Asia Pacific Property Digest 3q 2015
Transcript of Asia Pacific Property Digest 3q 2015
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Asia Pacific Property Digest | Q3 2015
Real estate investment flying high
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F e a t u r e A r t i c l e s
O f c e
Dear Reader,
Asia Pacific investment volumes are at $88 billion year-to-date and are on track for a record level in2015. Increased space requirements from corporates have been reflected in a 33% surge in leasingactivity over the same period.
You can view this report online at http://www.jllapsites.com/research/appd-online/.
We hope you enjoy our new-look report and as always, welcome your feedback.
Best regards,
Dr Jane MurrayHead of Research – Asia Pacific
13
4Asia Pacific Economy and
Property Market
The impact of online retailing onAustralian industrial demand8Women are critical to Japan’seconomic success9 Navigating the “patent-cliff”: the role of corporate real estatein the life science industry10 Net absorption in Shanghai’sGrade A office market to hitrecord high in 201511
Hong Kong 14
Beijing 15Shanghai 16
Chengdu 17
Taipei 18
Tokyo 19
Osaka 20
Seoul 21
Singapore 22
Bangkok 23
Jakarta 24
Kuala Lumpur 25
Manila 26
Ho Chi Minh City 27Delhi 28
Mumbai 29
Bangalore 30
Sydney 31
Melbourne 32
Brisbane 33
Auckland 34
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I n d u s t r i
a l
R e t a i l
R e s i d e n t i a l
H o t e l s
49 65
57 35
Hong Kong 58
Beijing 59
Shanghai 60
Tokyo 61
Singapore 62Sydney 63
Melbourne 64
Hong Kong 66
Beijing 67
Shanghai 68
Tokyo 69
Singapore 70
Bangkok 71
Jakarta 72
Sydney 73
Hong Kong 50
Beijing 51
Shanghai 52
Singapore 53
Bangkok 54
Manila 55
Hong Kong 36
Beijing 37
Shanghai 38
Chengdu 39
Tokyo 40Singapore 41
Bangkok 42
Jakarta 43
Delhi 44
Mumbai 45
Sydney 46
Melbourne 47
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Retail sales performance remains mixed
Encouragingly, retail sales in China have been trending higher sinceApril (+11% y-o-y in October), supported by solid wages growthand providing a cushion against weakness in other parts of theeconomy. However, the performance of retail sales in other areas ofAsia Pacific has been less robust. In Hong Kong, a slowdown in
Mainland Chinese visitor arrivals has impacted sales which fellalmost 5% y-o-y in 3Q. Retail sales growth in Japan remains weakas households hold back on spending, while in Singapore, retailsales have improved but remain subdued. In Australia, a buoyanthousing sector has supported retail sales over the last year.
Ongoing weakness in regional trade
Weaker global demand for Chinese goods saw exports from Chinadecline in each month of 3Q. However, devaluation of the ChineseYuan may provide a boost going forward. Economic restructuring inChina is impacting trade throughout the region with exportsremaining weak in most AP markets.
Further rate cuts while deflation emerges in some markets
During the quarter, various governments continued to cut interestrates to shore up growth in their economies. India and New Zealandcut rates by 50 bps, China by 25 bps, while Taiwan lowered thepolicy rate for the first time in six years by 12.5 bps. Low prices foroil and other commodities are flowing through to falling inflation.
Singapore and Thailand have seen declining consumer prices, whileproducer prices have been falling for at least six months in majormarkets including China, India and Japan.
Stable growth expected for this year and next
Oxford Economics expects 2015 regional growth of 5.3% and asimilar outcome next year, with a gradual recovery in global demand
to underpin growth. Most major economies in the region areforecast to see modest improvements with the exception of China asit continues to transition to new growth drivers. Although stableperformance is anticipated for AP, there are downside risks to theoutlook including ongoing uncertainties related to the impact ofChina’s slowdown and the timing of US interest rate hikes.
4 – F E A T U R E S
A rather sluggish economic environment...By regional standards, economic growth was rather sluggish in the third quarter, prompting a number ofgovernments to implement further supportive measures.
China continues its economic transformation, moving to a greater focus on services and domesticconsumption – a profound structural change that is reverberating throughout the rest of Asia Pacific,particularly China’s major trading partners. Japan, the region’s second biggest economy, fell intorecession in the third quarter, with the government’s huge stimulus measures yet to be reflected in a
meaningful uplift in consumption or corporate capex. Meanwhile, India’s economy has held up relativelywell and growth is projected to overtake that of China this year.
Despite various challenges, the Asia Pacific economy is still expanding at a decent pace – indeed more than twice as fast as the rest of the world.
ASIA PACIFIC ECONOMY
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Office leasing demand continues to strengthen, but still not
consistentOverall leasing activity continued to improve in 3Q, with grossleasing volumes rising by a strong 27% y-o-y, following 40% growthin 2Q. However, the improvement was not consistent: activity wasstrongest in India and China, but still subdued in some other marketsincluding Singapore. The most active occupier types across theregion were domestic financial institutions and technology-relatedfirms.
The Indian markets of Delhi, Mumbai and Bangalore contributedhalf of total regional leasing volumes in 3Q, underpinned by bothdomestic expansion and offshoring by MNCs. China’s shift to aservice based economy is being seen through the growth in office
Figure 1: Outlook for Major Economies
CountryReal GDP Growth (%)
2015–16 Outlook2015F 2016F
China 6.9 6.3Slower growth as government continues with structural reforms. Services sector an area of strengthin part due to robust consumption.
Japan 0.6 1.5Modest recovery supported by gradual improvement in domestic demand. More stimulus may be on
the way.
India 7.2 7.4Domestic demand and fixed investment to underpin growth. Improved growth trajectory to dependon progress on reforms.
South Korea 2.5 3.0 Gradual improvement in trade and consumption amid loose fiscal and monetary policy.
Australia 2.4 2.8Growth supported by residential sector and lower AUD which will improve export competitiveness.Mining investment a drag.
Indonesia 4.8 5.3 Modest pick-up in growth underpinned by infrastructure investment and private consumption.
Singapore 1.8 2.8 Rise in government spending and investment, but export performance to remain patchy.
Hong Kong 2.3 2.7 Subdued growth as sluggish Mainland demand impacts exports and inbound tourism spending.
Asia Pacific 5.3 5.4 Gradual recovery in global demand and ongoing policy support to aid solid performance.
World 3.0 3.5Pick-up in global growth expected to be driven by improvements in advanced economies including the US (from 2.4% in 2015 to 2.7% in 2016) and the Eurozone (from 1.5% to 1.8%).
Note: India revised its GDP methodology (including historical growth rates) in January 2015.Source: Oxford Economics, November 2015
leasing in its Tier 1 markets. Shanghai is on track to achieve its
strongest ever year of take-up. Consistent with this, occupierdemand in Hong Kong is being bolstered by Mainland Chinese firms.In Australia, Sydney is leading the leasing recovery while the citiesmore dependent on the resources sector remain weak.
Healthy office supply additions. Occupancy levels up slightly
Asia Pacific stock additions were up 38% y-o-y to 1.2 million sqm in3Q, with more than one-third of the total in India. In spite of the largevolume of new supply, vacancy declined in many markets includingBeijing, Hong Kong and Seoul, with Hong Kong Central falling to1.2%, the lowest vacancy in over seven years. Vacancy rates heldstable in Shanghai, Tokyo and Sydney but rose in most SoutheastAsian markets.
…while leasing and investment maintain good momentumIn 3Q15, occupier demand surged for a second successive quarter and we are optimistic that regionalleasing volumes for the full year will finish up at least 20% higher than the 2014 level. On the commercialreal estate investment front, investor interest remains strong with ample liquidity and low borrowingcosts supporting demand for assets. 2015 investment volumes are expected to reach the record levelachieved in 2014.
ASIA PACIFIC PROPERTY MARKET
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Figure 3: Direct Commercial Real Estate Investment 2007–3Q15
Figures refer to transactions over USD 5 million in office, retail, hotels and industrialSource: JLL (Real Estate Intelligence Service), 3Q15
Japan AustraliaChina
Hong Kong
Singapore
South Korea Other
U S D B
i l l i o n
0
25
75
150
125
50
100
YTD 2015$88.1bill1% y-o-y
2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015
Office rental growth slows in most markets
Net effective rents declined in about one-third of major Asia Pacificmarkets in 3Q. On average, rents grew 0.5% q-o-q, slowing from0.8% in 2Q. The strongest quarterly growth was in Sydney (3.9%)and Hong Kong (3.5%). Despite the recent financial market ructionsin China, rents increased in Shanghai and Beijing on the back ofsustained demand from financials and IT firms.
