Asia Pacific Office MarketView Q1 2013 CBRE Global Research and Consulting RENTS UP 14 Markets RENTS STABLE 4 Markets RENTS DOWN 8 Markets VACANCY UP 4 Markets VACANCY STABLE 1 Markets VACANCY DOWN 13 Markets OFFICE RENTS REMAIN FLAT BUT DEMAND STABILISES AND OUTLOOK TURNS MORE POSITIVE 1 Hot Topics Economic growth in Asia Pacific gathered pace in Q1 2013 to its historical trend rate of around 4.5% y-o-y, up from 4.3% y-o-y recorded in Q4 2013, due mainly to slight improvements in growth in China and Japan. The overall Asia vacancy rate declined by 31 bps quarter-onquarter to 9.8% compared to an increase of 39 bps recorded in Q4 2012. Vacancy declined in 13 markets, was flat in one and rose in another four. Around 6.3 million sq. ft. of new office space was completed in Asia Pacific in Q1 2013, an amount well down on the 11.1 million sq. ft. of new supply completed in Q4 2012. The figure is the lowest level of new stock recorded since Q4 2006 but roughly in line with the longterm average of 7 million sq. ft. Forecasted completions for Asia Pacific in 2013 currently stand at 65 million sq. ft. compared to 73 million sq. ft. forecasted in Q4 2012. The revised total is due to project delays in China and India. Multinational corporations continue to focus on portfolio rationalisation and decentralisation. Many firms are seeking opportunities to adopt alternative workplace strategies and improve the efficiency of their existing space. Office demand in Asia Pacific was stable in Q1 2013 with net absorption totaling 7 million sq. ft., the same figure as in Q4 2012. Occupiers remained cautious in light of the subdued economic outlook, a trend which continued to impact leasing activity across most markets. However, Japan saw a noticeable improvement in occupier sentiment following the election of the Liberal Democratic Party. Hong Kong was the only market to record negative absorption as a sizable amount of secondary space was released to the market. The CBRE Asia Pacific Office Rental Index recorded marginal growth of 0.05% quarter-on-quarter in Q1 2013, a very slight improvement on the 0.14% quarter-on-quarter decline seen in Q4 2012. Rents have now been relatively flat for the past six quarters. In the current cycle overall Grade A rents peaked in Q2 2012. 000s sq. ft. Chart 1: Asia Net Absorption and Vacancy 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0-2,000 Net Absorption Overall vacancy Grade A rents were relatively flat during the period with the exception of Bangkok where they rose by 2.7% quarter-on-quarter, the seventh successive quarterly increase. The New Delhi CBD also recorded further rental gains. Markets that witnessed the biggest declines were Bangalore s CBD and Mumbai s Nariman Point and Bandra Kurla Complex, which fell by 11.1%, 3.6% and 3.4% quarter-onquarter respectively. Q2 2013 is expected to see steady leasing activity in most markets. Demand should gradually recover in 2H 2013 with the exception of key markets including Beijing, Singapore, Sydney and Melbourne. Occupiers will remain cautious in the short-term and leasing activity will focus on consolidation and relocation for cost saving. Domestic and regional conglomerates will continue to account for the bulk of leasing transactions. Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 16% 14% 12% 10% 8% 6% 4% 2% 0% 2013, CBRE, Group Inc.
