Rents in Asia edged up by 9.6% in 2010 as demand for office spaces in Singapore heightened

Rental growth in Singapore accelerated to 12.2% in the fourth quarter while rents in Beijing and Shanghai also continued to appreciate.

According to CB Richard Ellis, the Asian office market continued to benefit from much improved business sentiment in the fourth quarter of 2010 as multinational companies focused on growth markets in the region and Asian corporations expanded to capture a larger market share. During 2010 the aggregate net absorption of prime office space across the 16 major Asian cities reached levels not seen since the onset of the Global Financial Crisis in 2007, and more than doubled the level recorded in 2009, according to CB Richard Ellis’ Q4 2010 Asia MarketView report.

“Although there were signs that Asian economic growth was slowing towards the end of the year, office demand remained strong in the fourth quarter of 2010,” said John Falkiner, CB Richard Ellis’ Managing Director of Transactions for Asia. “The period saw a steady flow of pre-commitments to new development schemes and cities including Tokyo, Singapore, Beijing, Mumbai and New Delhi reported a number of large leasing deals involving premises of over 100,000 sf.” Most of the cities under review saw availability compress further due to strong take up, with newly released space quickly filled by expansionary activity. During the period the overall vacancy rate for Asia further declined by 50 basis points q-o-q to 11.3%. Grade A space in CBD areas was the subject of particularly strong demand with vacancy rates in Hong Kong, Singapore and New Delhi dropping to levels at or below 3%.

Overall office rents in Asia rose by 3.9% q-o-q in the fourth quarter of 2010 and edged up by a total of 9.6% for the whole year as cities in Greater China and Singapore continued to witness strong demand for prime leased office premises. Rental growth in Singapore accelerated to 12.2% in the fourth quarter while rents in Beijing and Shanghai also continued to appreciate. In Hong Kong, which was the first cities in Asia to enter the upward rental cycle in the second half of 2009 and recorded strong rental growth of 34.7% in 2010, tenants begin to resist landlords’ continuous rental increases. Rental growth in Hong Kong for the fourth quarter consequently slowed to 6.6% q-o-q from 10.9% q-o-q recorded in the third quarter.

Declines in prime office rents were recorded in Tokyo, Seoul and Ho Chi Minh City, ranging from 0.2% in Seoul to 4.5% in Hanoi. In Tokyo, the downward rental cycle has already lasted for 12 quarters and the market is now approaching bottom, with the fall of 2.3% q-o-q in the previous quarter slowing to 0.8% in the fourth quarter. To a certain extent, the downward pressure on rents in markets such as Seoul and Ho Chi Minh City was largely due to the large quantum of new supply which cam e on stream during the period under review.

Over the next year the Asian office market will continue to be characterised by broad-based demand for office space and a high volume of new supply in m ost first tier cities. A significant quantum of new office completions will come on stream in the larger commercial centres of China and India, both of which are in the midst of a commercial property construction boom , but Hong Kong and Taipei will see only lim ited new supply. New supply in Hong Kong will largely consist of buildings with smaller floor plates while the quantum of Grade A office stock in Taipei will remain unchanged until 2013.

The availability of office space in many Asian markets is expected to improve over the course of the year although a large amount of good quality space has already been pre-committed. The wave of new com pletions will help mitigate some of the upward pressure on rents and encourage some landlords to become more active in offering incentives to market vacant space in their portfolios.

“The challenge for Asia in 2011 will be the possible dampening effect that faltering growth in the European Union and United States m ay have on the pace of corporate expansion in Asia,” said Nick Axford, CB Richard Ellis’ Head of Research for Asia Pacific. “Requests for further rises in MNC office budgets may come under closer scrutiny as headquarters seek to control growth in global corporate spending, despite the fact that many of them have plans to increase their headcount in Asia in 2011”.