Rents fell furthest in Singapore (–5.2% q-o-q) as landlords continued
to take pre-emptive steps to retain and attract occupiers ahead ofa large wave of supply due to be completed in 2016. Declines werealso seen in Kuala Lumpur, Ho Chi Minh City and some Australiancities.
Over the 12 months ending 3Q15, average rents in aggregate wereup 2.1%. Already with the highest rents in the region, Hong Kongwas the market leader with 11.1% y-o-y growth, followed byShanghai and Sydney which both recorded growth of 8.2%.Bangalore, Bangkok and Tokyo also recorded strong growth. At theopposite end of the spectrum, Singapore and most Australian citieshave seen rents fall over the past year.
Mid-tier brands are the most active retailers
During the quarter, retailer demand in China continued to be
supported by fast fashion retailers and F&B. However, new supplyand ongoing caution by the luxury segment have created a morechallenging operating environment. Market conditions in Hong Konghave continued to weaken and some retailers have reduced theirstore footprint and/or secured rental reductions. Retailer demand inSingapore continued to be subdued as consumer caution prevailed,while the economic backdrop in Australia remained largelysupportive of trend growth in retail spending.
During 3Q, there was limited rental growth in most markets andaverage growth edged down. Over the short term, we see limitedscope for significant rental gains in most markets, while inHong Kong, high street rents are likely to fall further.
Generally healthy leasing activity for logistics facilities
Across the region, 3PL and e-commerce firms continued to underpinleasing activity. Rents were generally flat, with the highest quarterlygrowth seen in Hong Kong (1.4%) amid a tight vacancy environment.However, leasing demand in Hong Kong was impacted by falling
exports and airfreight cargo. Strong tenant expansion demandcontinued to be evident in Tokyo, supporting a modest rise in rents.
Strong residential sales momentum in China while somemarkets see lacklustre sales
Policy restrictions remained in place in various markets acrossAsia. In China, high-end sales activity strengthened on the back ofa more accommodative policy stance, including a cut in interestrates. However the high-end markets in Hong Kong and Singapore
remained sluggish. Leasing activity in these two cities was stronger– the third quarter being the traditional peak season in Hong Kong,while Singapore leasing volumes were supported by tenantsmoving to newly completed units. Most markets across the regionsaw stable or small increases in rents and prices, a trend that isexpected to continue over the short term.
Buoyant commercial real estate investment market
Investment volumes for 3Q15 came in at USD 32 billion, relativelystable y-o-y but with growth partly impacted by a stronger USD, thereporting currency. Year-to-date, investment volumes totalUSD 88 billion, up 1% on the same period last year. During thequarter, cross-border Asian investors and global funds wereactive. There were also more portfolio and platform transactions,as investors sought to acquire assets that are difficult to acquire
directly.
Japan (+11% y-o-y), Australia (+13%) and China (+81%) performedstrongly in 3Q as investors continued to focus on large and liquidmarkets. Japan remained the largest market in AP with investmentvolumes totalling USD 8.9 billion. Other markets saw a mixedperformance with Hong Kong up 25% y-o-y, buoyed by a major hoteldeal, while volumes in South Korea were down 24%, in part due to alack of tradeable assets.
Capital value growth slows
Capital value growth moderated across all sectors and mostmarkets in the region. In the office sector, average capital valuegrowth slowed to 1.5% q-o-q but continued to outpace rentalgrowth. Quarterly growth was strongest in Osaka (+6.4%) and
Sydney (+6.3%), with Melbourne, Brisbane and Auckland allrecording growth of between 3–5%. Capital values in Jakarta andSingapore declined.
6 – F E A T U R E S
Figure 2: Office Rental & Capital Value ChangesYearly % Changes, 3Q15
Figures relate to the major submarket in each citySource: JLL (Real Estate Intelligence Service), 3Q15
Rental Values Capital Values
y - o - y %
–5
–10
20
15
5
10
0
H o n g
K o n g
S y d n
e y
S h a n
g h a i
J a k a
r t a
B a n g k o k
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o
M a n i l a
B e i j i n
g
M e l b
o u r n e
S e o u l
M u m
b a i
S i n g a
p o r e
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ABOUT THE AUTHOR
Dr Jane Murray joined JLL in 1998 and in 2005was appointed as Head of Research – AsiaPacific. In this role, Jane leads a team of140 professional researchers in the region,which forms part of a network of over 400researchers in 65 countries around the globe.
Continued optimism on leasing and investment activity
Office leasing volumes should continue to improve in 4Q15 and into2016, with India and Tier I cities in China (particularly Shanghai)expected to see the strongest activity. Moderate rental growth isgenerally expected over the next year, with Sydney, Tokyo andBangalore leading the way in the office sector. Singapore, Jakartaand Brisbane may see further declines due to lacklustre tenantdemand and/or upcoming supply.
Meanwhile, 2016 should be another strong year for investmentactivity. At this stage, volumes are expected to be similar to thisyear’s estimate of USD 130 billion, on par with the record in 2014.
Figure 4: Rental Property Clocks, 3Q15
Source: JLL (Real Estate Intelligence Service), 3Q15Note: Clock positions for the office sector relate to the main submarket in each city.
Grade A Office Prime Retail
Prime Residential Industrial
Growth
Slowing
RentsRising
Rents
Falling
DeclineSlowing
*Logistics space (Hong Kong, Shanghai, Beijing, Greater Tokyo)
Beijing
Hong Kong
Tokyo
Singapore (Business Park)Singapore (Logistics),
Shanghai
Auckland, Manila
Melbourne
SydneyBrisbane
Wellington
Growth
Slowing
Rents
Rising
Rents
Falling
Decline
Slowing
Tokyo, Beijing
Guangzhou
Hong Kong
Jakarta, Singapore
Seoul, Ho Chi Minh CityHanoi
Taipei,Bangkok
Osaka
Kuala Lumpur
Shanghai, Melbourne
Manila
Mumbai, Adelaide
Auckland,Bangalore
Delhi
Chennai, Sydney
Perth
Brisbane
Canberra
Wellington
Growth
Slowing
RentsRising
Rents
Falling
DeclineSlowing
*For Luxurious Residential Properties
Beijing
Guangzhou, Kuala Lumpur
Hong Kong
Bangkok
Shanghai
Manila
Singapore*
Jakarta
Growth
Slowing
Rents
Rising
Rents
Falling
Decline
Slowing
*Regional
^High Street Shops
Beijing
GuangzhouHong Kong^
Jakarta
Bangkok
Tokyo
Singapore
Shanghai
Kuala Lumpur
Manila
Auckland, Bangalore
Delhi
Mumbai
Chennai
Sydney*, Melbourne*, Brisbane* Wellington
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ABOUT THE AUTHOR
Alison Spiteri is a Senior Analyst in the JLLResearch team in Australia. She specialisesin industrial research for the Sydney andMelbourne markets and office research for
the Sydney Metro markets.
Online retailing has grown rapidly over the last decade. Traditionalretail operators are being challenged by technological advances,however many have adapted and now offer a multichannel sales
approach. Here, we look at how online retailing is impacting theAustralian industrial sector.
According to National Australia Bank’s latest online retail salesindex, Australian online retail spending increased to AUD 17.5 billionin the year to August 2015, a year-on-year increase of 7%. Onlineretailing now represents around 7.1% of traditional retail spendingexcluding cafes, restaurants and takeaway food, up from 4.9% in2011.
Over the past two years, there has been a strong correlation (0.7)between online retail turnover growth and gross take-up ofindustrial space by the retail and wholesale trade sectors. Thissupports the need for industrial expansion from retailers moving toor expanding their online presence.
Traditionally, warehouse space utilised by the retail trade sectorwas stocked with products for sale at store-based retailers.However, with the ongoing advances in technology and theincreasing number of retailers with an online presence, there is agrowing trend to deliver goods direct from warehouses to theconsumer. As the retail market becomes more competitive,
especially given the recent weakening of the Australian dollar,domestic retailers incorporating online platforms are likely torequire more flexible industrial property solutions that incorporate
non-traditional stock picking (selection of stock as per orders) anddelivery methods. These may include higher staff ratios, smallerdelivery vehicle access, returns areas and direct customer access.