Q1 2013 Asia Pacific Office MarketView 2 ECONOMIC UPDATE ASIA PACIFIC GROWTH BOOSTED BY GRADUAL RECOVERY IN CHINA AND JAPAN Economic growth in Asia Pacific gathered pace in Q1 2013 to its historical trend rate of around 4.5% y-o-y, up from 4.3% y-o-y recorded in Q4 2012, due mainly to slight improvements in growth in China and Japan. Although China s GDP figures during the quarter were weaker than expected at 7.7% y-o-y, investment in infrastructure and the housing market continued to improve. Japan also exhibited signs of recovery with industrial output, exports and retail sales all showing an uptick and business confidence surging amid the ongoing depreciation of the Yen and the new monetary easing policy to double the monetary base with 2% inflation target set by the Bank of Japan. In India new economic reforms brought about an improvement in sentiment whilst growth remained strong in Southeast Asia where steadily rising domestic demand continued to provide a cushion against weak global exports. Business sentiment among top companies in the region improved for a second consecutive quarter with the Thomson Reuters Asia Pacific Business Sentiment Index edging up from 63 in Q4 2012 to 65 in Q1 2013. An index reading about 50 indicates a positive outlook. Respondents in Malaysia and the Philippines were particularly optimistic about their short-term prospects. The export sector continued to exhibit very little growth although the latest PMI readings showed some improvement with most export-oriented countries recording levels just above 50 points, reflecting a marginally positive outlook. Japan is the country that saw the most notable improvement as its March PMI surpassed 50 for the first time since May 2012. The employment outlook for Asia Pacific improved slightly on a quarterly basis and appears to augur well for the region in the short-term. Surveys of employers in Taiwan, India, Japan, China, Singapore and New Zealand showed they had a reasonably strong intention to add new headcount during 2013. Australia once again was the least optimistic market, a position it has now held for four consecutive quarters, although confidence among employers did improve slightly on a quarterly basis. The relatively subdued mood was mainly due to the recent slowdown in the mining and construction sector where the pace of hiring has eased following the fall in commodity prices and cancellation of some major projects. Economic growth in Asia Pacific is expected to gather pace over the course of 2013 and reach around 4.8% y-o-y for the year as a whole. However, concern over the global economic situation will continue to weigh on sentiment, with the sovereign debt crisis in the Eurozone posing the biggest downside risk. Southeast Asia will continue to outperform, backed by strong domestic consumption and foreign investment. Chart 2: GDP Growth (%, Y-o-Y) 10.0 8.0 6.0 4.0 2.0 0.0 90 80 70 60 50 40 China Indonesia Vietnam Philippines Thailand India Malaysia Hong Kong Taiwan Singapore Australia New Zealand 2012 2013 F South Korea Japan Asia Pacific South-East Asia Chart 3: Asia Pacific Business Sentiment Index World Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Chart 4: Asia Pacific Employment Outlook 40 30 20 10 0 Taiwan India Japan Source: Oxford Economics Source: Thomson Reuters Note: A reading above 50 indicates an overall positive outlook New Zealand China Singapore 2012 Q4 2013 Q1 Hong Kong Australia Asia-Pacific Note: Net Employment Outlook: net % of companies plan to increase hiring (Source: Manpower Employment Outlook Survey)
