital values have
posted steady growth in Manila’s core business districts, vacancy rates remain
low and the continued expansion of reputable multinational companies make the
office sector an attractive option,” said Joe Curran, General Manager, the
Philippines
Australia
Signs
are also pointing up in some cities in Australia. While a still weak resource
sector is expected to keep vacancies in Perth at record-high levels,
improvements in the financial markets and other non-mining sectors already
spurring office demand somewhat in other cities. This comes at an opportune
time, given that significant new supply that is attractively priced will come
on stream in Sydney and Melbourne in 2015.
“The
green shoots in tenant demand, which we commented on at the beginning of 2014,
have now transpired into a sustained rise in the demand for office space. With
over 400,000 sq.m. of space requirements currently in the Sydney market alone,
it is clear that tenants are taking a positive view of the outlook for business
conditions within Australia,” told David Woolford, Managing Director, Australia.
Cushman
& Wakefield is the world’s largest privately‐held commercial real estate services
firm. The company advises and represents clients on all aspects of property
occupancy and investment, and has established a preeminent position in the
world’s major markets, as evidenced by its frequent
involvement in many of the most significant property leases, sales and
management assignments. Founded in 1917, it has approximately 250 offices in 60
countries, employing more than 16,000 professionals. It offers a complete range
of services for all property types, including leasing, sales and acquisitions,
equity, debt and structured finance, corporate finance and investment banking,
corporate services, property management, facilities management, project
management, consulting and appraisal. The firm has nearly $4 billion in assets
under management globally. A recognized leader in local and global real estate
research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge.
Source: Cushman & Wakefield
Research
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