Office prices to grow 25% in 2011

The improvement of rental performance and investor confidence is seen to boost the office prices.

According to Jones Lang LaSalle's research, positive business sentiment and solid corporate hiring are buoying leasing demand in the office markets of Asia Pacific. In 2010, aggregate net take-up across major Tier I markets was more than double the level of the previous year.

Vacancies have stabilised or started to trend down in many cities and more markets moved to the upturn phase of the rental cycle in 4Q10. Of the 26 featured office markets, 17 saw an increase in net effective rents during the quarter. In the previous quarter, 12 markets recorded an increase in rents. Rental growth is accelerating, with an average quarter-on-quarter increase across the region of 3.1%. In 3Q10, quarterly rental growth averaged 1.8%.

Beijing recorded the largest quarterly rental growth of 9.0% in 4Q10, while rents in Shanghai grew by 7.9%, with the result for both markets being driven by strong spatial demand from MNCs and domestic corporates. Rents in Singapore grew by 8.6% q-o-q, underpinned by a temporary shortage of space. Hong Kong saw a further 4.6% increase on the back of a tight supply situation and solid demand by the financial sector. On an annual basis, Hong Kong led the way across the region, recording a strong 33% increase in rents.

Jeremy Sheldon head of markets for Jones Lang LaSalle in Asia Pacific says, "the pick up in demand is broad based, and increasingly includes the local corporate sector, especially in China and India. MNC's seeking global growth opportunities are in the market as well as some new entrants. These trends will continue into 2011 barring any economic or political turbulence. This demand will exacerbate rental increases in markets where vacancy is already low."

Capital values are expected to increase in nearly all markets during 2011, by up to 25%, as rental performance and investor confidence further improve. Markets expected to see the largest growth include Hong Kong, Tokyo, Singapore and the China Tier I cities.