3 KEY INDICATORS PRIME RENT AND VACANCY Table 1: Key indicators Country City Gross or net floor area Per local measurement Prime rent local US$/sq. ft. per annum (a) Q-o-Q change (%) Y-o-Y change (%) Vacancy rate (%) China Beijing CBD Gross RMB sq. m. p.m. 700 179 0.0% 2.2% 3.9% China Beijing Zhongguancun Gross RMB sq. m. p.m. 400 102 0.0% 0.0% 0.6% China Beijing Finance Street Gross RMB sq. m. p.m. 750 187 7.1% 15.4% 2.6% China Shanghai Pudong Gross RMB sq. m. p.m. 426 106 0.0% 7.7% 6.6% China Shanghai Puxi Gross RMB sq. m. p.m. 395 100 0.0% -7.1% 7.7% China Guangzhou Gross RMB sq. m. p.m. 230 64 0.0% -8.0% 12.5% China Shenzhen Gross RMB sq. m. p.m. 280 71 1.8% 5.7% 7.8% China Hong Kong Core Central Net HK$ sq. ft. p.m. 134 208-2.4% -6.2% 4.9% China Hong Kong Kowloon Net HK$ sq. ft. p.m. 99 153 0.0% 10.0% 2.1% Taiwan Taipei Gross NT$ ping p.m. 3,238 60 0.0% 0.4% 12.7% Japan Tokyo Net JPY tsubo p.m. 39,500 141 0.0% 0.0% 7.8% South Korea Seoul CBD Gross KRW sq. m. p.m. 36,300 69 0.0% 0.0% 11.4% South Korea Seoul Gangnam Gross KRW sq. m. p.m. 31,112 60 2.0% 8.3% 2.5% South Korea Seoul Yeouido Gross KRW sq. m. p.m. 27,527 55 0.0% 0.0% 10.1% India New Delhi CBD Gross INR sq. ft. p.m. 395 130 0.0% 0.0% 5.3% India New Delhi Gurgaon Gross INR sq. ft. p.m. 127 41 1.6% 3.0% 23.9% India Mumbai Nariman Point Gross INR sq. ft. p.m. 285 80-3.4% -12.3% 3.2% India Mumbai BKC Gross INR sq. ft. p.m. 345 112 0.0% -6.1% 29.1% India Bangalore Gross INR sq. ft. p.m. 125 37 0.0% 2.0% 2.3% Malaysia Kuala Lumpur Net RM sq. ft. p.m. 12 47 0.0% 0.0% 13.2% Philippines Manila Net PHP sq. m. p.m. 990 27 1.0% 16.5% 5.1% Singapore Singapore Net S$ sq. ft. p.m. 10 100-1.0% -16.3% 5.1% Thailand Bangkok Net THB sq. m. p.m. 842 32 2.3% 5.3% 13.0% Vietnam Ho Chi Minh City Gross US$ sq. m. p.m. 36 50 3.9% 1.4% 13.1% Vietnam Hanoi Net US$ sq. m. p.m. 42 47 1.8% -5.8% 29.9% Indonesia Jakarta Net IDR sq. m. p.m. 445,800 57 13.6% 38.9% 5.7% Australia Adelaide Net A$ sq. m. p.a. 408 39 0.0% -1.2% N/A Australia Brisbane Net A$ sq. m. p.a. 683 66-1.4% -0.2% N/A Australia Canberra Net A$ sq. m. p.a. 352 34 0.0% -0.3% N/A Australia Melbourne Net A$ sq. m. p.a. 493 48 0.0% 0.3% N/A Australia Perth Net A$ sq. m. p.a. 850 82 0.0% 3.7% N/A Australia Sydney Net A$ sq. m. p.a. 1,048 101 0.0% 0.5% N/A New Zealand Auckland Net NZ$ sq. m. p.a. 490 38 0.0% -0.5% N/A New Zealand Wellington Net NZ$ sq. m. p.a. 380 30 0.0% 1.6% N/A Notes: Prime rents are stated in local currency and prevailing unit of measure, as well as in those terms gross or net floor basis that are customarily employed in the respective market. Prime rent represents the top open-market tier of rent that could be expected for a unit of standard size commensurate with demand in each location, of highest quality and specification and in the best location in a market at the survey date. Cities in Pacific report vacancy figure half-yearly. Prime rents in U.S. dollars are quoted based on net floor area basis. Q1 2013 Asia Pacific Office MarketView 3 2013, CBRE, Group Inc.