Online retailers need to locate in areas that will provide an efficientmovement of goods to their consumers, as well as close proximity tomajor postal centres. In Sydney, the Outer West (OW) precinctscentred on major transport routes (M2, M4, M5 and M7) haveproven to be key areas for retail occupiers. The OW precincts haveaccounted for 76% of total retail and wholesale trade gross take-upannually between 2010 and 2014. These precincts are highly soughtafter due to the relative simplicity of receiving and distributing stock.
Between 2006 and 2010, retail and wholesale trade accounted for26% of gross industrial take-up nationally. Since then (2011 to YTD
2015), the retail and wholesale trade sectors recorded an additional750,000 sqm of activity, and represented 32% of total take-up.Logistics has also benefitted from the increase in online retailingand retailer demand as distribution operations get outsourced to
third-party logistics (3PL) providers. The transport and storagesector’s percentage of total gross take-up increased from 25% to34% over the same period.
Despite the rapid growth in online retailing in Australia, it stillcomprises a small percentage of total retail sales (the majority ofwhich is through domestic retailers), indicating that there is furtherroom for expansion. It is likely that more traditional retailers willexpand into and increase their exposure to the online retailingmarket and subsequently increase their requirements directly orindirectly through 3PLs for distribution space that can accommodate
the special needs of online retailers.
8 – F E A T U R E S
Te impact of online retailing on Australianindustrial demand
Online retail turnover growth vs retail and wholesale trade gross take-up
Source: ABS, JLL Research
Online retail turnover growth
Multi-channel online retail trade Pure-play online retail trade
Gross take-up (sqm): Retail & Wholesale Trade
0
50,000
100,000
150,000
200,000
250,000
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350,000
–30.0%
–20.0%
–10.0%
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20.0%
30.0%
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50.0%
J u n 1
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Japan has regained some of its lost momentum under “Abenomics”,a three-pronged set of policies aimed at rejuvenating and reforming
the Japanese economy. While consumer sentiment has remainedfragile over the past few years, corporate profits have continued
to rise and the unemployment rate has declined to 3.4%, the lowestlevel in 18 years. Should private consumption recover along with
rising real wages, the stagnation that has characterised Japan’seconomy since the “Lost Decade” might at last be giving way.
There is a blip on this bright horizon, however. Japan’s decliningbirth rate and rapidly ageing population threatens the workingcapacity of its labour force, and therefore the long-term viability of
the nation’s growth. Fertility rates are below replacement level, andover one-fourth of Japan’s current population is over the age of 65.Current demographic predictions by Japan’s Health Ministry put theJapanese labour force at 55 million by 2050, down 10 million from
this year. Without a consistent supply of labour, Abenomics cannotsucceed, and so to forestall this damaging shortfall, Abe has turned
to a chronically underutilised demographic – Japan’s women.
Japanese women are among the most highly educated in the world,but female participation in the Japanese workforce ranks among
the lowest in OECD countries, especially in the late 20s to early 30s
age bracket, when most women have their first child. The reasonfor this lies in the entrenched corporate mind-set, which penalisesmaternity leave, prioritises long hours and ultimately clashes withsociocultural expectations for Japanese motherhood. In addition,
ABOUT THE AUTHOR
Takeshi Akagi is the Head of Research inJapan. His responsibilities include primaryreal estate research, economic andinvestment analysis, and forecasting. Heregularly contributes to JLL’s publicationsas well as provides commentary on issuesrelated to Japan.
Emma Saraff was an intern for JLL’s research team in Tokyo.
restrictive Japanese labour laws, low numbers of women inmanagerial positions, a lack of childcare facilities, and the spousal
tax deduction, which incentivises a sole-breadwinner household, allstand in the way of women’s participation in the labour force.
The Abenomics structural reform strategy aims to encourage a
radical change in this paradigm and establish woman-positivecorporate environments and policies. The most recent results areencouraging; already female employment has increased by 930,000workers since Abe took office in 2012. Given Japan’s traditionof “lifetime employment”, which limits re-entry of workers intowell-paid, permanent positions, much of the new female workforcehas been relegated to low-benefit, low-wage, temporary positionswith little to no chance of advancement. Furthermore, there isstill a wealth of untapped potential; according to a 2013 survey by
the Ministry of Internal Affairs, as many as 3.15 million currentlyunemployed women could return to work if given the opportunity.The economic effect of such a change is nothing to sneeze at;closing the workforce gender gap could boost Japan’s GDP by asmuch as 12.5%, according to a report by Goldman Sachs.
For Japan to truly see returns from an influx of women in theworkforce, it’s critical that initiatives are put in place to incentivise
women to return to work and furthermore, remain employed throughout their childbearing years. Revising antiquated legislation,building day care facilities, and promoting a culture that promotes,rather than demeans, women’s empowerment, will be instrumentalin deciding the future of both the gender gap and the country as awhole. The extraordinary growth potential of Japanese women isalready there – it is just a question of providing the right environmentfor them to flourish. This is also an important driver of demand withinJapan’s real estate markets which should reap the benefits of arevitalised labour force along with other structural reforms.
Women are critical to Japan’s economic success
Female labour force participation rates, top 25 countries 2014
Source: OECD Employment Outlook 2015
Source: OECD Employment Outlook 2015
Japan female labour force participation rates
2000 2007 2014
Japan 59.6% 61.9% 66.0%
OECD aveage: 62.8
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ABOUT THE AUTHOR
Clarence Goh is a Senior Manager of APACCorporate Research for JLL in Singapore. Heis involved in global and regional researchprojects for JLL’s Corporate Solutionsbusiness.
The life science industry is standing on the edge of a “patent cliff.”In 2015, the world’s biggest pharmaceutical firms stand to lose up
to USD 47.5 billion in revenues from the expiry of the patents of
some of their biggest blockbuster drugs. For example, Celebrex –an arthritis drug which contributed almost USD 3 billion to Pfizer’srevenues in 2014 – is set to see its patent expire later this year,opening it up to competition from “generic” alternatives which areoften sold at much cheaper prices.
This has triggered a wave of consolidation activity within theindustry as firms look to replace best-selling drugs whose patentsare expiring with newer drugs that have the potential to growrevenues. According to the Thomson Reuters Full Year Mergers &Acquisitions Review, the life science industry saw more thanUSD 390 billion in transactions in 2014, and transactions areexpected to remain at similarly high levels throughout 2015.
With revenue streams becoming more uncertain, many firms arealso focusing on reining in costs to maintain overall profitability.While these cost pressures impact all aspects of a firm’s operations,
they are being felt more keenly in corporate real estate (CRE). In the2015 Global Corporate Real Estate Survey conducted by JLL, 92% ofCRE executives from the life science industry felt that the demandfrom their senior leadership for them to reduce operating expenseshad increased. This represents a marked increase from the alreadysubstantial 85% of executives from the industry who felt the sameway in the last survey conducted in 2013.
At the same time, a substantial proportion of CRE executives alsoreported rising demand from their senior leadership for them todeliver across the following areas that could help to further managecosts:
• Increasing portfolio flexibility (71%)
• Challenging the business about presumed space needs (71%)
•
Reducing portfolio size (71%)Correspondingly, CRE teams in the life science industry now say that
they feel more empowered within their organisations, with 88% oflife science industry respondents reporting that they have strongeror much stronger mandates now compared to three years ago.
Life science firms are also making plans to aggressively outsource the delivery of many CRE services over the coming years. According to the survey, significant outsourcing activity is expected to takeplace from now to 2018 (see figure). In particular, CRE serviceslike lease administration, facilities and property management, and
transaction management, which are more transactional in nature,are expected to be outsourced at the quickest pace.
Navigating the “patent-cliff”: the role of corporatereal estate in the life science industry
Notably, the increased demands being placed on CRE teams in the industry appears to have significantly stretched their currentcapabilities: three out of four CRE executives indicated that theywere not confident of meeting all the demands that were beingplaced on them.
To learn more, click here to download the Global Corporate RealEstate Trends 2015, and also look out for upcoming industry specificcontent!
How would you best describe the current delivery of the following CREservices?
