APAC’S Upswing Continues: Q4 2017 Office Overview | Cushman & Wakefield Research
2018 Occupier Conditions
Q4 APAC Occupier Overview
India – Demand is diversifying, but the tech sector is still strong. Banking, nancial and professional services are gaining prominence. Space constraints continue in Bengaluru and Hyderabad, pre-leasing is on the rise; rents in tighter markets are up by more than 15% in 2017. Coworking gains momentum, growing corporate demand for swing space options.
Taipei – Higher new supply in 2018, tenant relocations are gathering pace, rentals are likely to grow in H2 2018 as vacancies start to decline
Kuala Lumpur – Weaker demand, at to moderating rents, freeze on new o ce approvals will not correct supply glut over the next 2-3 years
China – Robust growth in demand, annual absorption is up by 20% in 2017. Continued interest in decentralized markets and large volumes of new supply are attracting occupiers and investors. Service sector employment growth and government initiatives to boost several cities in 2018. Rentals solid in tier 1 cities, a mixed picture will continue in tier 2 market.
Tokyo – Strong pre-leasing demand, asking rents are softening while vacancies decline, supply surge to continue beyond 2020, competition among landlords will intensify
Manila – Office rents continue to rally on the back of stable demand and higher rents in newer properties; vacancies are moving up, highest ever new supply in 2018
Seoul – Rising vacancies, relocations and consolidations to continue in 2018, coworking operators are rapidly expanding.
Singapore – Coworking operators are expanding amidst growing competition Leasing demand strengthening, rental growth to accelerate in 2018.
Hong Kong – Strong PRC demand and limited availability pushed Greater Central rents to a global record high. Time to look east for bigger requirements as evidenced by increasing pre-leasing activity at upcoming/newly completed Grade A o ce developments in both Hong Kong East and Kowloon East. Meanwhile, coworking space operators are scaling up to capture market share amid growing demand from corporates.
Australia – Majority of new supply is already pre-leased, o ce vacancies are falling to multi-decade lows in Sydney and Melbourne, strong rental growth is expected in 2018. Flight to quality drives relocations in Brisbane, occupier market to gain traction in 2018.
Bangkok – Limited new supply in CBD, rental growth will continue in 2018, supply constraints will ease starting in H2 2019.
Jakarta – Largest ever annual supply in 2018, further rental correction is likely, relocations will continue.
Ho Chi Minh – Extremely low vacancies in Ho Chi Minh City, double digit rental growth expected in 2018.
Several Asian economies have exceeded expectations in the fourth quarter, ending the year on a high note. Growth in China was faster than expected during Q4 and for the full year, the country accelerated for the first time since 2010. Strong growth in exports, consumption, the service sector and resilient property markets have fueled the economy to grow 6.9%, defying concerns that tightening curbs on industry and credit would impact growth. Growth in Japan, although lower than previous quarters, was at its longest stretch in nearly 30 years, suggesting that the economy is on a better footing than in the bubble years of the late 1980s. Indonesia, Malaysia and Taiwan have also recorded the fastest growth in recent times on the back of rising exports. Meanwhile, in India, the impact of goods and services tax seems to be waning out but trade deficit is widening to its highest levels in nearly five years due to rising oil prices. Singapore has also slowed due to a contraction in the manufacturing sector. China’s central bank has raised interest rates following the hike by the US Federal Reserve; India, Indonesia and Japan have held out for the time being.
2017 powers to a strong finish, primed for a stronger 2018
The office market has sustained a strong upward momentum during the fourth quarter, thus ending the year on a high note. Annual absorption gains were significant at 10%, driven by robust leasing activity in Chinese tier 1 cities followed by tech cities in India, Manila, Tokyo and Sydney. Coworking has become a major demand driver, leasing more than 5.0 million sf. (msf) over the last 12 months.
Relocations and consolidations driven by new supply, growing requirements from start-up companies and e-commerce players, and rapid expansion of flexible space providers have sustained strong leasing activity in China during the quarter. Demand for larger back-end facilities has continued in India with tenants actively seeking options to optimize their portfolios. There were more than 50 transactions of 100,000+ sf. during the year, with a majority coming from the tech sector followed by financial and professional services. Tight vacancies in hot markets such as Bengaluru and Hyderabad have forced clients like Deloitte and Amazon to pre-lease more than 2.0 msf. each during the quarter. Meanwhile, relocations have gathered pace in Tokyo and tenants are actively exploring newer properties. Clients like Google, Mixi and Anderson Mori & Tomotsune have recently pre-leased to relocate their headquarters. On the other hand, office vacancies in Sydney and Melbourne have reached their lowest since 2008 on the back of strong tenant demand.
Tight vacancies are driving strong rental growth in several markets across the region. Average rent in Hong Kong continued to climb higher on the back of a red-hot Greater Central rental market, which is now the world’s costliest. Rents in Singapore have been growing rapidly for the last two quarters, in line with declining vacancies. Similarly, Melbourne and Sydney have shown strong rental growth (YoY). Rents in Bengaluru, Hyderabad and Ho Chi Minh city have also grown steadily during the year as vacancies dropped to 7% levels. On the contrary, high quality new supply has continued to push up rents in Manila albeit at a slower pace. Meanwhile, generous incentives are on offer in supply heavy markets such as Tokyo and Jakarta.
Tech is supercharging office demand
As Asian economies continue to evolve, the tech sector is growing at a rapid pace, adding nearly half a million jobs per annum. Favorable demographics, new technologies spawning start-ups and funds chasing the next unicorn are driving its momentum across the region. In 2017, the tech sector accounted for more than 40% of the major leases inked in the region. Besides, the traditionally dominant markets of India and China, the tech invasion has taken over cities like Singapore, Sydney and Southeast Asia over the last two years. For example, tech giants like Facebook, Google, LinkedIn, Expedia and Apple have taken over Martin Place in Sydney’s CBD, which was once dominated by major banks. Similarly, in Singapore, which has seen the likes of Microsoft, Facebook, Airbnb and LinkedIn securing new leases for regional headquarters. Southeast Asia is also fast becoming the new battleground for tech stalwarts trying to dominate the nascent start-up ecosystem with massive investments. Companies like Google, Alibaba, Tencent and Softbank are pouring in large capital and business experience into promising start-ups like GO-JEK, Lazada, Tokopedia and Grab. Companies are chasing promising markets like Philippines, Indonesia, Thailand and Vietnam, banking on prospects of rapid economic growth, rising consumption levels and an underpenetrated internet economy. Manila, Jakarta and Ho Chi Minh City are primed for tech growth standing out for availability of tech talent, lower rents and relatively more affordable cost of living. Meanwhile, in India, the tech sector is undergoing a transformation towards providing digitization and automated services as companies gear up for contract renewals of more than USD 50 billion in 2018. This bodes well for the outsourcing ecosystem in India which has faced some turbulence over the last two years. As such, we expect tech sector to continue supercharging o ce demand over the next three to fi ve years.
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