Q1 2013 Asia Pacific Office MarketView 4 MARKET FUNDAMENTALS ASIA PACIFIC RENTS REMAIN FLAT FOR SIXTH CONSECUTIVE QUARTER OFFICE RENTS The CBRE Asia Pacific Office Rental Index recorded marginal growth of 0.05% quarter-on-quarter in Q1 2013, a very slight improvement on the 0.14% quarter-on-quarter decline seen in Q4 2012. Rents have now been relatively flat for the past six quarters. In the current cycle overall Grade A rents peaked in Q2 2012. Grade A rents in most markets were relatively flat during the period with the exception of Bangkok where rents recorded a gain of 2.7% quarter-on-quarter the seventh successive quarterly increase amid strong demand from international companies across various industries. The New Delhi CBD also recorded further gains. Markets that witnessed the biggest rental declines were Bangalore s CBD and Mumbai s Nariman Point and Bandra Kurla Complex, which fell by 11.1%, 3.6% and 3.4% respectively quarter-on-quarter. Most occupiers in Bangalore focused on relocating to newer buildings in peripheral and suburban business districts. At the same time, the CBD is suffering from high vacancy, low demand and secondary space pressure from tenants moving to more cost effective areas. In Mumbai, high vacancy prime front office locations continued to struggle to attract tenants amid subdued demand and the sizable volume of new supply scheduled to be completed this year. OFFICE DEMAND Demand for office space in Asia Pacific was stable in Q1 2013 with net absorption totaling 7 million sq. ft., the same figure as in Q4 2012. Occupiers remained cautious in light of the subdued economic outlook, a trend which continued to impact leasing activity across most markets. However Japan saw a noticeable improvement in sentiment following the election of the Liberal Democratic Party and subsequent introduction of a major economic stimulus package. Net absorption in Tokyo totaled 1.2 million sq. ft. as many recently completed buildings saw steady take up from a diverse range of industries. Other markets recording strong levels of net absorption included Bangalore (1.6 million sq. ft.) where occupiers continued to move to the Outer Ring Road in search of lower rents. Hong Kong was the only market to record negative absorption during the quarter as a sizable amount of secondary space was released to the market. In Sydney demand remained weak and large requirements were relatively uncommon. Shanghai continued to see weak demand particularly from multinationals and net absorption during the period was just 40% of the historical average. Many occupiers are opting to stay in their current location and time their lease expiry to coincide with the anticipated supply peak in 2014/2015. Index Q1 2000 = 100 Chart 5: Asia Pacific Office Rental Index 180 160 140 120 100 80 60 40 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Chart 6: Strongest Grade A rental growth, q-o-q 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% quarterly % change Index Chart 7: Office net absorption ( 000s sq. ft.) 60,000 50,000 40,000 30,000 20,000 10,000 0 Bangkok New Delhi CBD Hanoi Guangzhou Manila (Makati) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1 Q2 Q3 Q4 Annual New Supply 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% *Cities in the Pacific report net absorption figures half-yearly.
Vacancy Rate (%) MARKET FUNDAMENTALS OVERALL DECLINE IN OFFICE VACANCY LED BY TOKYO, SINGAPORE AND KUALA LUMPUR Chart 8: Asia Pacific vacancy rate (%) 18 16 14 12 10 8 6 4 2 0 Asia Pacific Asia Pacific H1 01 H2 01 H1 02 H2 02 H1 03 H2 03 H1 04 H2 04 H1 05 H2 05 H1 06 H2 06 H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 Q1 13 Table 2: Citywide office vacancy rate Q1 2013 q-o-q Δ(bps) y-o-y Δ (bps) Beijing 2.6% -60-242 Hong Kong 3.3% 30-67 Shanghai 7.3% -67 131 Singapore 5.1% -73-216 OFFICE VACANCY The overall vacancy rate for the Asia region declined by 31 bps quarter-on-quarter to 9.8% compared to an increase of 39 bps recorded in Q4 2012. Vacancy declined in 13 markets, was flat in one and rose in another four. Notable movements in vacancy were witnessed in Hong Kong, where overall vacancy rose to 3.3%. The figure represents 2.2 million sq. ft. of available space, 30% of which is located in the most expensive submarket, Central. The increase was largely driven by known space returning to the market. In Kuala Lumpur vacancy fell by 130 bps as net absorption tripled to 230,000 sq. ft. amid strong expansionary demand from occupiers in the oil & gas and financial services sectors. In Tokyo vacancy peaked at 10.3% in Q2 2012 and has declined