ASIA PACIFIC OFFICE OVERVIEW April - June A CUSHMAN & WAKEFIELD QUARTERLY RESEARCH PUBLICATION INSIGHTS INTO ACTION
ASIA PACIFIC OFFICE OVERVIEW OCCUPIER CONDITIONS INDIA Delhi-NCR GREATER CHINA Chongqing Shenyang Tianjin - Kowloon - Central AUSTRALIA SINGAPORE PHILIPPINES INDONESIA VIETNAM Ho Chi Minh City THAILAND MALAYSIA India Demand for marquee space in technology parks is still strong in cities like,, and, where some tenants are pre-leasing the space, sub-10% vacancy levels and rising rentals will continue, landlord-favorable Delayed new supply and below trend market activity in Delhi- National Capital Region (NCR),, and, tenantfavorable conditions to continue through 2018 China Large scale new supply in four major cities will continue unabated through 2019, fierce competition from landlords in suburban markets, Central Business District (CBD) rents are still firm, tenant-favorable conditions (except Central, generally and certain sub-cbds in other markets) will continue New large-scale supply in the second half to intensify competition in Kowloon, increasing rentals in Greater Central to widen the gap between core and decentralized areas SOUTH KOREA JAPAN Taiwan Supply surge through 2018, flight-to-quality driving market activity, rising vacancies Japan Rentals likely to moderate from the second half of, market turning tenant-favorable, demand for new projects is still strong, pre-leasing will continue South Korea Large scale relocations and consolidations will continue through 2018, higher new supply over the next three years, rentals moderating Australia Rental growth slowing down in, incentives stable at 20-22%; continued rental growth in, downward vacancies will continue through mid- 2018, s recovery gains traction Competitive rents and higher incentives continue to push flight-to-quality trend, rents to bottom out in 2018 Continued downsizing/ subleasing by tenants in Oil & Gas sector, declining rents in the CBD, projects in decentralized areas located along upcoming metro corridors are in demand Vacancies are still tight despite higher new supply, demand from outsourcing & technology sector is still strong, rental growth will continue through 2018, new supply will continue in prime locations such as Makati CBD and Bonifacio Global City Turnaround in market sentiments; technology, insurance, serviced office and co-working are driving the leasing market, first rental growth after more than two years, rental growth to continue through 2020 Leasing activity is limited by tight vacancies, constrained supply supportive of sustained rental growth, new supply in CBD in 2020 Ho Chi Minh City Vacancies expected to go up in the second half, new supply through 2019, relocations are expected to drive market activity and rising availabilities to pressure rents 2 3
ASIA PACIFIC OFFICE OVERVIEW KEY TAKEAWAYS Sustaining the momentum Economic activity in first half of has been generally healthy across most countries in the region. Asia Pacific was able to sustain the positive momentum witnessed early this year, thanks to robust consumption, resurgence in external demand and infrastructure spending. India is strong at more than 7% and is rolling out its biggest tax reform to further strengthen its economy. Similarly, Japan has posted positive economic growth for the fifth quarter in a row. Growth in Southeast Asia is stable with the Philippines and Vietnam being the star performers. Meanwhile, India s central bank has cut the policy rate to a more than sixyear low. Steady improvement in leasing activity, rental gains moderated by new supply Across the region, leasing activity has been primarily driven by the banking, financial services, and insurance (BFSI) and technology sectors, as economic growth underpins corporate expansions. The banking industry s revival has been particularly evident from large-scale transactions in,, and India over the past 12 months. Several global and regional BFSI tenants such as JP Morgan, AIA, ANZ, Wells Fargo, Prudential, DBS and Deutsche Bank have leased spaces measuring more than 50,000 square feet (sf) to ramp up business activities across the region. In India however, there is more focus on ramping up back-end facilities that would support global operations. For example, clients like JP Morgan have leased more than 300,000 sf in during this period. Despite industry-wide concerns, the technology sector continues to drive the market activity in India. While some large technology clients have focused on consolidations and selective expansions, demand for marquee space in technology parks remained strong in cities like,,, and, where some tenants are pre-leasing the space as needed. In, rental values rose for the first time in two years. Average rents in were also higher, but a looming supply influx could provide tenants with more leverage going forward. In Australia, rental growth in slowed after a strong performance in, and across most emerging markets, new office supply has impacted vacancies. In, sustained demand from the technology industry and healthy take-up from emerging sectors such as online gaming and serviced offices have helped to support rentals. On the supply side, the region is on track to witness its record-high office supply this year with Tier 1 cities in China, India,, and leading the new projects. India s Goods and Services Tax After a 14-year long journey, India has finally rolled out its Goods and Services Tax (GST) starting July. Touted as one nation, one tax, it is the biggest tax reform the country has ever implemented. The proposed legislation is expected to remove the cascading effect of taxes and push Gross Domestic Product (GDP) growth above 8%, as projected by the International Monetary Fund (IMF). It is a fourtiered tax structure ranging from 0-28%, with lower rates for essential items and the highest for luxury goods. As for real estate, the warehousing and logistics sector could be the biggest beneficiary as it would ease the supply of goods and services across the country, making it a unified market and leading to economies of scale and efficiencies in the supply chain. The tax implementation will also spur operational benefits for retail, another big positive for the economy as currently more than two-thirds of the sector is still unorganized. When combined with the recently introduced Real Estate Regulatory Act (RERA), GST could make the residential sector more organized over the next three to four years. Foreign investments in the service sector are expected to grow multi-fold in the longer run despite discrepancies and anomalies in the beginning as it will enforce higher accountability and transparency. In summary, the new law is a milestone for the country but still a work in progress. The whole process of uniting a complex and fractured tax system and bringing the nation on board will continue over the next two to three years. In the longer run, Indian businesses can become more competitive on the global stage which will translate to more opportunities for the nation. ASIA PACIFIC OVERVIEW STATISTICS OCCUPANCY COSTS US$/sf/mo 1 1 1 11.69 2 2 2 9.07 4 3 3 Delhi - CBD 6.55 3 4 4 6.21 5 6 5 5.36 6 5 6 5.29 7 7 7 Ho Chi Minh City 4.45 9 8 8 - SBD 4.30 8 9 9 3.81 10 10 10 3.67 11 11 11 - CBD 3.63 12 12 12 3.42 13 13 13 2.98 15 14 14 2.73 14 15 15 2.67 16 16 16 2.62 18 17 17 2.58 17 18 18 2.35 19 19 19 Taipei 2.32 20 20 20 Gurgaon - CBD 2.15 21 21 21 Canberra 2.05 23 22 22 1.75 22 23 23 1.68 24 24 24 1.46 26 26 25 1.14 25 25 26 1.13 28 27 27 1.01 29 28 28 0.92 27 29 29 0.88 30 30 30 0.67 VACANCY RATES 5 3 1 Ho Chi Minh City 2.8% 1 1 2 2.9% 3 2 3 3.7% 6 4 4 Gurgaon - CBD 3.8% 14 6 5 5.7% 7 8 6 5.8% 8 12 7 5.8% 9 9 8 6.1% 2 5 9 6.1% 4 11 10 6.5% 12 7 11 6.6% 10 10 12 7.2% 20 13 13 Taipei 8.4% 15 15 14 8.5% 11 14 15 - CBD 8.7% 19 16 16 9.0% 17 17 17 Canberra 9.4% 21 18 18 11.3% 22 19 19 11.7% 13 20 20 11.9% 16 23 21 13.1% 25 24 22 15.0% 23 25 23 Delhi - CBD 15.3% 24 21 24 15.7% 18 22 25 15.9% 27 26 26 - SBD 20.3% 26 27 27 23.2% 29 29 28 32.2% 28 28 29 33.4% 30 30 30 37.5% % 4 5
