KonsPro (3/1/2014), HONG KONG – THE relatively firm economic backdrop could aid a broad-based rebound in office demand in the majority of the top 30 cities tracked in Asia Pacific in 2015. New supply, totaling an estimated 93 million square feet, will hit its first peak next year but driven by healthy demand for office space, overall vacancy rates is estimated to edge up by just 0.6 percentage points.
Consequently, the availability of quality space and expanding corporate activity will propel absorption to increase by over 20%, from an estimated 62 million square feet in 2014, to reach a seven-year high next year. Highest absorption gains are expected in Beijing, Tokyo’s 5 Central Wards and Shanghai among core markets; and Bangalore, Manila and Chengdu for emerging markets.
Absorption gains in the emerging markets, where over 70% of new supply next year will be in, are expected to be most pronounced. Established growth drivers such as information technology, business process outsourcing, and professional and business services making bigger market plays at a local level will in turn also fuel the expansion of other supporting office-using sectors.
“The competitive cost structures in emerging Asia will remain a linchpin of a thriving outsourcing industry and fast-rising manufacturing hubs outside of China,” said Sigrid Zialcita, Managing Director of Research for Asia Pacific, Cushman & Wakefield. “In addition, the commitment to structural reforms will progressively squeeze inefficient industries and pave the way for the growth of stronger institutions across many sectors needed to drive leasing activity.”
Indeed, the IT outsourcing sectors in the global BPO hubs of India and Manila will drive a large part of the demand. With businesses infused with renewed confidence after the elections, leasing activity in India has picked up significantly. While Flipkart’s three million square feet in Bengaluru and Tata Consultancy’s 1 million square feet of space in the capital this year are done deals, activity is expected to gain further momentum as companies like Accenture, Standard chartered and a Consulting Major are reportedly on the hunt for spaces totaling over a million square feet each.
Manila’s booming BPO sector is also fueling growth in other sectors, fostering the rise of an increasingly tech-savvy generation that embraces social media and e-commerce, which tech giants are anxious to tap into. Google, which opened its office in Manila last year, is also looking to expand its presence as it takes advantage of the talent base in the country to grow its back office services.
In the core markets, Beijing and Shanghai will account for the bulk of absorption, as a teeming supply pipeline will bring relief to occupiers there. High-quality office premises continue to see strong demand from domestic companies as the tertiary sector continues to expand its proportion of the economy. Internet finance companies have also emerged to be a major occupier of office space in these cities.
Having been a strong pillar of leasing activity in the region in 2014, new tech companies are expected to remain active in the coming year. Overall, the Asia Pacific region remains the growth leader globally, which will allow economies to breed a wealthy consumer base, especially in emerging countries, and the critical mass needed to sustain the sector’s long-term viability over the next decade.
“There are good reasons to believe that the immense upside potential of the new technology sector in Asia Pacific will be sustained, with a young population base, particularly in emerging markets, that are more open to innovative mediums, rising domestic consumption, urbanization fostering the rise of the mobile commerce platform,” said Miss Zialcita.
Tokyo will also remain in the spotlight in 2015 with strong demand from occupiers to remain intact amid an expanding corporate sector.
“Japanese companies are performing very well on account of the weak yen”, said Miss Zialcita. “While the continual uptrend, still at an early stage, could be patchy, recent policy moves indicate that growth remains Japan’s top priority and key to instilling confidence among corporates, which in turn, will be critical to sustaining the current positive momentum in the property markets,” she added.
Supply additions will be keeping pace with the rising trend in demand through 2015 except in Chengdu, Kolkata, Ahmedabad, Delhi NCR, Pune and Hanoi, where vacancies will remain in excess of 20.0%.
Single-digit rent growth is expected across the top 30 cities tracked in the region for 2015. For core markets, Grade A rents are forecasted to rise another 1.0-2.0% per annum, with Tokyo posting the highest rent growth on the back of ultra-low vacancies. Rents in Singapore are expected to move up once again in a favorable supply/demand environment in the prime office market, but the pace will be slower relative to the 10%.
For emerging markets, average rents are expected to be flat to declining in the majority of the emerging markets as rampant supply will restrain landlord leverage. Jakarta, Shenzhen, Manila, Chennai and Bangkok will buck the trend with above-average annual rent growth of 3.0-5.0%, though this pace represents the third consecutive year of slowdown for most of these markets.
“For the region as a whole, 2015 will be another year of diminished rent growth expectations. Still, while annual rent increases have moderated since 2011, tenants with three-year leases will, by and large, face slightly higher renewal rates in 2015. On average, rents will be up 6-7% for core and 7-8% for emerging markets from 2012,” elaborated Miss Zialcita. (Sumber: Riset Cushman & Wakefield)