steadily ever since. The market continued to see consolidation activity for cost reduction although many occupiers on the move were looking to relocate to better quality and well-located buildings. During the period Japanese manufacturers turned more active due to the improving foreign exchange situation whilst I.T. and securities and consumer finance companies exhibited steady demand for space in Tokyo. Vacancy in Singapore fell by 73 bps from 5.8% to 5.1%, the lowest level recorded since Q3 2008. Occupier demand was fairly diverse but companies in the financial sector remained quiet. Leasing activity was dominated by small and medium-sized deals involving insurance, commodities, business services and legal firms. Q1 2013 Asia Pacific Office MarketView Tokyo 7.8% -100 140 OFFICE CONSTRUCTION ACTIVITY 5 Vacancy & space under construction,% of stock Chart 9: Vacancy rate & space under construction 70 Space under construction Vacancy Rate Q1 13 60 50 40 30 20 10 0 New Delhi Hanoi Bangalore HCMC Mumbai Shenzhen Guangzhou Shanghai Jakarta Tokyo Kuala Lumpur Bangkok Seoul Adelaide Taipei Auckland Melbourne Singapore Wellington Canberra Sydney Beijing Brisbane Perth Manila (Makati) Hong Kong Around 6.3 million sq. ft. of new office space was completed in Asia Pacific in Q1 2013, an amount well down on the 11.1 million sq. ft. of new supply completed in Q4 2012. The figure is the lowest level of new stock recorded since Q4 2006 but roughly in line with the long-term average of 7 million sq. ft. Forecasted completions for Asia Pacific in 2013 currently stand at 65 million sq. ft. compared to the 73 million sq. ft. forecasted in Q4 2012. The revised total is due to project delays in China including 1.4 million sq. ft. of new supply in Beijing pushed into 2015 and several new schemes in Shenzhen delayed until 2014 along with a further 4.8 million sq. ft. of new supply being delayed in New Delhi, Mumbai and Bangalore. Shanghai has the highest development pipeline of any market with 31.1 million sq. ft. of new supply forecasted to be completed between now and the end of 2015. Forecasted completions for 2014 are 71.2 million sq. ft. against an historical long-term annual average of 31.3 million sq. ft. 5 2013, CBRE, Group Inc.
Q1 2013 Asia Pacific Office MarketView 6 MARKET SUMMARIES Grade A rents in Beijing rose marginally by 0.4% q-o-q due to resilient demand for space in Finance Street. Enquiries were led by large domestic and international companies across a number of sectors. Net absorption declined during what is traditionally a quiet period for leasing transactions. New supply stood at just 37,000 sq. m. for the year 2012 and no new completions are expected for the first nine months of this year. Competition for space will remain strong and should ensure further rental growth and low vacancy. Shanghai saw Grade A rents decline by 1.6% q-o-q as demand for space in core locations weakened further and companies opted to move to cheaper decentralised areas. The leasing market was relatively quiet and multinational companies remained cautious. Around 44,000 sq. m. of new supply was delivered during the quarter and another 431,000 sq. m. of new stock will come on stream over the next six months. Leasing activity is expected to gradually improve although many tenants will postpone their moves to coincide with the expected supply peak in 2014/2015. In Guangzhou Grade A rents edged up slightly by 1.1% q-o-q as demand improved, particularly from domestic companies. The period saw a number of relocations and expansions along with some upgrading demand. Although new supply over the next six months is significant at 341,000 sq. m., two new buildings are already 30% pre-committed and others are expected to be sold to end-user occupiers. Rents are expected to remain stable. Grade A rents in Shenzhen recorded weak growth of 0.3% q-o-q as the leasing market remained subdued. Several landlords, particularly those of properties with high vacancy, reduced their asking rents during the period. No new stock was completed in the quarter but 300,000 sq. m. of new office buildings will be added to supply over the next two quarters. Grade A rents are therefore likely to come under further pressure in the coming months. Overall Grade A rents in Hong Kong suffered a minor decline of 0.20% q-oq during Q1 2013. Demand remained sluggish in the Central CBD with very few whole floor deals completed. Decentralised districts on Hong Kong Island and Kowloon continued to receive enquiries from cost conscious occupiers but options remained limited with just 2.2 million