28 October, 2010
The office sector in Asia Pacific continued to expand in Q3 2010, with occupier demand increasing as the result of sustained economic growth, according to the latest Asia Pacific Property Times report from DTZ Research. Aggregate net absorption across the region has now reached pre-financial crisis levels, totalling 1.9 million sq m, compared to a low of 200,000 sq m in Q2 2009. Furthermore, average prime rents are forecast to increase across most markets for the remainder of 2010 with estimated average growth of 4.7% in 2011.
China and India dominated leasing activity in Q3 2010 with demand being driven by foreign companies increasingly confident following the economic uplift in the region. Beijing recorded an impressive 94% increase in net absorption quarter-on-quarter, taking the total for the first three quarters of 2010 to 600,000 sq m, double the total for the whole of 2009. India recorded an 8% increase in take-up quarter-on-quarter, with Mumbai experiencing a 95% increase year-on-year.
The Singapore office market has made a strong recovery, with island-wide occupancy increasing 1.7 percentage points to 94.9% at the end of September. This is despite the substantial increase in stock of over 103,000 sq m, which was all pre-committed upon completion.
In contrast, Japan shows no signs of immediate recovery with the Tokyo office market weakening further in Q3. Low demand has resulted in a prime vacancy rate of over 7% and a corresponding 4.5% decline in prime rents (JPY 27,925 per tsubo per month). Australian prime rents remained static in Q3 with landlords remaining cautious despite positive economic data.
David Green-Morgan, Head of DTZ Asia Pacific Research, comments: “Asia Pacific is at the forefront of the global economic recovery and this is reflected in the considerable expansion of the office market during the third quarter of 2010. We expect the pace of growth to slow slightly during Q4, but predict that average prime rents will have increased to over nine percent by the end of 2010, moderating to 4.7% in 2011. This is in stark contrast to 2009 when we witnessed a 21% fall in average prime rents. Japan remains the exception to the strong performance in the rest of the region with weak domestic demand stalling performance.”
The DTZ report highlights that levels of planned construction in Asia Pacific, particularly in India and China remain high. Planned new supply in Delhi, Mumbai, Shanghai and Beijing constitutes a large proportion of existing stock levels. Rationalisation in India during the third quarter has seen new supply decrease 35%, however, the high levels of planned construction are still likely to impact the rate of market recovery moving forward. Prime vacancy rates in Delhi currently stand at 31.6% and 21.6% in Mumbai.
In Hong Kong, the buoyant business market has increased demand for office space pushing down already low vacancy levels. DTZ predicts that prime rental growth in Hong Kong by year end 2010 will have reached 21.7%, an increase on the 11.8% forecast in the second quarter. Similarly, Singapore witnessed increased office demand in all districts during Q3, and rents are expected to rise further in Q4. Rental growth for prime space in Raffles Place in 2010 as a whole is forecast to reach 13.9%.
David Green-Morgan, said: “Looking forward, we expect Hong Kong and Singapore to lead the growth in office rental over the next five years. The city-wide supply of office space in Hong Kong will remain under pressure with limited new space expected until 2014 driving up rents. In Singapore this growth will be tempered with the development of substantial new office space completed between the final quarter of 2010 and 2015.”