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Pudong office rent to rise, Puxi may fall
By Cherry Cao

THE global office markets are seeking an equilibrium between supply and demand after weathering challenges in China, the United States and Europe, Colliers International said in its midyear Global Office Report.

While some markets are lagging, most are more stable than they have been for some time, the international real estate services provider said. In the Chinese mainland, although Beijing's absorption decreased 93.7 percent from the previous year, the city's vacancy rate was a mere 3.5 percent in December 2012 - the second-lowest rate worldwide. Office rents rose 19.4 percent year-on-year in 2012, due to continuously inadequate new supply. Looking ahead, the new supply coming on stream and relatively limited pre-commitment rates indicate that the overall office vacancy rate in Beijing is expected to edge up, while rents and capital values are projected to grow moderately.

Meanwhile in Shanghai, rental trends are expected to diverge. Those in Pudong will continue to increase, mainly because of a lack of stock available for lease and demand from domestic financial institutions for their own use. Those in Puxi, however, will come under pressure due to ample new supply.

Hong Kong's Grade A office rentals remained the world's highest in December 2012, despite a year-on-year fall of 13 percent. This sector is set to see a positive year in 2013. With several major banking, financial and legal corporate tenants looking to expand, Central office rents are expected to bottom out soon and resume positive growth in the coming months.

Five most expensive

In terms of occupancy costs, the world's five most expensive cities have remained unchanged since June 2012, with Hong Kong Grade A office rents still highest, as of December 2012, followed by London's West End, Tokyo, Rio de Janeiro and Paris.

In Asia, the vast majority of companies inquiring about office leasing are looking for either the same amount or more space, suggesting that the region's demand fundamentals remain positive.

"Some key Asian markets are currently experiencing the challenges of external economic headwinds and slower-than-expected GDP growth," said Simon Lo, executive director of research and advisory services Asia, Colliers International. "Therefore, most overseas corporations are being cost-conscious and they are opting to relocate to decentralized locations."

Tokyo's Grade A office market is bottoming out with rents climbing 2 percent in the first quarter of 2013. However, the market is currently tenant-friendly, and it allows tenants to benefit by relocating to quality new buildings in central locations with lower rents and considerable incentives.

As government measures to stimulate the recovery of Japan's economy take effect, the favorable rents and concessions that tenants now enjoy are likely to diminish in the near term. The vacancy rate is expected to fall further to 7.8 percent by the end of 2013, and capitalization rates might drop to 3.9-4.0 percent in the short term.

Seoul's office market will see keen competition between the landlords of office developments. The new supply of large-scale prime offices that will become available through the end of the year, and their aggressive promotional offers, are putting existing Grade A and B buildings under pressure to provide more incentives or lower their rents in order to prevent tenants from relocating. Most new leases are expected to come about as the result of nearby tenants relocating, and the overall absorption rate will therefore remain flat.

Singapore's CBD office vacancy rate fell to 10.2 percent in the first quarter of this year, its lowest level in more than three years, thanks to demand from occupiers that was attributable to the recovery of business confidence. Despite the weaker outlook - a result of fiscal austerity, high unemployment in the Eurozone and supply pressures in the office market - improving market sentiment in the coming months is likely to limit the overall decline in office rents throughout 2013 to less than 5 percent.

In India, the sources of demand for office leasing in different sub-markets varied in 2012. The demand in Mumbai came mainly from the banking, financial services, insurance and IT industries while in Bangalore and Chennai, it was largely driven by IT enterprises.

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