THE rental of Shanghai's grade-A office buildings remained stable in the last quarter of 2012, suggesting there was no growth in the past three months, according to an industry survey.
Concerns about the economic outlook mean that companies are cautious and conservative about relocation and expansion plans and the majority of deals are renewals, say Jones Lang LaSalle's market experts.
The survey also shows that the pace of rent decline is slowing in the Asia Pacific region, for example, in Hong Kong and Singapore where growth had slowed throughout the year.
"The office-leasing markets in the Asia Pacific have been slow because companies, in particular financial services, have been playing a waiting game due to the uncertain economic outlook," says Jeremy Sheldon, managing director of Asia Pacific markets at Jones Lang LaSalle. "There are still deals happening, especially in consumer goods, BPO and pharma, but activity in the first three quarters of this year is down about 25 percent on last year."
Although some economic indicators have shown a stabilization trend and even signs of an emerging recovery, this view has not yet become the consensus among the decision makers within multinational corporations.
In Shanghai, according to the survey report, domestic companies are more active than their multinational counterparts. In light of the low level of deal flow and inquires, most landlords continued to take a wait-and-see attitude, which has kept office rents flat.
"We see a potentially slow start to 2013, but as the economic picture starts to clear and political changeover is cemented, the middle of the year onwards could look very much more active, especially for Southeast Asia," Sheldon says. Overviews of other markets
? Beijing: Rents are expected to remain relatively flat in the last quarter of 2012. Domestic and global economic uncertainty coupled with record-high rents has led to a slowdown in demand in 2012.
A small number of tenants did not renew leases last quarter, leading some landlords to be more flexible in rental negotiations to attract high-quality tenants and to maintain current occupancy rates.
Some resistance to record-high rents is being felt and projects in decentralized areas, offering more competitive rental rates, are attracting some tenants away from traditional business districts.
Guangzhou: Rents are expected to edge down by around 1 percent quarter-on-quarter.
The quarter continues to see some expansion demand from domestic firms, although most of leasing activity was for cost-saving purposes. However, multinational companies remained conservative and preferred not to make any real estate decisions at year-end. Landlords were keen in securing leases and have become more flexible in rental negotiations.
Chengdu: A slight drop of rents around 1 percent is expected in the fourth quarter. Driven by the upgrading and expansion demand, the net absorption is likely to remain stable.
However, exceeding demand, high levels of existing grade-A office space and the future pipeline of grade-A levels will push the vacancy level to a record high, largely eroding the landlords' pricing power.
Confronted with slower-than-expected leasing progress and intensified market competition, some landlords lowered their rental expectation.
On the contrary, benefiting from the product differentiation, the asset performance of top quality properties will stay flat.
Hong Kong: Rents are expected to be 2 percent down in Central in the last quarter and flat overall.
Pressure remains in Central since demand is generally limited to smaller occupiers; large vacancy persists. In key buildings with significant vacancies, landlords are willing to reduce rent to encourage transactions.
Activity levels remain small but steady outside of Central in a low vacancy environment, which has allowed rents to grow in each recorded sub market.