CB Richard Ellis -- Overall Demand for Office Space in Asia Remains Robust

Asian office markets generally sustained their positive momentum in the third quarter of 2007. Supply of Grade A office space remained tight in the CBD areas of Hong Kong, Singapore and Ho Chi Minh City, with vacancy rates hovering at 5% or lower.

Hong Kong (PRWeb) December 28, 2007 -- Asian office markets generally sustained their positive momentum in the third quarter of 2007. Supply of Grade A office space remained tight in the CBD areas of Hong Kong, Singapore and Ho Chi Minh City, with vacancy rates hovering at 5% or lower. Overall demand for office space in Asia's major commercial centres remained robust, with demand from expanding local businesses and non-finance related occupiers increasingly significant in many Asian markets. Prime office rents did not change significantly over the preceding quarter in major Asian cities, although some upward pressure was seen in quality buildings in prime locations. Notably, Philippines and Singapore led the entire Asian market by posting over 15% rental growth over the preceding quarter.

Beijing's prime office market was active in the third quarter as take-up reached 1.7 million sf, up 18.3% q-o-q. Average rent continued its steady increase, rising 1.6% q-o-q to RMB 17.3 psf per month. Of the five projects scheduled for completion during the quarter, only two came on stream: the 409,032 sf Zhongyu Building, in Sanlitun, Chaoyang District and the 430,560 sf Gemdale Center Tower B, also in Chaoyang.

Shanghai's office market remained buoyant in the third quarter. Average rent grew by 2.7% q-o-q to RMB 20.9 psf per month. In Puxi, rents rose by 2.6% q-o-q to RMB 20.4 psf per month, while Pudong rents increased by 3.3% q-o-q to RMB 22.3 psf per month. Two Grade B buildings added 685,300 sf of space to the market. Vacancy continued to tighten, falling 0.9 percentage points q-o-q to a record low of 3.5%.

The pace of rental growth and take-up increased in Guangzhou in the third quarter. Expansions and relocations drove average prime office rent up 6.4% q-o-q, to RMB 9.65 psf; average Grade A rents registered an even sharper rise of 8.8% q-o-q. Three new projects, two of them Grade A, added 2.98 million sf of space to the market. Despite strong absorption, the new supply saw overall vacancy rise 1.4 percentage points q-o-q to 17.4%.

In Hong Kong, strong expansionary demand and insufficient supply combined to keep vacancy rates of prime Central buildings at historic lows while pushing core Central office rents to new highs. Both Two IFC and Exchange Square, for instance, saw record or nearrecord transactions. The effects of high demand were widespread, as rental hardening extended from Central to CBD-fringe areas (e.g. Admiralty and Wan Chai/Causeway Bay) and upcoming projects attracted strong pre-commitment interest.

Following a relatively sluggish second quarter, net take-up increased markedly in the third quarter of 2007 in Taipei. Activity was upbeat across sub-markets, with prominent leasing transactions including Hontai. Life Insurance leasing 75,735 sf in the Hung Tai Century Building and Bank of America occupying 50,330 sf in Taipei 101. The lack of new supply and robust demand are expected to continue to drive rents upward, albeit slowly.

In Tokyo, a shortage of prime office space amid rising demand continued to drive rents upward during the third quarter. Average prime office rent, inclusive of common area management fees, reached JPY 61,250 per tsubo (US$14.88 psf) per month, showing an increase of 6.5% q-o-q and 20.1% y-o-y. However, a widening gap between landlords' rental expectations and tenants' willingness to absorb higher occupational costs saw Grade A vacancy increase 40 basis points q-o-q to 1.3%.

Keen demand in Seoul pushed office rents higher in the third quarter. Average Grade A office rent reached KRW 21,543 psm (US$2.15 psf) per month, up 1.08% q-o-q. Overall vacancy increased marginally due to increased vacancy in Gangnam as new buildings came on stream, however vacancy in the CBD reached an all-time low. Three new buildings added 1.9 million sf of office space, with the market actively absorbing the approximately 50% of this space which was available for lease.

In New Delhi, leasing momentum remained strong in the National Capital Region (NCR). Demand was especially robust in the IT/ITeS sector, and approximately 30% of the IT/IteS supply entering the market next year has already been pre-committed. The same trend is evident in Gurgaon and Noida. A wave of IT/IteS-oriented facilities in special economic zones (SEZs) will begin entering the NCR market in the fourth quarter. Interest is expected to be intense, given the tax benefits available in SEZs.

Mumbai's vacancy in the CBD remained at an all-time low, hovering at approximately 1% and driving rental increases. ABN AMRO's widely reported lease renewal at Sakhar Bhavan in Nariman Point at a considerably higher rent of INR 500 (US$12.25) psf per month has raised rent expectations in the CBD, and most landlords now quote rents in excess of INR 400 (US$9.80) psf per month. Rents in the CBD are increasingly being charged on built-up area instead of net leasable area, with this trend being seen in both new transactions and renewals.

In Bangalore, new entrants and newly established companies were the primary drivers of the Bangalore office market in the third quarter, with the CBD the preferred location for these firms. A substantial amount of supply re-entered the market as Intel and HP vacated CBD space to move into their own campus developments. Prospective tenants are actively evaluating the vacated space. One building, of approximately 22,000 sf, was completed and is undergoing fit-out in the CBD.

Jakarta's leasing activity remained robust in the third quarter of 2007, with the positive momentum expected to continue as Indonesia's economic recovery drives business activity and results in additional expansion and relocation-related demand for office space. Several projects in the CBD are expected to come on stream in the fourth quarter of 2007 or early 2008, including the Pacific Place Office Tower in Sudirman and the Menara Prima and The East in Kuningan.

In Kuala Lumpur, in the first new supply to reach the market in 2007, the Grade A Capital Square (The Signature Offices) came on stream in central Kuala Lumpur during the third quarter. The prime office leasing market maintained its positive momentum, with large-scale leasing activity in buildings completed in the first half of 2007. Major transactions included the relocation of PricewaterhouseCoopers to 1 Sentral and ALSTOM Power Asia Pacific taking up 36,000 sf in Chulan Tower.

Prime office rents in the Makati CBD, Manila reached an all-time high after jumping nearly 20% q-o-q in the third quarter. Rents for prime office space averaged PHP 1,200 psm (US$2.43 psf) per month, with rents in some buildings reaching PHP 1,300 psm (US$2.64 psf) per month. Given that there are no prime office buildings under construction in Makati, and vacancy is at 1%, rents are expected to continue to increase, prompting some occupiers to consider alternate locations.

In Singapore, the recent uncertainty in global financial markets has had no discernible impact on demand for office space. Prime office rents averaged S$12.60 psf per month, increasing 16.7% q-o-q and 82.6% y-o-y, and now exceed the 1990 historical high of S$11.50 psf per month. Demand remained broad-based, though the financial and insurance sectors were predominant among those with larger space requirements. Though we foresee further rental increases, we expect the pace of growth to ease.

Bangkok's office market was sluggish in the third quarter as demand remained weak, due to the slowing economy and uncertain political environment, as well as concern about regulations governing foreign companies. However the ratification of a new constitution in August, and prospects of a December 2007 election could help dissipate the political cloud that has overshadowed the Thai economy; and events will be closely watched.

In Ho Chi Minh City, during the first three quarters of 2007 approximately 93,209 sm (1.0 million sf) of office space was completed and almost fully occupied. However, the supply has been in the form of small buildings, and the third quarter saw the completion of no new Grade A or B office space. Some multinationals looking to expand their operations have delayed their plans until new Grade A buildings come on stream. After numerous delays, two Grade A buildings are likely to be completed in 2008.