ASIA PACIFIC OFFICE OVERVIEW Rental Growth (YOY) DECREASING STABLE INCREASING Delhi-NCR Taipei Canberra Ho Chi Minh City *Markets are arranged in alphabetical order Under Construction TOP 10 sf BOTTOM 10 sf 2 1 1 92,255,815 18 18 19 4,089,860 1 2 2 74,556,950 25 22 20 3,472,434 3 3 3 71,954,131 21 19 21 Taipei 3,319,614 4 5 4 35,609,907 16 20 22 3,305,819 7 4 5 35,458,515 24 23 23 2,523,061 5 7 6 27,198,600 23 24 24 Ho Chi Minh City 1,986,577 8 6 7 26,881,675 22 25 25 1,721,083 11 8 8 Delhi-NCR 25,539,240 27 26 26 909,220 9 9 9 22,465,000 26 27 27 516,667 13 11 10 17,893,409 28 28 28 Canberra 330,527 Vacancy Rates Taipei Canberra Ho Chi Minh City CORE EMERGING CORE 8.3 % Occupancy Costs Taipei Canberra Ho Chi Minh City CORE EMERGING CORE 59.80 US$/SF/YEAR Construction Completions QUARTERLY TRAILING 12 MONTHS ENDING sf JUN 2015 JUN JUN sf 2 1 1 7,138,984 2 1 1 20,819,439 1 4 2 2,287,060 1 4 2 11,507,199 14 6 3 2,267,034 13 11 3 10,539,494 5 15 4 1,460,606 4 2 4 9,828,377 15 3 5 1,292,265 16 6 5 9,347,746 23 24 6 1,219,000 7 8 6 5,588,596 9 16 7 1,130,210 5 12 7 3,330,000 NCR EMERGING 15.9 % NCR EMERGING 23.07 US$/SF/YEAR 22 9 8 1,092,537 15 5 8 2,847,054 16 10 9 NCR 715,000 10 14 9 2,767,814 8 13 10 687,500 21 27 10 2,671,210 *All figures for Australian markets are half-yearly. 0 25 50 0 25 150 6 7
ASIA PACIFIC OFFICE OVERVIEW YTD Absorption and Supply Million sf 30 25.66 YTD Absorption YTD Supply ABOUT THE DATA 20.90 15 2.29 11.06 9.84 4.03 6.81 Market coverage includes premium and Grade A properties in CBD and where relevant new prime centers that are well located, with office spaces that have higher design standards, large contiguous floor plates, managed professionally, are well leased to high quality tenants and suitable for institutional grade portfolios. 0 1.55 0.98 0.50 Availability and Space Under Construction Million sf 350 175 0 Australia Greater China North Asia South Asia 6.51 6.04 47.85 301.32 12.47 26.50 71.58 Australia Greater China North Asia South Asia *All figures for Australian markets are half-yearly. 141.63 Southeast Asia Availability Under Construction 20.11 63.83 Southeast Asia Under construction space includes all projects that have broken ground but not stalled as of the reporting quarter. Construction completions includes all new supply with projects that have completed and ready/fit for possession. Absorption refers to incremental new space takeup, and exclude renewals. Occupancy costs include standardized market rents or net leasable area basis and service charges are included as applicable. Data for Australia are based on bi-annual numbers as available from PCA. For more information about C&W Research, contact: SIGRID ZIALCITA Managing Director, Research, Asia Pacific +(65) 6232 0875 sigrid.zialcita@ap.cushwake.com INSIGHTS INTO ACTION Disclaimer: Cushman & Wakefield (C&W) is known the world-over as an industry knowledge leader. Through the delivery of timely, accurate, high-quality research reports on the leading trends, markets around the world and business issues of the day, we aim to assist our clients in making property decisions that meet their objectives and enhance their competitive position. In addition to producing regular reports such as global rankings and local quarterly updates available on a regular basis, C&W also provides customized studies to meet specific information needs of owners, occupiers and investors. Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help occupiers and investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. marks the 100-year anniversary of the Cushman & Wakefield brand. 100 years of taking our clients ideas and putting them into action. To learn more, visit www. cushwakecentennial.com, www.cushmanwakefield.com or follow @CushWake on Twitter. Cushman & Wakefield, Inc. All rights reserved. Cushman & Wakefield, 3 Church Street #09-03 Samsung Hub 049483 www.cushmanwakefield.com 8 9
ASIA PACIFIC OFFICE OVERVIEW This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete. Published by Corporate Communications. INSIGHTS INTO ACTION Cushman & Wakefield, 3 Church Street Samsung Hub #09-03 049483 www.cushmanwakefield.com Cushman & Wakefield, Inc. All rights reserved.