sq. ft. of available space in the market. Grade A rental growth in Central will remain weak or non-existent over the course of 2013 but should recover in 2014 as demand begins to pick up. In Taipei Grade A rents increased by 0.3% q-o-q as leasing demand showed signs of recovery and landlords turned more confident about the domestic economy. Several deals involving small relocations and the leasing of space for self-use by affiliate companies of landlords were recorded during the period. However demand for larger spaces remained subdued and multinational companies were inactive. Grade A rental growth could gather pace in the months ahead and the completion of one major new building in 2H 2013 may generate some interest from larger occupiers. Grade A rents in Tokyo rose by 0.6% q-o-q as the city continued to see a wave of large-scale relocations. Firms were also looking to improve the grade and location of their building when they relocate. Net absorption was up 72% q-o-q to 32,000 tsubo due to new completions whilst vacant space in existing buildings was gradually filled. New supply in 2013 will be 67,000 tsubo and is concentrated in the first half of the year. Grade A rental growth is expected to pick up momentum. Seoul saw Grade A rents rise by 1.1% q-o-q in Q1 2013 mainly due to the fact that landlords typically review rents at the beginning of the year. Occupier demand weakened, however, amid the gloomy domestic economy. The CBD saw several major leasing deals but activity in the GBD and YBD involved downsizing. A large volume of new supply will be completed in 2013 and the gap between face rent and effective rent will widen as landlords are forced to offer higher incentives. In Singapore the decline in Grade A rents slowed to 0.3% q-o-q compared to a fall of 2.2% q-o-q in the previous quarter. Most deals were for small and medium sized spaces. Overall vacancy fell by 70 bps to 5.1%. Grade A rents are expected to remain fairly steady whilst Grade B rents may experience some slight downward pressure. Grade A rents in Bangkok recorded a gain of 2.7% q-o-q the seventh successive quarterly increase and vacancy declined further. Net absorption was slightly lower than the 10-year quarterly average of 200,000 sq. ft. Grade A CBD rents will continue to increase but some cost sensitive tenants may begin to switch to lower grade buildings or same grade in non- CBD areas.
Kuala Lumpur Grade A rents were unchanged during Q1 2013. Several resources firms and financial services companies upgraded or expanded their premises and net absorption rose to 230,000 sq. ft. after a quiet second half of 2012. Vacancy fell to 13.2%. Around 510,000 sq. ft. of new supply will be completed in 2013, just onesixth of the total figure for 2012. In Manila Grade A rents rose by 1.0% amid steady demand from local and foreign firms. Most leasing deals were for head offices in the CBD whilst there was strong demand for space from high value non voice BPO companies. New CBD supply in 2013 is just 39,000 sq. m. and Grade A rents are likely to record further gains. All grade average base rents in the Jakarta CBD surged by 19% q-o-q amid strong interest from existing tenants in the telecommunications, banking and I.T. sectors looking to expand and upgrade as well as from new entrants. Vacancy remained below 6%. Around 300,000 sq. m. of new space will be completed in the CBD this year and should result in slower rental growth. Grade A rents in New Delhi were unchanged aside from the CBD which saw growth of 1.2% q-o-q. Leasing activity was muted with just 0.97 million sq. ft. of space transacted the second lowest quarterly figure since 2010. Around 10 million sq. ft. of new supply is scheduled for H2 2013, which could further limit rental growth. Mumbai continued to see Grade A rents decline across various submarkets with falls in the region of 3.0% - 4.0% q-o-q. Consolidation remained the main driver of demand. New completions totaled 2.8 million sq. ft.. Grade A rents will continue to trend downwards as occupiers continue to focus on consolidation and about 4.0 million sq. ft. of new supply is completed before year-end. Grade A rents in Bangalore were unchanged but some areas saw declines as tenants moved to peripheral locations to cut costs. Around 40 million sq. ft. of new stock will be completed between now and the end of 2015 but many projects may face delays in completion. Grade A net effective rents in Perth were stable for a second consecutive quarter after eight straight quarters of growth due to softening demand from the resources sector. Over 40,000 