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Asia-Pacific grade-A office markets still subdued in Q3

Leasing activity in Asia-Pacific's tier-one office markets remained subdued in the third quarter as a result of ongoing corporate caution and a focus on cost-saving, according to the latest Jones Lang LaSalle "Asia Pacific Office Index".

Whilst the take-up of grade-A office space contracted in many markets across the region, particularly in the financial centres of Hong Kong and Singapore, the report shows positive take-up in Tokyo and across the emerging economies of Southeast Asia.

Net effective rents experienced a slowdown across the region between July and September. Of the 27 markets monitored in the index, 11 saw a quarterly increase while the remainder either stabilised or declined.

While this saw aggregate rents across the region move into negative territory, declining by 0.2 per cent quarter on quarter, growth was still up 0.8 per cent on a yearly basis.

Jakarta once again saw the largest quarterly (4.4 per cent) and annual (33 per cent) rental increase in the region, while rents also grew in other emerging Southeast Asian markets such as Bangkok, where Grade-A space in the central business district experienced a 2.2-per-cent increase quarterly and 11.5 per cent annually.

Quarter on quarter, rents also edged up in the major financial centres of Singapore (1.1 per cent) and Tokyo (0.9 per cent), but remained flat in Hong Kong (0.2 per cent).

Leasing activity continued to slow in Beijing, causing rents to decline by 1.3 per cent quarter on quarter following a 5.3-per-cent fall in the first half of the year and, on the back of weak demand, effective rents fell in most Australian cities, with Brisbane recording the largest quarterly decline, at 5.1 per cent.

Looking forward into next year, Jeremy Sheldon, managing director, Markets, at Jones Lang LaSalle, said the company had started to see the beginnings of more new activity and positive sentiment in the market, particularly in the core financial centres.

In Singapore, the company has just witnessed the first deal of more than 100,000 square feet (93,000 square metres) completed in the CBD since mid-2011, while Hong Kong is experiencing a similar uplift. Banks are becoming more optimistic, particularly the medium-sized occupiers, and the Chinese banks with most insurance groups also looking to expand.

"This is trend is particularly prevalent in India and China, where demand for office space has stabilized over the last few quarters and is now showing positive upward movement. We believe that this may be the first signs of some occupier confidence returning to the market as we move into 2014," Sheldon said.

Moderate capital-value growth

Throughout the third quarter, capital values in Asia-Pacific recorded modest aggregate growth of 6.3 per cent year on year but slowing to 0.7 per cent quarter on quarter, down from 1.7 per cent in the second quarter.

Jakarta continued to outperform with the biggest yearly increase (37 per cent) and one of the strongest quarterly increases (3.9 per cent), while slight quarterly growth was also seen in a further 15 of the 27 featured markets.

Capital values declined or remained flat in the 11 remaining markets, with Seoul recording the biggest quarter-on-quarter fall at 3.8 per cent.

Jane Murray, head of Asia Pacific Research at Jones Lang LaSalle, added that looking at market activity for next year, the company expected Jakarta to continue to outperform the region.

"While monetary policy and uncertainty ahead of the 2014 elections has led us to lower our forecast for the city [Jakarta], demand will continue to outpace supply, maintaining rental growth in this exciting emerging market.

"In the region's other markets, we anticipate single-digit growth in rents and capital values with some further mild yield compression in some markets (the main exceptions being Hong Kong, Singapore, Shanghai) as capital values increasing slightly faster than rents," she said.

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