Office market to remain strong this year despite global uncertainties
The overall office-space market is expected to be moderately positive although the global economy has seen headwinds from the smouldering euro-zone debt crisis, slowing growth of China's economy, and US efforts to get its fiscal house in order.
This is according to research by the "Global Office 2013 Outlook" released by Colliers International yesterday.
While many large office occupiers have taken a wait-and-see attitude towards the global economy, others are snapping up much-needed space to accommodate expanding operations. Quality office buildings in major cities in the world are seeing consistent demand from both occupiers and investors.
In terms of office costs, two Asian markets ranked among the top five most expensive in the world as of mid-2012. Hong Kong's Class A office rent continued to top the world, with Tokyo taking the third spot.
Meanwhile, individual markets in Asia recorded the lowest capitalisation rates. The rate in Taipei was the lowest worldwide at 2.50 per cent, followed by Hong Kong (2.67 per cent) in the second spot and Singapore (3.90 per cent) fourth as of last June.
According to Global Office 2013 Outlook, the following illustrates the current trend and forecast for key office markets in East and South Asia.
In Bangkok, the rental rate of Class A office buildings is still very low when compared with other countries and because this market in 2012 showed the highest growth in years, especially in terms of demand, which significantly increased. Several overseas companies are setting up offices in Bangkok in Class A buildings in the central business districts (CBD).
The Class A sector in Bangkok is expected to remain positive with limited existing and future supply for the next few years, driving an increase in both occupancy and rental rates during this year, said Surachet Kongcheep, senior manager of Colliers International Thailand's research department.
In China, Shanghai registered growth in average Class A office rent, despite rising vacancies due to the launch of five new projects in the downtown area.
As the average gross yield in Shanghai's Class A office sector declined to 5.8 per cent in the third quarter of 2012, the limited number of recent land transactions recently reflected that developers remained cautious about investment for further commercial development.
After a notable drop in the first half of 2012, Hong Kong's office rents saw signs of stabilisation in the third quarter due largely to the solid demand from a range of medium-sized financial companies and mainland Chinese enterprises.
Because of the third round of quantitative easing in the United States, inflationary pressure is expected to push up real-estate values in Hong Kong, where the local currency is pegged to the US dollar. The average office vacancy rate was expected to hover around the historical average of 5 per cent by the end of 2012 and remain low this year, except the Central/Admiralty area of Hong Kong Island, where falling demand for top-tier office premises is anticipated to cause increasing vacancies.
India experienced contrasting trends in different markets. In Delhi, Class A rents increased in popular locations such as Connaught Place and Nehru Place, while Jasola and Saket registered drops of 4-10 per cent. Looking ahead, the rents of Class A office space are expected to be stable in almost all Delhi and Mumbai sub-markets.
Seoul registered increasing rents and decreasing office-vacancy rates to 6.97 per cent in the first half of 2012. In Class A+ office buildings, space was almost fully occupied with an average vacancy rate of just 0.11 per cent. Low supply, increased rents and a slight decrease in vacancies point to moderate improvement in the Seoul market this year. However, new supply will keep strong growth in rent or occupancy in check.
Singapore Class A office rents in the CBD fell last year as the global economic environment weighed down the market's leasing activity. Seeing the steady line-up of new office buildings completed over the next four years, a substantial amount of secondary space could be released to the market upon lease expiration as existing tenants move to new premises. Singapore's CBD Class A office rents are expected to continue to decline through this year, and this will improve the market's competitive edge as a regional hub for business.
In Tokyo, 2012 saw a surge of new office construction. As occupiers take the advantage of oversupply by upgrading their offices' quality, the Class A market sees frequent tenant relocations as well as reductions in overall rents.
On the sales front, more than half of the total transaction volume in Japan is made up of office property. Class A office rents in Tokyo are anticipated to see signs of stabilising and will increase moderately this year.