*Percentages represent proportion of respondents who selected 4 or 5, on a scalewhere 1=fully in-house and 5=fully outsourcedSource: JLL
Lease Administration 39%65%
43%57%
41%55%
42%50%
20%45%
15%40%
43%35%
14%27%
0%23%
14%23%
23%23%
22%18%
27%32%
15%31%
Facilities and Property Management
Transaction Management
Energy Management
Supply Chain Management
Project and Construction Management
Capital Budget Planning & Management
PMO
Portfolio Strategy
Change Management
Worlplace Strategy
Technology
Occupancy Planning
Transaction Execution
3 Years TimeNow
1 0 – F E A T U R E S
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Over the past few months, one of the most common questions wehear in China from clients has been what effect the gyrations inChina’s stock market might have on the performance of the office
market in Shanghai. Some investors have assumed – perhapsdrawing a connection between Shanghai’s status as a financialcentre and the stock market crash’s disproportionate impact onfinancial services – that the stock market’s post-June slump willnegatively impact the office leasing market. The numbers do notbear this out, however: net absorption for the year through 3Q15 hasalready exceeded 1 million sqm , and we believe Shanghai’s GradeA take-up is on track to reach a record high in 2015.
Three factors are driving the record high absorption. First, domesticfinancial service firms have increased leasing activity in both theCBD and decentralised markets. Encouraged by ongoing financialreform and liberalising policies in the Shanghai Free Trade Zone,both traditional domestic finance firms (like retail banks andinsurers) along with non-traditional internet finance companieshave been active in setting up new offices and expanding theiroffice space in Shanghai.
Net absorption in Shanghai’s Grade A officemarket to hit record high in 2015
ABOUT THE AUTHOR
Grace Lv is a Senior Manager in JLL’sresearch team in Shanghai, specialising in theoffice sector in Shanghai and major YangtzeRiver markets. She regularly contributes toquarterly publications and is also involved inmarket consultancy studies.
A second key driver is MNC tenants, who have demonstratedparticularly strong leasing demand in decentralised areas.Recognising that China’s middle class population is expanding thecountry’s consumer potential, MNCs in the retailing and mediasectors are actively expanding their business, and many havefound they require more office space in Shanghai. The largevolume of new supply in the decentralised market has tapped intopent-up demand from MNCs that seek large contiguous spaces forconsolidation and expansion. In addition, many MNC professionalservices firms such as consulting companies have retained apositive outlook toward their China business, and have shownstrong interest in office expansion.
The third main driver of take-up this year has been firms self-usingspace that they build or acquire. In the decentralised market,several companies – notably domestic financial institutions – haveacquired or developed buildings, and have reserved large shares ofspace for their own use.
Aside from the three main demand types discussed above, other tenant types have also contributed to this year’s robust demand,including domestic retailers and professional services firms.
We expect leasing momentum to remain strong through theremainder of the year. As a result, Shanghai’s overall net take-up isexpected to reach a record high of above 1.4 million sqm in 2015.
The Shanghai stock index may have taken a dive, but the take-up in the city’s Grade A office market is heading skyward.
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8/17/2019 Asia Pacific Property Digest 3q 2015
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Office
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HONG KONG“Demand recovery pushes monthly rents in
Central back up to HKD 100 per sq f or the firsttime since 4Q11.”
Denis Ma, Head of Research, Hong Kong
9 0 –
O F F I C E
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.Physical Indicators are for the Overall market.
Physical Indicators
Financial Indices
Note: Hong Kong Office refers to Hong Kong’s Overall Grade A office market.
STOCK MARKET ROUT HAS LIMITED IMPACT ON PRC DEMAND
• The recent volatility in the local and Mainland Chinese stock markets had a
limited impact on PRC demand, with a number of PRC securities trading firms
and mid-tier banks actively securing office space in 3Q15. PRC demand
accounted for about 60% of all new lettings (in terms of floor area leased), up
from 25% in 2Q15.
• A tight vacancy environment entering the quarter saw headline net absorption
moderating in most of the city’s five major office submarkets. Leasing demand,
nonetheless, remained intact with a handful of shadow space being
backfilled, including AIA’s lease on three floors at 633 King’s Road in North
Point.
TOWER 535 IN CAUSEWAY BAY RECEIVES OCCUPATION PERMIT
• Phoenix Property Investors’ office/retail development, Tower 535, in
Causeway Bay was issued its Occupation Permit in 3Q15, adding 128,300 sq ft
to the market. About 20% of the building has already been leased to a fitness
centre and a club house operator.
• In Central, robust leasing demand drove the vacancy rate down to 1.2%—its
lowest level since March 2008 just prior to the Global Financial Crisis.
CENTRAL RENTALS BACK AT HKD 100 PER SQ FT PER MONTH
• Rents in Central grew by 3.5% q-o-q in 3Q15 to reach HKD 100 per sq ft per
month for the first time since the Eurozone Crisis in 4Q11, as the vacancy rate
further tightened. All of the city’s major office submarkets recorded rental
growth.
• With rents in Central experiencing a broad-based recovery, investors showed
renewed interest in the submarket despite strong pricing levels, as evidenced
by several non-Grade A en bloc office buildings changing hands in 3Q15. The
interest in office properties prompted more developers and owners to
consider selling properties in their portfolio.
OUTLOOK: CENTRAL RECOVERY HAS YET TO RUN ITS COURSE
• Despite an uncertain economic outlook, leasing activity should remain intactwith most companies still looking to increase headcount over the near term.
Strong policy support from China should translate into ongoing demand from
PRC firms. Central rentals are likely to continue to edge higher, supported by
an ultra-tight vacancy environment.
• Steady rental growth should enhance the investment appeal of office
properties over the near term, enabling pricing across the market to hold firm.
However, capital values are likely to face increasing downside risks amid a
moderating rental market and rising interest rates.
HKD 100.0
SQ FT PER MONTH,
NET EFFECTIVE ON NLA
11.1%
RENTAL
GROWTH Y-O-Y
RentsRising
STAGE IN CYCLE
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for Central.
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
80
110
85
105
100
95
90
Take-Up (net) Completions
Future Supply Vacancy Rate
–50
11 12 13 14 15F
–1
2
4
5
1
3
6
0
300
T h o u s a n d s q m
P e r c e n t
16F
0
50
100
150
200
250
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BEIJING“Despite slow economic growth and volatility in
the stock market, finance firms remainhighly active.”
Steven McCord, Head of Research, North China
Physical Indicators
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for the CBD.
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.Physical Indicators are for the Overall market.
Physical Indicators
Financial Indices
Note: Beijing Office refers to Beijing’s Overall Grade A office market.
DOMESTIC FINANCE AND IT FIRMS CONTINUE TO DRIVE DEMAND
• Due to the supply-constrained market, net absorption in the first nine months
of 2015 reached just 104,500 sqm, down 34% y-o-y. IT remained one of the
most active sectors in Zhongguancun and Wangjing, accounting for more
than 30% of the overall net absorption in 3Q15.
• A handful of projects in Finance Street achieved 100% occupancy in the
quarter due to strong demand from domestic finance companies such as
state-owned banks, and private equity and securities firms. Expansion plans
from existing tenants in the CBD and Finance Street were put on hold due to
limited availability of space in these areas.
MARKET VACANCY DECLINES TO 3.8% DUE TO STEADY LEASING PROGRESS
• Raycom Infotech Park Tower B obtained a 60% commitment rate at end-3Q15
a quarter after opening; most new tenants came from IT or IT-related sectors.
• Dreamsfounts 35th, another new completion in Finance Street from 2Q15,
achieved a 70% commitment rate in the quarter, with state-owned banks and
private investment companies making up a large presence at the project.
RENTS RISE ACROSS MOST SUBMARKETS AMID LOW VACANCY
• Landlords at buildings with very low vacancy were able to focus more on
tenant profile and exert greater power during rental negotiations. Landlords at
recently completed projects charged higher rents as occupancy stabilised.
• Singaporean-listed GuocoLand sold its Dongzhimen mixed-use project for
RMB 10.5 billion to China Cinda Asset Management Co. after the property was
kept vacant for years. Slated for completion by end-2015 in Wangjing, Kuntai
Garry Center, owned by Beijing developer Kuntai, sold to Alibaba for
2.84 billion RMB.
OUTLOOK: FUTURE SUPPLY PROJECTED TO RELIEVE PENT-UP MARKET DEMAND
• Net take-up is expected to climb as Grade A office space becomes available
in the CBD and Finance Street, where absorption and company expansion
have been muted due to a lack of leasable space. Rents are likely to rise as
tenants compete for space at quality buildings.
• Investors remain interested in Beijing, but there continues to be a disconnect
with sellers on pricing. Wangjing’s popularity is climbing; one property sold
here in the quarter, making it the third of five Beijing office buildings to be
transacted in the submarket this year. Due to strong government support,
Tongzhou is set to become a hot spot for investment opportunity.
