Singapore leads growth in Asia Pacific office rent

CBRE’s first quarter Asia Pacific Office Rent Index up 3% but lower than the 3.6% posted in the fourth quarter as quake forced Japanese to defer relocation plans.

Corporate expansion remained the major demand driver for prime office space in Asia Pacific during the first quarter of 2011, with occupiers particularly active in absorbing space in the leading cities of China and India as well as in Singapore.

The upward pressure on prime rents across the region continued to gather momentum in the first quarter. The CB Richard Ellis Asia Pacific Office Rent Index gained 3.0 per cent during the period, a figure slightly lower than the 3.6 per cent recorded in the fourth quarter of 2010. Cities in Greater China and Singapore led growth both in terms of rental appreciation and expansionary demand.

Following the quick revival witnessed during 2010, the Singapore office market recorded a more measured start to 2011 as occupiers digested the significant expansion space taken up last year. Although prime office rents continued to trend upwards, the pace of rental growth moderated to 3.6 per cent quarter-on-quarter from 12.2 per cent in the fourth quarter of 2010. Average prime rents stood at $8.60 psf/month in Q1 2011. Forecast completions for 2012 have been lowered from 2.1 million sq. ft. to 1.4 million sq. ft. as several developers rescheduled the launch of new projects. Forthcoming relocations to new buildings will increase the volume of secondary space, a trend which will exert pressure on rents in older buildings.

Business in Tokyo was hit by the Great East Japan earthquake and tsunami with a number of occupiers suspending relocation plans. Whilst the full impact of the disaster on the office market and wider economy is still emerging, office rents there recorded a decline of 1.6 per cent quarter-on-quarter.

Vacancy remained on a downward trend with almost all markets in Asia recording a decline during the review period. The overall vacancy rate for the 16 Asian markets tracked declined by 90 bps quarter-on-quarter to 10.3 per cent as of the end of the first quarter. Occupiers were particularly active in absorbing space in China, India as well as in Singapore. China alone accounted for more than half the additional demand for office space in Asia Pacific recorded during the period, according to a CBRE report.

“The trend towards corporate expansion and consolidation is leading some occupiers to seek options outside of CBD’s or in City Fringe locations. This is particularly the case in Hong Kong, but major occupiers with limited large short term options are also looking outside Australian CBD’s as well.” commented Nick Axford, Head of Research, Asia Pacific.

Overall, office completions in the Pacific are currently going through a lean period, in the aftermath of the Global Financial Crisis. In contrast, many parts of Asia are anticipating the possibility of oversupply in future quarters with several pipeline projects opting to delay their completion in order to avoid over-competition for tenants. In Tokyo, some delay in office completions is likely going forward given issues procuring building materials following the earthquake/tsunami disaster. Asia Pacific office completions for 2011 have consequently been revised downwards to 55 million sq. ft from 64 million sq. ft. “The supply pressure in these markets is expected to offset the effects of growing expansionary demand, either limiting or balancing out rental growth in some cases.” said Nigel Smith, Executive Director,

Landlord Project Services Asia, “Meanwhile, new supply in Beijing, Hong Kong and Taipei will remain limited, a trend that will encourage landlords to raise asking rents.”

Although the Japan quake and natural disasters in the Pacific weakened business sentiment and dampened industrial production in those markets, they are not expected to slow the pace of corporate expansion elsewhere. Key emerging markets will continue to grow at a brisk rate with companies expecting to take on new staff, particularly in China, Hong Kong, Singapore, Australia and India.

Amongst others, United Overseas Bank, RHB Islamic Bank, CIMB and BNP Paribas have announced plans to grow their headcount in Singapore. ANZ Bank has hired some 500 staff and are planning to increase headcount further.

Office markets in other parts of the region are expected to continue to be driven by internal growth and the expansion of multinational corporations amidst brisk economic growth.