Cushman & Wakefield, the world’s largest privately-held commercial real estate services firm, in its latest Asia Office Forecast report, ‘14 for 2014 - Top Trends to Watch’, highlighted the healthy demand forecasted for office space across Asia in 2014. Cushman & Wakefield forecasted that the office demand is likely to reach 60 million square feet (msf) in all 30 major cities tracked within Asia Pacific.
Sigrid Zialcita, Managing Director of Research for Asia Pacific said, “The relatively favorable macroeconomic climate should continue to buoy employment and ensure healthy demand for office space across the region. However, demand is not likely to grow at its customary rapid pace in 2014, being marginally slower than the previous year.”
Tokyo is forecasted to see the highest office absorption among the 30 cities in Asia in 2014 expected to be recorded at 7.6 msf. It remains the region’s top location for office absorption and is followed by Bengaluru, India at 2nd position and Manila at 3rd, which are expected to witness 6.25 msf and 5.9 msf of net absorption in 2014.
ABENOMICS SHOOTS TOKYO’S PREDICTED ABSORPTION TO THE TOP IN 2014
Tokyo CBD is expected to see the highest absorption of office spaces in the APAC region. The total estimated absorption is expected to be 7.6 msf. Demand for office space is expected to remain buoyant and vacancy levels are expected to fall. The market is influenced by the positive sentiment across the board on account of Abenomics and the increased profit margins on account of weakened Yen against the dollar. Todd Olson, Executive Managing Director, Japan, Cushman & Wakefield said, “Landlords are becoming increasingly bullish on the prospects for future rental growth. Some uncertainty remains, however, with the 2014 Consumption Tax increase and necessity to implement real structural economic reforms to ensure a long-term recovery. Investment activity is up drastically, as investors view Japan as a good opportunity with rental growth and the upcoming 2020 Summer Olympic Games.”
MANILA TO WITNESS 3RD HIGHEST OFFICE ABSORPTION IN 2014 BACKED BY GROWTH OF BPO AND DOMESTIC DEMAND
Even while the country grapples to recover from the after effects of one of the severest natural disasters in recent times, Manila CBD and Off CBD market is expected to see buoyant absorption of office space estimated to be approximately 5.9 msf making it the 3rd highest in office absorption across Asia. It would witness 22% increase over the total absorption in 2013. Manila will be one of the tightest markets within the region of APAC with limited office space availability.
Joe Curran, General Manager, Philippines, Cushman & Wakefield said, “The BPO industry continues to drive demand for IT Grade office space in the Philippines. The annual take-up has been running at roughly 400,000 square meters per annum for the last two years and this looks set to continue in the near term. A steady pipeline of supply should prevent sharp increases in rental rates; however, increasing rents will still be seen over the next 12-24 months, particularly in certain micro-markets within Metro Manila”
In the Top 10 cities to witness highest absorption in 2014, China emerged strong with 4 cities including Guangzhou (4th rank) and Shanghai (5th rank), Shenzhen (7th rank) and Chengdu (8th) among them. In China, office demand is expected to maintain its brisk pace, except in Beijing’s CBD, where steep rents and low vacancies will limit take-up levels and fuel decentralization. Additionally, newly announced reforms to open up are expected to have a meaningful impact on real estate markets in other Tier 1 and 2 cities. Given the economic recovery and the rapid development of the hi-tech, financial, trading and technological sectors and professional services sector, it will further drive leasing activity in tier II cities. Randall Hall, Executive Managing Director, Greater China, Cushman & Wakefield said “Influenced by the general economic slowdown, China’s office market will record a more stable and mild development in the following one or two years. The decentralizing trend of tenants’ site selection will grant more opportunities to emerging submarkets in Tier 1 cities and Tier 2 gateway cities.”