sq. m. of sub-lease space was surrendered. The development pipeline remains very limited and short term rental growth is likely as demand is expected to pick up towards the end of the year. In Adelaide Grade A rents were flat as tenant demand remained subdued. Occupier interest was mainly supported by local business expansion. One new building of 19,500 sq. m. was completed but remained mostly vacant. Vacancy is expected to rise further in 2013 and rents are likely to be flat with a preference towards prime buildings. Grade A face rents in Brisbane declined due to softer demand. Substantial sub-lease space released by the government and resources related firms negatively affected the market and will continue to do so in spite of the limited development pipeline. Rental performance will remain soft until demand from government agencies recovers. Q1 2013 Asia Pacific Office MarketView 7 Ho Chi Minh City saw Grade A rents increase by 0.8% q-o-q the second consecutive quarter of growth. Net absorption improved amid strong upgrading and expansionary demand. 11,475 sq. m. of new space was completed and a further 35,000 sq. m. of supply will come on stream in 2H 2013, half of which is pre-leased. Grade A rents will remain stable until the next wave of new supply. In Hanoi Grade A rents rebounded by 1.3% q-o-q as one new Grade A building in a core location was completed. However the market continues to see consolidation with tenants relocating to newer buildings in cheaper locations. Rents will remain on a downward trend. Occupiers Q1 2013 saw no movement in Grade A rents in Sydney as most occupiers focused on renewal. Incentives increased as big requirements and large contiguous spaces have been rare. New supply is within a small number of projects that are largely precommitted and there is a sizeable amount of sublease space available. Market fundamentals will remain flat given limited new supply before 2015. In Melbourne Grade A rents in the CBD were flat but premium buildings recorded minor growth. The economic climate and focus on cost containment meant tenants were reluctant to relocate. New stock in the Docklands precinct over the next three years will result in backfill space in Melbourne's traditional CBD core, the release of which is already pushing up vacancy. Canberra Grade A rents were unchanged and net absorption in prime buildings was strong, especially in the Civic submarket. Prime and secondary rents diverged as government departments prefer to occupy prime buildings with greater energy efficiency ratings and shift out of secondary grade space. Rental growth could resume after the federal election in September. Grade A rents in Auckland increased by 0.2% q-o-q due to a rise in leasing enquiries from a wide range of business looking to consolidate their operations to cut costs. Two developments of about 50,000 sq. m. will be completed in June. The office market is likely to benefit from an increase in business confidence and the job market in 2013. In Wellington Grade A face rents rose slightly amid a shortage of prime stock for lease. Activity for smaller spaces of 100-130 sq. m. was particularly strong. The weak development pipeline coupled with rising consumer and business confidence should ensure rental growth towards year-end. 7 2013, CBRE, Group Inc.
Q1 2013 Asia Pacific Office MarketView MARKET OUTLOOK OFFICE DEMAND EXPECTED TO RECOVER GRADUALLY IN MOST MARKETS IN H2 2013 Business sentiment in Asia Pacific improved for a second consecutive quarter in Q1 2013 as regional economic growth gathered pace and concerns eased over the Eurozone debt crisis and tepid recovery in the United States. Whilst the overall mood remains cautious and prospects of a significant economic upturn are unlikely, the business environment is expected to continue to gradually improve into the second half of 2013. Q2 2013 is expected to see steady leasing activity in most markets. Demand should recover slightly in the second half of the year with the exception of key markets such as Beijing, Singapore, Sydney and Melbourne. Occupiers in the region will remain cautious in the short-term and leasing activity in most markets will be characterised by consolidation and relocation for cost saving purposes. Some markets such as Tokyo where rents have bottomed out will see upgrading activity. Large scale expansions will remain scarce. Domestic and regional conglomerates will continue to account for the bulk of leasing transactions. In Hong Kong vacancy is expected to remain stable given the lack of new supply. Net absorption is currently just half