RentsRising
RMB 382.6
STAGE IN CYCLESQM PER MONTH,
NET EFFECTIVE ON GFA
2.6%
RENTAL
GROWTH Y-O-Y
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
80
140
90
130
120
110
100
Take-Up (net) Completions
Future Supply Vacancy Rate
0
200
400
11 12 13 14 15F 16F
0
4
6
8
12
2
10
14
100
300
700
600
500
T h o u s a n d s q m
P e r c e n t
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SHANGHAI“Net take-up to hit record high in 2015.”
Daniel Yao, Local Director - Research, Shanghai
9 2 –
O F F I C E
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.Physical Indicators are for the CBD.
Physical Indicators
Note: Shanghai Office refers to Shanghai’s Overall Grade A office market consisting of Pudong, Puxi and the decentralised areas.
NEW SET-UP DEMAND FROM DOMESTIC FINANCIAL SERVICES ON THE RISE
• Domestic retail banks and wealth management companies were active in
setting up branch offices in Pudong in 3Q15. Changchun Rural Commercial
Bank set up its Shanghai branch office in Jin Mao Tower (500 sqm), while a
domestic wealth management firm set up a new branch office in Hong Jia
Tower (1,800 sqm).
• Domestic financial services companies were seeking space in Puxi as well.
Meanwhile, multi-national companies (MNC) in retailing and professional
services were also active in Puxi.
LETTABLE SPACE REMAINS TIGHT IN PUDONG
• For the fourth consecutive quarter, no new supply was delivered in the
Pudong CBD. In the Puxi CBD, Soho Bund (87,248 sqm) in Huangpu District
was the only project reaching completion in the quarter.
• In the Decentralised market, three Grade A projects with a total GFA of
151,220 sqm were completed, including Oriental One Tower 3 (30,831 sqm) in
Pudong, as well as Hongqiao Vanke Center Phase 1 (58,385 sqm) and Soho
Hongkou Plaza (62,004 sqm) in Puxi.
SEVERAL MAJOR INVESTMENT DEALS CLOSE; RENTS RISE
• Underpinned by strong leasing momentum, Pudong Grade A rents increased
by 2.2% q-o-q to RMB 11.0 per sqm per day, and Puxi Grade A rents rose by
2.3% q-o-q to RMB 9.4 per sqm per day.
• Positive sentiment about rental growth prospects in the CBD market led
domestic and foreign institutional investors to become increasingly active in
seeking en bloc investment opportunities. Notable investment deals closed in
the quarter included Corporate Avenue 1 & 2 (RMB 6.6 Billion), Hongjia Tower
(RMB 2.6 Billion) and GC Tower (RMB 2.2 Billion).
OUTLOOK: STRONG LEASING DEMAND EXPECTED TO CONTINUE THROUGH 2016
• It is expected that financial and professional services enterprises –
particularly domestic firms – should remain active in the CBD market.
Meanwhile, many MNC manufacturers are likely to continue to show interestin relocating operations to decentralised areas.
• The strong demand and rental outlook should further boost institutional
investors’ confidence. We expect more core investors, who tend to have
longer investment horizons, to become active in the market.
Financial Indices
7.3%
RENTAL
GROWTH Y-O-Y
RMB 10.1
SQM PER DAY,
NET EFFECTIVE ON GFA
RentsRising
STAGE IN CYCLE
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for the CBD.
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
80
130
90
120
110
100
Take-Up (net) Completions
Future Supply Vacancy Rate
0
11 12 13 14 15F
0
6
10
4
8
12
2
600
T h o u s a n d s q m
P e r c e n t
16F
100
200
300
400
500
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CHENGDU“Robust leasing activity as landlords employ
various measures to boost occupancy.”
Frank Ma, Head of Research, West China
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year end annual. For 2015, take-up, completions and vacancy rate are YTD,while future supply is for 4Q15.
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLL
Note: Chengdu Office refers to Chengdu’s Overall Grade A office market.
LARGE LEASING DEALS PUSH UP QUARTERLY NET TAKE-UP
• Net absorption significantly improved q-o-q in 3Q15, underpinned by several
large lease deals. The most notable transaction was Tianfu International
Funds Business Park committing to about 14,000 sqm in Taifeng International
Plaza in the City Centre submarket. The tenant was introduced to the landlord
by the district government.
• Leasing activity was concentrated in the City Centre and New South Area
submarkets. The City Centre mainly appeals to MNCs and financial services/
professional services companies due to the maturity of its business
environment and quality office buildings. New South Area is attractive to
small- to medium-sized local tenants because of its lower rents.
ONE PROJECT RECEIVES OCCUPANCY PERMIT
• International Financial Square (Tower 3, IFS) in the City Centre was the only
Grade A completion in 3Q15. After being fully fitted out, the office portion of
this mixed-used development was subleased to MFG, a serviced office
operator, by developer Wharf Group. MFG had 20% of the space committed by
end-3Q15.
• In 3Q15, overall vacancy edged down by 1.8 percentage points to 38.5%.
However, vacancy marginally increased in the South Renmin Road submarketas tenants of older buildings relocated out of the submarket.
HIGH VACANCY PROMPTS LANDLORDS TO LOWER RENTS
• A high vacancy environment led many landlords to lower rents in a bid to
improve occupancy and as such, net effective rents declined 1.4% q-o-q to
RMB 94.7 per sqm per month.
• Chinese Estates Center was acquired by Evergrande Real Estate Group when
it purchased all of Chinese Estates Group’s projects (two residential, one
mixed-use) in Chengdu for a total consideration of HKD 6.5 billion
(CNY 5.3 billion).
OUTLOOK: NEW LEASING STRATEGIES EXPECTED TO SPUR ACTIVITY
• In addition to lowering rents, various measures are being undertaken bylandlords to spur leasing activity, including offering higher commissions to
leasing agents and co-operating with government agencies to encourage
more company setups. As vacancy is forecast to remain high in the near term,
more landlords are expected to adopt the aforementioned methods to fill
vacant space.
• A low interest rate environment and business diversification strategies are
expected to see more domestic real estate funds/companies explore the
purchase of quality commercial property assets in core locations.
–4.7% RMB 94.7
STAGE IN CYCLESQM PER MONTH,
NET EFFECTIVE ON GFA
RENTAL
GROWTH Y-O-Y
RentsFalling
Financial Indices
Physical Indicators
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
80
120
90
110
100
Take-Up (net) Completions
Future Supply Vacancy Rate
0
200
400
11 12 13 14 15F
0
20
40
10
30
100
300
700 70
50500
60600
T h o u s a n d s q m
P e r c e n t
16F
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TAIPEI“Record third quarter net take-up but largely due
to pre-commitments to new completions.”
Jamie Chang, Head of Research, Taiwan
9 4 –
O F F I C E
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.Physical Indicators are for the Overall market.
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for Xinyi.
Physical Indicators
Financial Indices
Note: Taipei Office refers to Taipei’s Overall Grade A office market.
ACTIVITY STRONGEST AMONG MID-TO-LARGE SIZED UNITS
• In the past three years, net take-up in 3Q averaged around 3,000 ping
(9,915 sqm). However, net take-up in 3Q15 reached 10,800 ping, a notable
improvement and largely driven by strong pre-commitments to supply
completed in the quarter.
• Demand mainly came from firms in the technology, IT and financial services
industries.
TWO BUILDINGS COMPLETE
• Cathay Landmark Square and Hung Shen International Financial Centre
reached completion in the quarter and added 31,575 ping to stock. As result of
the new supply, the vacancy rate increased by 2.8 percentage points q-o-q to
10.6%.
• Cathay Landmark Square (27,333 ping) is located in the Xinyi submarket and
features direct access to public transport, a shopping arcade and premium
building characteristics. Hung Shen International Financial Centre which is
located in the Non-core submarket, added 4,242 ping to market stock and has
direct access to the Metro system.
RENTALS GENERALLY STABLE DESPITE STRONG TAKE-UP
• In spite of healthy demand, overall rents edged down slightly by 0.2% q-o-q to
NTD 2,582 per ping per month. It was observed that many leasing deals signed
in the quarter had lengthy negotiation periods and in some circumstances,
with rentals agreed upon in prior quarters – as early as 4Q14.
• Overall market yields remained flat at 3.3% due to sluggish investment activity
and slow rental growth. Investment volumes for all real estate asset classes
totalled NTD 9.7 billion in 3Q, a decrease of 9.0% q-o-q or 71% y-o-y.
OUTLOOK: MODERATE RENTAL GROWTH EXPECTED
• Taiwanese businesses have reduced their intentions to increase staffing
levels and as a result, office demand may be impacted. Finance, professional
services and transport & utility sectors are expected to be the primary drivers
of demand.