On the other hand, Office demand in Hong Kong CBD is expected to remain below trend next year with continued lack of strong growth drivers. Demand from tenants will be conservative but positive, as they focus on cost containment while the economy gradually improves. A brisk rebound in demand, notably for prime space, is unlikely in the near to midterm and this will keep rents in Greater Central relatively flat in 2014. Despite a muted rental growth, Hong Kong CBD will still remain as the most expensive office market in the region with rents ranging above 160USD per square feet per year. John Siu, Managing Director, Hong Kong, Cushman & Wakefield said “A brisk rebound in demand, notably for prime space, is unlikely in the near to medium term and this will keep rents in Greater Central relatively flat in 2014, followed by more consistent growth in 2015.”
Singapore is also expected to remain below trend due to slow recovery in the financial sector but the overall demand is expected to benefit from a stronger economic performance next year. Leasing will largely pick up by end of 2014 and gradually strengthen in 2015 as pre-leasing of new office buildings gathers momentum. Toby Dodd, Managing Director, Singapore, Cushman & Wakefield said “CBD rents have reached an inflexion point in 2013 and are poised for further growth in 2014-15, with below-average supply of prime space expected within these two years. Pre-leasing of space in new projects will pick up ahead as tenants will be interested in securing leases in a number of iconic projects that will near completion after 2014.”
ADELAIDE AND BRISBANE IN THE LAST TWO SPOTS IN APAC RANKING ON ABSORPTION FOR 2014
Australia is most likely to underperform in 2014. It will rely on consumption and exports as the mining boom ends. Leasing conditions will vary across the markets next year. While tenants will try to consolidate space and reduce the footprint, upcoming supply and backfill space will remain a concern in Sydney and Melbourne. Much of the upcoming supply is pre-leased but sub-lease and backfill space remains a concern in Perth. Overall, conditions within the Australian office markets will remain challenging as resource and financial sectors underperform and demand remains moderate amidst supply increases. Despite these weaker conditions, we expect leasing activity continue to tick up (albeit moderate) as tenants seek to take advantage of softer conditions and owners seek to minimize vacancy risk.
Richard Pigott, Director, Occupier Services, Australia said “The Brisbane office leasing market in 2013 remained subdued with continued contraction in the resources sector, reduced state government activity and general economic confidence, seeing larger corporates defer expansion plans in all but a few instances. The market is hoping for renewed economic confidence across the board in 2014; however, due to the scale of vacant direct and sub-lease office space and new premium developments seeking pre-commitment, opportunities for attractive leasing deals will continue in 2014 in most Brisbane markets and sectors. Landlords who are not matching effective market rates, flexible terms, and capital expenditure on lower grade assets could see ongoing vacancy cost.”
Anthony Martin, Executive Director, Valuations & Advisory, Australia said “The CBD of Sydney office space market is at a pivotal time. Increasingly, tenants are seeking flexible working environments which demand larger adaptable floor plates. This expected to increase the pressure on older inefficient buildings. With supply expected to rise substantially from 2015 onwards, vacancy in older properties is expected to rise. Unlike other capital cities, Sydney’s high exposure to the financial services sector will help to boost demand over the coming years.”
OVER SUPPLY OF OFFICE TO KEEP RENTAL LOW BUT VACANCY HIGH; EXPECTED TO SEE 2.3 MSF ABSORPTION IN 2014
The surplus in new supply of offices posed great opportunities for tenants this year and occupiers actively reviewed relocation opportunities from lower grade to prime office buildings. Looking forward, although 2014’s scheduled new supply is much less than those seen in 2013, various Cheongjin office development plans are scheduled to come on stream in 2014 and tenant favorable conditions will spur flight to quality, relocation and consolidation among tenants. Tony Yoon, Head of Corporate Occupier and Investor Services, South Korea, Cushman & Wakefield said “We expect tenant-favorable conditions to prevail in Seoul’s office rental market until some of the excess supply is absorbed. However, some new completions will be occupied by owners in the CBD area. Considering the reduction in forthcoming supply, secondary tenants are likely to continue to exercise their desire to upgrade the quality of their accommodation.”
