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Asia Pacific office market bucks gloomy trends
By Cherry Cao

THE majority of Asia Pacific's office markets continued to post rental increases in the third quarter, despite ongoing concerns over the state of the macro-economy, with regional demand for office space turning stable following a rebound in the previous quarter, latest industry research showed.

Only six of the 21 markets tracked by the international real estate advisor saw quarter-on-quarter rental declines, according to DTZ, a UGL company.

Across the region, Jakarta, which emerged as a top performer in the first half of 2012, continued to register the fastest growth during the three months period ending September, with prime rents rising by a further 10 percent.

"The strong growth is from a low base. At only US$18 per square meter per month, Jakarta remains one of the most affordable office locations in Asia Pacific," said Chua Chor Hoon, head of Asia Pacific Research of DTZ. "At the same time, a shortage of supply is providing landlords with the confidence to demand higher rents."

Jakarta's stellar rental growth performance was still not enough to topple Beijing from the top spot in the year-on-year rental growth rankings, though the pace of rental growth in Beijing's CBD area has moderated in line with slowing demand as companies have cut back on expansion plans.

"Weak leading economic indicators fed through to a slowdown in expansion demand in China's mainland in the third quarter, especially from multi-national corporations," said David Ji, head of China Research of DTZ. "Prime rents in Beijing climbed by under 5 percent for the second consecutive quarter - low for a market that is used to recording double-digit rises."

Nonetheless, Beijing still recorded the second strongest quarterly rental increase in the region, indicating that compared to the rest of Asia Pacific, China markets continued to deliver good domestically driven growth prospects.

Similarly, while rents kept increasing in Shanghai, the pace of growth has slowed. In China's second-tier markets, meanwhile, the high standard of new supply continued to push up rents.

Hong Kong's Central district continued to feel the impact of the gloomy global economic outlook, amid staff cuts and decentralization, as tenants move out of Central to reduce occupancy costs. This is fuelling demand in the non-core districts, all of which saw a return to positive absorption during the quarter.

By contrast to Hong Kong, office leasing demand surprised on the upside in Singapore in the third quarter, driven by non-financial sectors, including legal, social media, pharmaceutical and energy companies.

Though prime rents continued to go southward in both cities, the decline was marginal - around 1 percent quarter-on-quarter in both markets. Hong Kong has already seen the worst of rental decline in the first half of the year, while the third quarter decline in Singapore was not as great as anticipated, as healthy occupancy helped landlords hold on to rents.

The rest of the north Asia and Australia are feeling the heat from the economic slowdown in China. Tokyo saw a rather quiet third quarter, with weak demand leading to a decline in rents following a slight uptick in the April-June period. While prime rents continued on an upward trend in the resources-led markets of Perth and Brisbane, concerns over the impact of slowing growth in China on commodities has led to downgrades to year-end rental forecasts. By contrast, prime rents remained flat in Sydney and Melbourne. Large upcoming new supply is causing some consternation in Melbourne, where over 300,000 square meters of new development, equivalent to about 8 percent of its existing stock, are expected to be added to the market between now and 2014, at a time when wavering sentiment is putting a dampener on demand.

The worsening economic environment in South Korea led to a decline in leasing activity in Seoul and prime vacancies increased to 11.9 percent from 8.6 percent in the second quarter. Despite this, prime rents rose for the sixth consecutive quarter, driven by the completion of the new K-Twin Tower.

The India market saw a strong take-up driven by a number of large deals, including pre-leases, as business confidence improved following a slowdown in the first half of 2012.

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