• A further 32,000 ping of new Grade A office space is planned to be completed
by year end, with around 85% planned for owner occupancy. As such,
vacancy is likely to increase moderately in 4Q15.
NTD 3,039
PING PER MONTH,
NET ON GFA
2.3%
RENTAL
GROWTH Y-O-Y
STAGE IN CYCLE
GrowthSlowing
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
80
150
140
90
130
120
110
100
Take-Up (net) Completions
Future Supply Vacancy Rate
0
11 12 13 14 15F
0
9
15
6
12
18
3
180
T h o u s a n d s q m
P e r c e n t
16F
30
60
90
120
150
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TOKYO“Rent growth moderates despite low vacancy, as
corporates are cautious about a globaleconomic slowdown.”
Takeshi Akagi, Head of Research, Japan
Physical Indicators
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.
Physical Indicators
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLL
Financial Indices
Note: Tokyo Office refers to Tokyo’s 5 Kus Grade A office market.
IT AND MANUFACTURING FIRMS MAIN DRIVERS OF DEMAND
• According to the Financial Statements Statistics of Corporations by Industry,
corporate profits reached a record high in the April-June period (+21.6%
y-o-y). However, global economic uncertainty weighed on corporate
sentiment. Net absorption tipped slightly into negative territory in 3Q15.
• In 3Q15, demand was largely driven by tenants in the information &
communication and manufacturing industries. A notable leasing deal
announced in the quarter was mobile app developer Line’s expansion to JR
Shinjuku Miraina in January 2016.
VACANCY REMAINS STABLE
• The vacancy rate at end-3Q15 was 3.3%, remaining stable q-o-q but down 60
bps from a year earlier. Vacancy in mature buildings continued to be below
the market average, while commitment rates for recently completed buildings
was only around 60%. By submarket, Shibuya saw a decrease in vacant
space while Toranomon recorded an increase.
• The Tokiwabashi District Redevelopment Project was announced in 3Q15.
Located on a 3.1 hectare site adjacent to Tokyo Station, the complex will
comprise four buildings offering a total floor area of 680,000 sqm (GFA). Office
space will be offered in Building A (140,000 sqm, GFA) which is due forcompletion in 2021 and Building B (490,000 sqm, GFA) which is scheduled to
be finished in 2027.
RENT AND CAPITAL VALUE GROWTH SLOWS
• Rents at end-3Q15 averaged JPY 34,688 per tsubo per month, increasing 0.7%
q-o-q. Rents have grown for 14 consecutive quarters, although the rate of
increase moderated in 3Q15. Growth was driven by Otemachi/Marunouchi,
Akasaka/Roppongi and Hibiya submarkets.
• Capital value growth slowed to 0.2% q-o-q (15.2% y-o-y), in part reflecting
weaker rental growth. However, the investment market remained active. Mori
Hills Reit acquired a stake (1.4%) in Roppongi Hills Mori Tower for
JPY 12 billion (NOI cap rate of 3.8%).
OUTLOOK: MODEST RISE IN RENTS AND CAPITAL VALUES EXPECTED
• The Japanese economy is expected to see a modest recovery in 2016, with
Oxford Economics forecasting real GDP growth of 1.5%. However, increased
uncertainty surrounding the global economy is a downside risk.
• Vacancy is expected to remain stable amid steady demand and healthy take
up of new supply. The low vacancy environment should support moderate
growth of rents. Persisting investor interest is expected to see cap rates
compress further, and this, in combination with rent growth, should support a
rise in capital values.
4.3% JPY 34,688RentsRising
STAGE IN CYCLETSUBO PER MONTH,
GROSS ON NLA
RENTAL
GROWTH Y-O-Y
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
90
150
120
130
140
110
100
Take-Up (net) Completions
Future Supply Vacancy Rate
0
200
500
0
2
4
5
1
3
6
400
100
300
600
T h o u s a n d s q m
P e r c e n t
11 12 13 14 15F 16F
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OSAKA“Rents continue to edge up as vacancy declines and
corporate sentiment improves.”
Takeshi Akagi, Head of Research, Japan
9 6 –
O F F I C E
Physical Indicators
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLL
Financial Indices
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.
Note: Osaka Office refers to Osaka’s 2 Kus Grade A office market.
DEMAND STEADY AMID RECOVERING ECONOMY
• According to September’s Greater Osaka Tankan Survey, business conditions
for large manufacturers and non-manufacturers continued to improve.
• Leasing demand in 3Q15 was driven by sectors such as professional services,
finance and insurance. Net absorption slowed q-o-q to 7,500 sqm; however,
total net take-up for the first nine months of the year recorded a strong
increase from the same period last year. Notable tenant movements in the
quarter included Asatsu-DK and Daicel’s relocation to Grand Front Osaka
Tower B.
VACANCY CONTINUES TO DECLINE AND REACHES 5.5%
• There were no completions in the quarter and the Shin Daibiru Building which
completed in 1Q is expected to be the only addition to market stock in 2015.
• With no new supply entering the market and steady demand, vacancy in the
overall market declined by 40 bps q-o-q (310 bps y-o-y) to 5.5%. This was the
fourth consecutive quarter of decline. By submarket, decreases were
recorded in Umeda and Midosuji. Grand Front Osaka continued to see an
improvement in occupancy, reaching 80% in the quarter.
RENT GROWTH PICKS UP SLIGHTLY
• Rents at end-3Q15 averaged JPY 16,125 per tsubo per month, increasing
0.6% q-o-q. The rate of growth accelerated slightly and rents maintained an
uptrend for the fifth consecutive quarter. Growth was driven by Dojima and
Midosuji submarkets.
• Capital values in 3Q15 increased 6.4% q-o-q (25.4% y-o-y) and this marked
the eighth straight quarter of growth. Strong growth was sustained as yields
continued to compress, reflecting strong investor interest in regional office
assets. Mori Trust Reit sold Osaka Marubeni Building for JPY 11 billion.
OUTLOOK: RENT GROWTH AND YIELD COMPRESSION PUSH UP CAPITAL VALUES
• Japan’s economy is expected to continue a slow recovery, but the slowdown
in the global economy and volatility in financial markets is a concern.
According to the latest Greater Osaka Tankan Survey, business conditionsare expected to improve for large manufacturers, while those for large non-
manufacturers are likely to soften in 4Q15.
• Leasing demand is expected to remain resilient and this coupled with no new
supply over the next 12 months should place continued downward pressure
on vacancy and support moderate rent growth. In the investment market,
capital values are expected to grow while cap rates compress.
RentsRising
STAGE IN CYCLE
JPY 16,125
TSUBO PER MONTH,
GROSS ON NLA
3.2%
RENTAL
GROWTH Y-O-Y
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
80
140
110
120
130
100
90
Take-Up (net) Completions
Future Supply Vacancy Rate
0
60
150
11 12 13 14 15F
0
4
8
10
2
6
12
120
30
90
180
T h o u s a n d s q m
P e r c e n t
16F
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SEOUL“Absorption reaches the highest level since 1Q14amid a modest pick-up in demand, in particular
in the CBD.”
Yongmin Lee, Head of Research, Korea
Physical Indicators
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.Physical Indicators are for the Overall market.
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for the CBD.
Physical Indicators
Financial Indices
Note: Seoul Office refers to Seoul’s Grade A office market.
CBD LEADS REBOUND IN ABSORPTION
• 101 Pine Avenue reached full occupancy on move-ins by Hana Tour (3,860
pyung, gross), ABC Mart Korea (2,300 pyung) and Hanwha S&C (2,200 pyung),
while Hanwha Finance Center Taepyungro and D-Tower witnessed the
arrivals of Hanwha Total (2,200 pyung) and a local taskforce team (1,300
pyung), respectively.
• In Yeouido, Yello Finance Group (2,000 pyung, gross) commenced business at
IFC Three. Gangnam activity was bouyed by the relocation of Amway (2,200
pyung) and Daehan Real Estate (930 pyung) to Asem Tower from Textile
Building due to the increased occupancy requirements of Yulchon, Textile
Building’s anchor tenant.
MODEST DECLINE IN VACANCY ACROSS ALL THREE DISTRICTS
• A lack of new supply aided a 60 bps q-o-q drop in overall vacancy, the largest
decline since 2Q14.
• The decline in vacancy was largest in the CBD and Yeouido, where tenant
demand was focussed on recently completed stock. Despite having a low
vacancy rate, Gangnam continued to struggle to attract new tenants to the
district and to stem the outflow of tenants to newer stock in other districts.