Jakarta in Indonesia is expected to witness the 10th highest absorption amongst the comparable markets across the region with an estimated increase of 34% over 2013 in 2014. Office demand is expected to see positive growth next year, in line with the projected positive performance of the economy and improving overall business climate. Leasing activity is likely to remain active given ongoing relocation requirements and renewals by existing tenants. The overall occupancy in the CBD market of Jakarta is expected to remain at a healthy 89% - 91%. David Cheadle, Managing Director, Indonesia, Cushman & Wakefield said “The return to a supply-demand balance in favor of supply in 2014 and 2015 may well offer some near-term rental growth relief to corporate office occupiers, who have seen their occupancy costs rise by an average of 80% in the last three years.”
STABLE OUTLOOK PREDICTED FOR VIETNAM OFFICE MARKET, HANOI 21ST AND HCMC 24TH ON APAC RANKING ON QUANTUM ABSORPTION
Both Ho Chi Minh City (HCMC) (24th) and Hanoi (21st) are expected to see a positive trend in the net absorption of office space in 2014. While Hanoi will see a rise of approximately 15% in the total absorption, HCMC will be recording an approximate increase of 14% in 2014 over 2013. Market conditions will remain favorable to occupiers as supply continues in Ho Chi Minh and Hanoi. Stable supply, increased availability of space options and flexible leasing opportunities along with cheaper rents would help occupiers (both in Hanoi & HCMC) and the leasing activity could pick up as the economy gains momentum next year. Chris Brown, General Manager, Vietnam, Cushman & Wakefield said “The property investment market in Vietnam will continue to show positive signs of growth in 2014 with investment volumes set to increase from 2013. We are also witnessing increasingly sophisticated market dynamics in Vietnam, this coupled with potential foreign ownership reform could give way to stable growth in the market.”
BENGALURU TO SEE THE SECOND HIGHEST NET ABSORPTION OF OFFICE SPACE IN APAC
Bengaluru is expected to record the second highest net office absorption at an estimate of 5.6 msf in 2014 with a year-on-year increase of approximately 16% from 2013. NCR, which will see the sixth highest net absorption of offices space in the region, will record see net absorption of 3.6 msf representing a rise of approximately 10% over 2013. Leading markets of India recorded a drop of approximately 7% in total net absorption in office space between 2012 and 2013. Despite a drop in demand this year, the overall sentiments remain optimistic and most occupiers are committed to long-term growth. Although the transaction closures are taking slightly longer, the leasing activity is anticipated to see a surge as political uncertainty goes away and business sentiments, economic conditions improve domestically and much more definitively at the global level. Key suburban markets like ORR and the adjoining areas and Whitefield etc. are expected to remain active next year given a stable growth / outlook for the IT/ITeS, BFSI sectors. In addition, there is increased interest by private equity players for projects with strong fundamentals and Bangalore remains a bright spot in India for foreign investors (going by the trends from last 2 years).
Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield said, “The demand for commercial office space will strengthen going forward in 2014 and 2015. The oversupply situation, which most cities across the country are witnessing, will ease from 2014 onwards as economic conditions improve domestically and globally.”
An expected improvement in overall economic conditions in 2015 will result in increasing expansions by companies, which will propel the demand for office space. Net absorption is likely to increase by 31% over 2014 and will be recorded at 29.5 msf. The cities to record majority of the net absorption will be similar to 2014, with Bengaluru, Mumbai, Delhi NCR and Pune leading the pack.
With economic recovery on the slower track, leasing activity in Taipei is expected to remain moderate next year and tenants could hold off making any strategic decisions. A large-scale upcoming supply, in addition to existing availabilities, will continue to favor tenants over in 2014. Michael Hu, Associate Director, Office Leasing, Taiwan, Cushman & Wakefield said “The leasing market continues to show signs of constraint as the rental has no significant growth. Overall vacancy continues its upward trend with the new supply of more than the size of a Taipei 101 Building (57,000 pings).”
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