11 August, 2010
Circa 1.5 million square metres of office space was absorbed in the Asia Pacific market in Q2 2010 – almost five times the amount recorded during the same period in 2009.
A new research report released by global property adviser DTZ has found that occupied space in Asia Pacific increased significantly in Q2 2010 as companies resumed expansion plans and upgraded to better quality space on the back of strong economic growth.
DTZ forecasts that prime rents in the region will grow by an average of 6.2% per annum between 2010 and 2014, with two of Asia's tigers – Hong Kong and Singapore – expected to outperform this forecast.
According to DTZ's Asia Pacific Property Times, net absorption in Beijing increased 50% quarter-on-quarter (q-o-q), taking net absorption for the first half of the year to 277,890 sq m – only 5% less than the whole of 2009.
In Delhi, a 30% increase q-o-q means that take-up in 2010 has already surpassed the full year 2009 level. Of the region's secondary markets, Dalian recorded the greatest increase in net absorption over the quarter, at 1,200%.
DTZ's Head of Asia Pacific Research, David Green-Morgan, said better than expected economic conditions in the region were boosting business sentiment and strengthening demand as companies upgraded to better quality space.
"Demand for space picked up across Asia Pacific in Q2 as companies revived their expansion and relocation plans which were shelved at the onset of the financial crisis," he said.
"The first half of 2010 has shown positivity in all major regions across Asia Pacific except Tokyo, which is a good indication that occupier demand is coming back.
"This demand is mostly being driven by domestic companies, which is why Tokyo is suffering due to the weak recovery in the Japanese economy."
Mr Green-Morgan said leasing activity in Sydney slowed towards the end of Q2, with occupiers showing signs of caution in response to the European debt crisis.
China recorded the strongest rental growth in the region, with Chengdu and Hong Kong recording the largest quarterly increases at 7.1% and 5.2% respectively.
"In Hong Kong, healthy demand is matched by the lowest vacancy rate in the region and this has led to accelerated rental growth," Mr Green-Morgan said. "An exception to the trend in China is Shanghai, where prime rents in the city's grade A market, Jing‟an, continued to fall by 3.65%."
The Melbourne office market recorded the strongest q-o-q prime office rental growth in Asia Pacific behind Hong Kong, increasing by more than 2%. Melbourne remains the best performing city in Australia, with demand forecast to remain strong for the rest of the year.
Tokyo is the only primary market in the Asia Pacific showing few signs of revival, with the market suffering from weak demand, rising vacancy levels and falling rents.
Mr Green-Morgan said while the pace of the recovery varied across markets, DTZ's rental growth forecasts have largely returned to positive growth.
"We expect rents to decline in only a handful of markets over the whole year. Our forecasts predict that average prime rents, on a capital-weighted basis, will increase by 4.6% in 2010. This follows a fall of 21% in 2009," he said.
"The strongest rental growth in 2010 is expected to be in Chengdu, at around 13.4%, and in Hong Kong at 11.8%.
"According to our forecasts, prime rents will remain under pressure during 2010 in the Chinese markets of Tianjin and Shanghai, with rental falls also predicted in Brisbane and Auckland."
Mr Green-Morgan said a cause for caution in the region was the substantial development pipeline, which may dampen rental growth in some markets as vacancy levels increase.
"Tokyo's rents are expected to fall the most in the region in 2010, in the absence of a sustainable economic recovery and improved corporate performance," he said.