RENTS DECLINE MARGINALLY FOR THE THIRD CONSECUTIVE QUARTER
• Rents declined by 0.5% q-o-q due to increasing incentives in recently
completed stock and buildings with sizeable backfill vacancy. Rent declines
were largest in Yeouido reflecting attractive deals concluded at IFC.
• Investment deal volume was muted in the quarter; however, a strong pipeline
of deals indicates that transaction volumes should pick-up by year end. The
largest deal in 3Q was Hana Financial Group’s acquisition of Grace Tower
(GFA 7,420 pyung) in Gangnam for owner-occupation. The property was sold
by Kormaco on behalf of National Pension Service for KRW 159.5 billion.
OUTLOOK: SAMSUNG AFFILIATES MAY RELOCATE TO NEW SUBURBAN PROJECT
• The only Grade A supply expected over the coming 12 months is Parnasse
Tower (GFA 44,460 pyung) in Gangnam which is scheduled for completion in3Q16. However, the completion of Samsung Electronics Umyeondong R&D
Center (GFA 99,800 pyung) on the south fringe of Seoul in 4Q15 may lead to the
relocation of several Samsung affiliates to this project from Grade A stock.
• The investment market is forecast to remain robust with 2016 pricing levels
likely to be benchmarked off the closing prices for a large number of deals
expected to conclude in 4Q15.
RentsStable
STAGE IN CYCLE
KRW 95,245
PYUNG PER MONTH,
NET EFFECTIVE ON GFA
0.3%
RENTAL
GROWTH Y-O-Y
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
90
140
130
120
110
100
Take-Up (net) Completions
Future Supply Vacancy Rate
–50
11 12 13 14 15F
–2
14350
T h o u s a n d s q m
P e r c e n t
16F
0
2
4
6
8
10
12
0
50
100
150
200
250
300
-
8/17/2019 Asia Pacific Property Digest 3q 2015
22/76
SINGAPORE“Weak global economic conditions and large
impending supply put pressure on office rents.”
Dr Chua Yang Liang, Head of Research, Southeast Asia
9 8 –
O F F I C E
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.Physical Indicators are for the CBD.
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for the CBD.
RentsFalling
STAGE IN CYCLE
Note: Singapore Office refers to Singapore’s CBD Grade A office market in Marina Bay, Raffles Place,Shenton Way and Marina Centre.
SUBDUED ECONOMIC ENVIRONMENT IMPACTS OFFICE DEMAND
• Demand for CBD office space remained lacklustre in 3Q15 with economic
uncertainty and expectations for further rental declines having an effect on
leasing activity.
• Despite overall demand being subdued, there were still some firms that
looked to leverage on Singapore’s position as a regional hub and set up new
offices in the city during the quarter. These tenants were from a wide range
of industries and included the South Korea National Pension Service, ZS
Associates and ECommPay.
FLIGHT-TO-QUALITY PUSHES VACANCY UP IN OLDER STOCK
• In 3Q15, tenants looking to relocate continued to show a preference for deals
which offered lower rents in higher quality buildings in Raffles Place and
Marina Centre submarkets. These deals were especially attractive to tenants
who occupied space in older buildings - usually in the Shenton Way
submarket.
• The overall CBD vacancy rate increased slightly in 3Q15 to 6.1%. Vacancy is
expected to increase gradually over the next few quarters as select
occupiers, mainly in the financial sector, give up space. With much of this
space large in size, landlords may find it difficult to re-lease vacated spacegiven that most demand is currently for smaller requirements. This may
prompt some landlords to subdivide space.
INVESTOR DEMAND REMAINS RESILIENT DESPITE DECLINING RENTS
• In 3Q15, overall CBD rents fell by 4.5% q-o-q to SGD 9.61 per sq ft per month,
declining at a similar pace as in 2Q15. Landlords continued to take pre-
emptive steps to retain and attract occupiers ahead of a large wave of supply
(3.07 million sq ft) due to be completed in 2016.
• The en bloc sales of 158 Cecil Street and Thong Sia Building for
SGD 240 million and SGD 380 million, respectively, signalled the strength of
investors’ confidence. Investors appear to be focused on the longer term
fundamentals of the office market rather than the short-term outlook and
potential impact of an interest rate hike.
OUTLOOK: OCCUPIERS MAY DELAY DECISIONS IN HOPE OF LOWER RENTS
• In the short term, rents across all submarkets are likely to continue trending
lower due to lacklustre demand and pressure from the large supply pipeline
in 2016.
• Pre-leasing activity is likely to remain challenging as existing occupiers are
hesitant to sign new leases until shortly before the expiration of their existing
contracts due to the expectation of further rental declines.
SGD 9.61
SQ FT PER MONTH,
GROSS EFFECTIVE ON NLA
–7.1%
RENTAL
GROWTH Y-O-Y
Physical Indicators
Financial Indices
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
80
130
90
120
110
100
Take-Up (net) Completions
Future Supply Vacancy Rate
0
100
11 12 13 14 15F
0
4
8
2
6
12
200
50
150
300
10250
T h o u s a n d s q m
P e r c e n t
16F
-
8/17/2019 Asia Pacific Property Digest 3q 2015
23/76
BANGKOK“Limited occupier movement but a number osignificant relocation deals inked that will be
reflected in upcoming quarters.”
Andrew Gulbrandson, Head of Research, Thailand
Physical Indicators
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.
Physical Indicators
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLL
Financial Indices
Note: Bangkok office refers to Bangkok’s Central Business Areas Grade A office market.
ROBUST LEASING ACTIVITY BUT NET TAKE-UP NEGATIVE
• Net absorption moved into negative territory (–4,000 sqm) in 3Q15 amidst small
amounts of churn, consolidations and a lack of major tenant movements.
• The leasing market remained active with a large number of deals signed in the
quarter. However, most deals represent relocations to projects currently
under construction and thus, will not be reflected in demand figures until
these buildings complete in 2016.
NO NEW SUPPLY COMPLETES WHILE VACANCY RISES
• Grade A office stock remained unchanged in 3Q15 at 1,824,000 sqm, while
vacancy increased by 0.2 percentage points q-o-q to 9.2%.
• Several projects are expected to complete in the next 12 months including
The Metropolis Building in 4Q15 (13,000 sqm), located on Sukhumvit Road, and
FYI Center (48,000 sqm) on the Ratchadaphisek and Rama IV intersection,
which is scheduled to open in 1Q16.
RENTS AND CAPITAL VALUES RISE, WHILE YIELDS REMAIN STABLE
• Gross rents increased by 0.4% q-o-q to THB 783 per sqm per month in 3Q15.
• Capital values increased by 0.5% q-o-q to THB 106,507 per sqm in 3Q15. Theincrease was at the same pace as rent growth and as such, market yields
remained at 6.8%.
OUTLOOK: HEALTHY SUPPLY PIPELINE AND STRONG PRE-COMMITMENT LEVELS
• More than 65,000 sqm are in the pipeline due to complete in the next 12
months in the Central Business Areas (CBA). An estimated 50% of this space
was pre-committed at end-3Q15, suggesting strong demand for new, high
quality space. We believe these projects will be taken up quickly upon
completion and generating robust demand throughout 2016.
• Despite relatively limited available space and a fairly small supply pipeline,
new Grade A office supply outside of the CBA has provided alternative
choices for office tenants, pressuring rental growth for Grade A office
space in the CBA. We believe this trend should continue into 2016. While allsubmarkets should achieve positive rental growth over the next 12 months,
growth in the CBA will likely lag market-wide figures.
4.9% THB 783
STAGE IN CYCLE
GrowthSlowing
SQM PER MONTH,
GROSS ON NLA
RENTAL
GROWTH Y-O-Y
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
0
160
20
100
120
140
80
60
40
Take-Up (net) Completions
Future Supply Vacancy Rate
0
30
90
11 12 13 14 15F
0
3
9
6
18
15
12
60
180
120
150
T h o u s a n d s q m
P e r c e n t
16F
-
8/17/2019 Asia Pacific Property Digest 3q 2015
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JAKARTA“Demand remains relatively thin amid slow
economic growth and continuedrupiah depreciation.”
James Taylor, Head of Research, Indonesia
1 0 0 –
O F F I C E Rents
Falling
STAGE IN CYCLE
Note: Jakarta Office refers to Jakarta’s CBD Grade A office market.
