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Bangkok Grade A office rents rise in Q3, but leasing activity in much of Asia-Pacific subdued

Leasing activity in the Asia-Pacific region's Tier 1 office markets remained subdued in the third quarter, according to the latest Jones Lang LaSalle Asia-Pacific Office Index, as a result of corporate caution and a focus on cost-saving. In Bangkok's central business district (CBD), however, rents for Grade A space experienced a 2.2-per-cent increase over the previous quarter and 11.5 per cent year on year.

While 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, including Thailand.

Net effective rents slowed across the region in the third quarter. Of the 27 markets monitored in the Jones Lang LaSalle 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.

Rents also edged up from the second quarter 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.

On the back of weak demand, effective rents also 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 for markets at Jones Lang LaSalle, said: "We have started to see the beginnings of more new activity and positive sentiment in the market, particularly in the core financial centres.

"In Singapore, we have just witnessed the first deal of over 100,000 square feet [9,290 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 trend is particularly prevalent in India and China, where demand for office space has stabilised over the last few quarters and is now showing positive upward movement. We believe that this may be the first sign of some occupier confidence returning to the market as we move into 2014," Sheldon said.

Throughout the third quarter, capital values in the Asia-Pacific region recorded modest aggregate growth with 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.

"Looking at market activity for 2014, we expect Jakarta to continue to outperform the region," said Dr Jane Murray, head of Asia-Pacific research at Jones Lang LaSalle. "While monetary policy and uncertainty ahead of the 2014 elections has led to us to lower our forecast for the city, 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 and Shanghai - as capital values increase slightly faster than rents."

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