the long-term average and there will likely be a further tightening of vacancy when demand recovers. Given this outlook, rents in Central could witness a rapid recovery when economic growth picks up after 2013. Occupiers have therefore been reluctant to commit to space at the current and more attractive rental levels knowing that upon rent review or lease expiry rents would revert to a much higher level. Occupier demand in Singapore remains relatively subdued but recent months have seen some activity from a diverse range of industries. With new supply of Grade A space forecasted at just 780,000 sq. ft. and steady demand, rents will be relatively flat over the next six to twelve months. The outlook for Tokyo has improved and it appears that the Japanese economy along with the office market has bottomed out. Following the supply glut in 2012 vacancy has declined gradually after peaking in Q2 2012. New supply in 2013 is expected to be 43% of the 2012 total and many new buildings have already secured tenants. However it is anticipated that vacancy may rise although not as severely as in 2012. Rents in Sydney are expected to remain flat in the absence of any large scale leasing activity. With vacancy expected to increase as space in new developments and renovated buildings comes to market it is likely that incentives will continue to increase and erode net effective rents. The divergence between the performance of prime and secondary markets could continue as tenants continue to favour newer or recently refurbished buildings and those located towards the Western Corridor within close proximity to the new Barangaroo development. Chart 10: Asia Pacific rental cycle, Q1 2013 Rental Decline Accelerating B Bangalore S Shanghai K Kuala Lumpur A Adelaide M Mumbai S Sydney M Melbourne Rental Decline Slowing Rental Growth Accelerating Rental Growth Slowing Shenzhen New Delhi Beijing B Perth P S N 8 Brisbane B Seoul S Hong Kong H Hanoi H Guangzhou G Wellington W Canberra C Auckland A Singapore S HCM City H Bangkok B Manila M Taipei T Tokyo T Jakarta J NB. Markets do not necessarily move along the curve in the same direction or at the same speed. The rental cycle is intended to display the trend in Grade A rents
OFFICE TRANSACTIONS AND DEVELOPMENTS Table 3: Key leasing transactions Market Address sq. ft Occupier Business sector Bangalore Pritech Park 500,000 Accenture Consulting Mumbai Neptune Elements 300,000 TCS Technology Singapore Metropolis 210,000 Procter & Gamble Retail New Delhi DLF IT Park 200,000 Fiserv Technology Seoul The-K Twin Towers 153,700 Microsoft Technology Tokyo JP Tower, Tennozu First Tower 124,500 Net One Systems/Net One Partners Technology Q1 2013 Asia Pacific Office MarketView Kuala Lumpur Menara Worldwide 100,000 AIG Financial Beijing Beijing IFC 66,000 Sunshine Insurance Financial Guangzhou Guangzhou IFC 35,700 China Jingan Credit Guarantee Co Ltd Financial Hong Kong The Gateway, Sun Life Tower 26,000 Pernod Ricard HK Ltd Food & Beverage Table 4: Key office developments Market Submarket Development Name Expected Date of Completion Estimated size (sq. ft.) New Delhi Gurgaon DLF Corporate Green ~ Tower 1-5 2013 2,400,000 Shanghai Minhang Hongqiao Green Valley 2014 2,153,000 Shanghai Changning Sky SOHO 2014 2,100,000 Guangzhou Pearl River New City Pearl River Tower 2013 1,894,000 Seoul CBD Gran Seoul 2013 1,889,000 Sydney Western Barangaroo 2015 1,800,000 Shenzhen CBD Futian Technology Plaza 2014 1,755,000 Beijing CBD Fortune Financial Centre 2013 1,614,000 Mumbai BKC One BKC 2014 1,500,000 Singapore Decentralized The Metroplois 2013 1,180,000 New Delhi Gurgaon Infospace Sector 48 ~ Tower 1, 2 & 3 (Phase I) 2013 1,100,000 Mumbai Worli Kohinoor Square 2013 800,000 9 9 2013, CBRE, Group Inc.
Q1 2013 Asia Pacific Office MarketView CONTACTS For more information about this Regional MarketView, please contact: APAC Research Nick Axford Head of Research, Asia Pacific CBRE 4/F Three Exchange Square 8 Connaught Place Central, Hong Kong t: +852 2820 8198 e: nick.axford@cbre.com.hk Kim Mercado Director, Asia Pacific CBRE 4/F Three Exchange Square 8 Connaught Place Central, Hong Kong t: +852 2820 2876 e: kim.mercado@cbre.com.hk Cynthia Chan Senior Analyst CBRE 4/F Three Exchange Square 8 Connaught Place Central, Hong Kong t: +852 2820 2839 e: cynthia.chan@cbre.com.hk + FOLLOW US GOOGLE+ FACEBOOK TWITTER cbreapresearch Global Research and Consulting This report was prepared by the CBRE APAC Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. 10 Disclaimer 2013, CBRE, Group Inc. CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.