More returning space emerged in Hong Kong and Singapore due to financial sector contraction. Expansion by both MNCs and domestic firms slowed in China, with demand coming mainly from non-financial sectors. In India, expansion by MNCs and the IT/ITES sector has also slowed. Moderate net take-up in North Asia and emerging South East Asia (SEA) was largely driven by relocations and consolidations, while expansion demand remained strong in Jakarta.
Most of the Australian CBD markets recorded weak or negative net absorption, mainly the result of more sub-lease space emerging.
Modest rental movements were witnessed across major markets in 3Q12, with either smaller rental growth than 2Q or modest declines. Most markets saw q-o-q growth of less than 3%, with landlords not taking an aggressive stance on asking rents. Of the 27 featured office markets, 14 saw an increase in net effective rents while for the remainder, rents stabilised or recorded declines. Aggregate rental growth across the region averaged 0.5% quarter-on-quarter, slowing from 1.0% in 2Q12 and below the post-GFC average quarterly growth of 1.4%.
The Beijing and Jakarta CBDs continued to see the largest q-o-q rental increases (between 5 and 8%) due to a lack of quality space. Efective rents in Tokyo saw a slight increase (2.3%) for the second straight quarter on the back of a low vacancy rate. Average rents in India were flat or saw marginal growth. Shanghai CBD rents remained largely unchanged, although some landlords in Puxi have lowered rents slightly due to weak demand.
Rental declines remained moderate in Hong Kong (2.2%) and Singapore (1.2%) as any contraction in space requirements in both cities has been modest. Rents saw further declines in a few other Asian markets (e.g., Guangzhou, Ho Chi Minh City) due to weak tenant demand or new supply. Effective rents fell in most Australian cities, by up to 3%.
Most major markets continued to see slightly increasing capital values in 3Q12, largely in tandem with rentals. Jakarta saw the largest q-o-q increase of 10.7%, similar to the previous quarter. Beijing saw the second highest increase of 4.3%, but significantly lower than the 9.7% recorded in 2Q. CVs in Tokyo and Sydney rose slightly by 1–2%, while CVs in Shanghai fell marginally due to small rental declines in Puxi and slow investment activity. CVs in Singapore and Hong Kong remained stable despite small rental correction, supported largely by local investor interest. Across the region, average capital values increased by 1.2% q-o-q, easing from the 1.6% growth recorded in 2Q12.
We expect overall leasing demand for the full year 2012 to be weaker than 2011 in most markets, mainly as a result of slower economic growth and corporate hiring, and smaller supply additions in some markets. The regional office market in general continues to favour
landlords although occupiers have become more reluctant to pay high rentals. We expect limited rental growth in most markets over the short term, while Hong Kong, Singapore and a few Australian cities should see further moderate declines. In general, moderate rental growth is expected in 2013 with rents in Hong Kong and Singapore starting to recover around mid-2013 and the strongest growth likely to be seen in markets such as Beijing and Jakarta. Capital values are expected to remain stable or see small growth in 4Q12, and to move largely in line with rental growth in 2013.
Source: Jones Lang LaSalle Research
