Office rents to favour Singapore landlords

Rental growth of up to 30% is expected across Asia Pacific this year, with the strongest growth likely to be seen in supply constrained markets.

According to Jones Lang LaSalle, buoyant business sentiment and corporate hiring underpinned the Asia Pacific office leasing market in 1Q 2011. Rents in Singapore grew 7.9% q-o-q, underpinned by a temporary shortage of space. 

Aggregate net take-up across major Tier I markets was at a similar level to the previous quarter, but showed a marked year-on-year improvement of over 30%. The Japan earthquake has not materially affected occupier market conditions elsewhere in the region. Vacancies are trending down in many cities, and office rentals remained on a upswing across most markets in 1Q11. Of the 26 featured office markets, 16 saw an increase in net effective rents during the quarter, while for the remainder rents stabilised or recorded small residual declines. Aggregate rental growth moderated slightly as a result of weakness in Japan, with an average quarter-on-quarter increase across the region of 2.5%. In 4Q10, quarterly rental growth averaged 2.7%.

Jones Lang LaSalle expects leasing demand to remain solid this year, though vacancies are still set to rise in some markets over the next few quarters due to ample supply additions. Consistent with strong fundamentals, the regional office market is now largely landlord favourable. Rental growth of up to 30% is expected across the
region this year, with the strongest growth likely to be seen in supply constrained markets. Tokyo will however see a further delay in recovery and is forecast to record an annual decline of up to 5% in view of the recent events. A few laggards are also likely to see either no growth or some residual rental declines.

Capital values are expected to increase in nearly all markets outside of North Asia during 2011, by up to 35%, as rental performance and investor confidence further improve. Markets expected to see the largest growth include Hong Kong, Singapore and the China Tier I cities.