NET TAKE-UP PICKS UP DUE TO NEW SUPPLY BUT ENQUIRIES REMAIN LOW
• Relatively slow economic growth, rupiah depreciation against the US dollar,
low commodity prices and global economic headwinds continued to impact
the Jakarta office market. Demand remained relatively thin in 3Q15 and the
overriding sentiment in the market was one of cost-saving and consolidation.
• The oil and gas and mining sectors were relatively inactive in 3Q15 and
some smaller, local operations were contracting or closing down. However,
firms which feed off Jakarta’s most dependable resource – a large, growing
population - remained relatively strong with several e-commerce firms looking
for space.
AIA CENTRAL THE SECOND NEW COMPLETION IN AS MANY QUARTERS
• AIA Central (42,999 sqm), developed by Selaras Group, is located at the
Sudirman end of the main Thamrin/Sudirman thoroughfare which dissects
Jakarta’s CBD and will form the route of the future MRT line; earmarked for
completion at the end of this decade. AIA moved in during the quarter,
relocating from the Greater Jakarta area.
• Vacancy rates broke the double-digit barrier in 2Q15 on the back of the
completion of Sahid Sudirman Center and rose further in the third quarter. The
two new completions in successive quarters are the forerunners of a packedsupply schedule.
RENTS DECLINE AMID ECONOMIC HEADWINDS AND RISING VACANCY
• Historically, many landlords of Grade A buildings in Jakarta quoted rents in
US dollars. New government regulations, effective July 1st, stipulated that all
domestic business transactions must be conducted in Indonesian Rupiah.
• Rental growth turned negative (–1.6% q-o-q) as landlords offered more
attractive terms in the face of rising vacancy rates and relatively thin demand.
No en bloc sales transactions were closed in 3Q15 although some
international investors continued to show interest in developing mixed-use
projects in prime locations.
OUTLOOK: VACANCY RATES TO RISE FURTHER; MORE RENTAL DECLINES LIKELY• Although pre-commitment deals have been agreed in projects with
completion dates as far ahead as 2018, demand is likely to remain relatively
thin in the short term. We expect continued inactivity from oil and gas firms,
while e-commerce companies are likely to expand. Given the volume of
pipeline supply, we expect vacancy rates to rise further.
• With some landlords facing vacancy pressure and demand remaining
relatively thin, we expect further rental declines in IDR terms in the coming
quarters. A pick up in government spending and GDP growth as well as
currency stabilisation are vital in terms of boosting demand and sentiment.
–2.6% IDR 4,370,094
SQM PER ANNUM,
NET EFFECTIVE ON NLA
RENTAL
GROWTH Y-O-Y
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLL
Physical Indicators
Financial Indices
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
0
300
50
250
200
150
100
Take-Up (net) Completions
Future Supply Vacancy Rate
0
50
150
11 12 13 14 15F
0
3
9
6
18
15
12
100
300
200
250
T h o u s a n d s q m
P e r c e n t
16F
-
8/17/2019 Asia Pacific Property Digest 3q 2015
25/76
KUALA LUMPUR“Continued political and economic uncertainty
puts a dampener on office leasing activity.”
Dr Chua Yang Liang, Head of Research, Southeast Asia
Physical IndicatorsPhysical Indicators
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for the Kuala Lumpur City.
Financial Indices
Note: Kuala Lumpur Office refers to Kuala Lumpur City’s Grade A office market consisting of the GoldenTriangle and CBD submarkets.
SUBDUED DEMAND WITH DOWNSIZING BY OIL & GAS AND FINANCIAL FIRMS
• Leasing enquiries declined on the back of the recent political issues and
difficult economic situation caused by low commodity prices and a weakened
Malaysian ringgit. Oil & gas companies and large financial institutions
continued to downsize in terms of headcount and occupied space. Despite
weak demand, net absorption was positive in 3Q15.
• Leasing demand was led by domestic business services firms’ flight-
to-quality. The decentralisation trend continued with the Decentralised
submarket gaining popularity - especially within KL Sentral, Mid Valley City
and Bangsar South - due to its access to quality public transportation and
affordable rents.
VACANCY STABLE AMID NO NEW SUPPLY
• No new supply was completed during the quarter and vacancy held firm at
13.3%.
• There are rising concerns over the large amount of supply due in the KLC
submarket from 2019 onwards. This supply is largely being driven by major
government-led projects including KL 118, Tun Razak Exchange and Bukit
Bintang Commercial Centre.
RENTS DECLINE ON THE BACK OF A SUBDUED LEASING MARKET
• Softer leasing market conditions resulted in rents declining marginally as
some landlords opted to focus on occupancy over rents. Select landlords of
older buildings within the CBD submarket increased rental incentives
including offering longer rent-free periods.
• Investment yields remained stable amid a muted investment market. While
some property owners lowered their pricing expectations, prices are still
relatively high due to the limited availability of quality assets.
OUTLOOK: RENTAL DECLINE LIKELY TO CONTINUE
• Landlords are expected to prioritise occupancy over rents and this in
combination with softening demand is expected to lead to a further decline in
rents.
• The leasing market should continue to favour tenants, with vacancy rates
lingering in double digits. Demand is expected to be more concentrated within
the Decentralised submarket due to its quality infrastructure and relatively
congestion-free roads.
0.9% MYR 6.32Rents
Falling
STAGE IN CYCLESQ FT PER MONTH,
GROSS ON NLA
RENTAL
GROWTH Y-O-Y
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
80
130
90
120
110
100
Take-Up (net) Completions
Future Supply Vacancy Rate
0
70
280
11 12 13 14 15F
0
4
12
16
8
20
210
140
350
T h o u s a n d s q m
P e r c e n t
16F
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.
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8/17/2019 Asia Pacific Property Digest 3q 2015
26/76
MANILA“Rents expected to grow at a slower pace due to
competition rom new supply.”
Claro dG. Cordero, Jr., Head of Research, Philippines
1 0 2 –
O F F I C E
Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.
Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLL
GrowthSlowing
STAGE IN CYCLE
Physical Indicators
Financial Indices
Note: Manila Office refers to the Makati CBD and BGC Grade A office market.
OUTSOURCING AND TECHNOLOGY FIRMS LEAD OFFICE DEMAND
• Net absorption in Makati CBD and Bonifacio Global City (BGC) rose from
12,000 sqm in 2Q15 to 86,400 sqm in 3Q15, mainly driven by off-shoring and
outsourcing (O&O), technology-related and other services firms. The increase
in net absorption was partly due to take-up of office space in newly
completed developments.
• Notable lease transactions in 3Q15 included an O&O firm renewing its lease in
a built-to-suit development in Makati CBD, an e-services firm taking up
2,100 sqm in newly completed Net Park and a business services firm pre-
committing to 2,000 sqm in Uptown Tower 3 in BGC.
NEW SUPPLY AND EXISTING AVAILABLE SPACE PUSH UP VACANCY
• Four office developments, MDI Corporate Center, Net Park, 8 Rockwell and
Cocolight were completed in 3Q15, adding 102,800 sqm of office space. All of
these developments, except for 8 Rockwell, are located in BGC.
• The vacancy rate increased slightly to 4.8% in 3Q15 from 4.3% in 2Q15 as
newly completed developments were not fully leased out upon completion.
Despite the increase in the vacancy rate, Grade A developments in Makati
CBD and BGC continued to enjoy high occupancy.
CAPITAL VALUES INCH UP SLOWLY AFTER PREVIOUS ROBUST GROWTH
• Rents registered a modest growth of 0.2% q-o-q, supported by stable O&O
office demand. Likewise, capital values saw minimal movement, inching up by
0.1% q-o-q and consequently, investment yields remained relatively stable at
9.2%.
• Strata-title office units in existing Grade A developments in Makati CBD
continued to be traded in the secondary investment market, fuelled by
demand from investors and occupiers. Meanwhile, demand for pre-selling
strata-title office units, mostly located in BGC, was driven by retail investors
and small and medium-sized enterprises.
OUTLOOK: SLOWER RENT GROWTH EXPECTED AS SUPPLY EXPANDS FURTHER
• A total of 200,000 sqm of office space is scheduled to be completed in the next two quarters from eight office developments. Vacancy rates are likely to rise,
given the incoming supply.
• Rents are expected to maintain positive growth, albeit at a slower pace, while
capital values are expected to increase further supported by the favourable
investment outlook of the country.
3.5% PHP 895
SQM PER MONTH,
NET EFFECTIVE ON NLA
RENTAL
GROWTH Y-O-Y
Rental Value Index Capital Value Index
I n d
e x
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
90
150
140
100
130
120
110
Take-Up (net) Completion