Bangkok--Nov 9--CB Richard Ellis
The Grade A leasing markets in Asia’s foremost office hubs generally witnessed a high level of activity in the third quarter of 2005, with Tokyo Hong Kong, Singapore and Mumbai recording rising rents, and Beijing, Shanghai, Guangzhou and New Delhi’s commercial satellite areas witnessing a speculative boom in office development, underpinned by strong business confidence.
Within the third quarter alone, over 1 million square meters of new supply was released between the Beijing, Shanghai and Guangzhou Grade A office markets, highlighting the speculative boom in property development which is currently underway in these three cities, underpinned by the prevailing high levels of business confidence in China’s leading urban centers.
Considerable new supply was also released to the Tokyo market, but strong underlying demand and high levels of absorption resulted in continued compression in vacancy compression. Hong Kong continued to see a strong rise in rentals prompted by robust demand from financial services occupiers compounded by tightening of availability, particularly in the CBD. Sentiment was witnessed to be on the rise in the Seoul office market leading to improved outlook for the city’s Grade A sector. Also within the period, vacancy compression was witnessed for top end office space in Singapore, while leasing activity across India’s major office markets continued to follow a clear, rising trend.
Three new Grade A office buildings were completed during the third quarter in Tokyo, adding in excess of 278,000 square meters of leaseable space to the central five ward market. With continued strong occupier demand, all three properties were fully committed several months prior to opening. Net absorption of almost 27,000 square meters in the third quarter resulted in the prime office vacancy rate declining to 1.7%, the lowest level at which it has been recorded for 4 ? years. Intense competition for new, high-quality space saw the average asking rent for Grade A office accommodation increase to 4,022* baht per square meter per month, excluding common area charges.
Meanwhile, in Hong Kong, office rents continued to trek north in the third quarter of 2005 as average rentals closed in on the highs not witnessed since year-end 2000, before the IT bubble implosion led to the commencement of the most recent period of market consolidation. While the start of the quarter included the traditionally slow summer period, the market nevertheless registered upbeat leasing activity, with demand stemming from a number of sectors, particularly financial services. Landlords strengthened their grip on prime office facilities as Hong Kong climbed up to eighth position in CB Richard Ellis' most recent global survey of prime office occupational cost.
The fairly rapid rate of recovery witnessed in Seoul’s Yeouido Business District office market eased off in the third quarter of 2005 as this sub-market entered into a phase of stabilisation. Since August 2005, the YBD has been witnessing an incremental incline in demand for office premises. On one hand landlords were witnessed offering improved incentives, while the availability of large pockets of space provided occupiers the opportunity to execute major consolidation plans. In Singapore prime office rents strengthened in the third quarter, boosted by better-than-expected economic performance, growth in financial services and more hiring by the services sector. In addition, the successful award of the Business and Financial Center (BFC) site in Marina Bay, to Keppel, Hong Kong Land and Cheung Kong, at a higher than expected price, boosted landlord sentiment
In Beijing, four projects came on stream in the third quarter of 2005, providing 330,000 square meters of space to the Beijing office market, representing the largest quantum of new office stock to be released in the city since the first quarter of 2002. This sizeable spike in new supply available on the market acted to ease some market pressure, particularly in the popular Jianguomen business hub. Meanwhile, Shanghai's office leasing market again witnessed high levels of activity in the third quarter of 2005 as the business and financial hub remained a major focus for business expansion by both local and overseas corporates. As a result of the general declining trend in office vacancy, a number of larger space users began to look for options outside of the centralized CBD areas. Demand for prime office space in Guangzhou remained strong in the third quarter, with net absorption registered at 269,400 square meters. Foreign enterprises were witnessed as driving this considerable wave of absorption, with notable deals within the period including the take-up of space by ABB, Samsung and CISCO. Under the impact of the release of 460,000 square meters of newly completed facilities onto the market, vacancy grew by 4.5 percentage points, quarter on quarter, to be recorded at 17.5%.
In New Delhi, Noida is poised at the threshold of emerging as a major IT destination in its own right, with large developments on the horizon in Sector 62 and along the Gautam Buddha expressway. Various leading developers including Unitech and DLF have acquired large tracts of land in these areas. Several global IT majors are also eyeing Noida as a potentially viable location due to its relatively low real estate costs. The market for office space in Mumbai, meanwhile, remained tight in the third quarter of 2005, with vacancy continuing to trend downwards, thereby reducing the number of options available in the market for potential occupiers. The continued tightening of supply in the market has given landlords the upper hand in leasing negotiations. Rentals and office property prices within the Bandra Kurla Complex also continued to trek north on the back of supply compression. Within the same time frame, Bangalore's office market witnessed an occupiers’ shift towards non-CBD office locales in the city’s suburban fringe or in peripheral urban areas. These areas have emerged as the most favoured locations for the establishment of offices for high-end engineering companies, R&D centers/ labs as well as back-office support functions.
In Bangkok, the overall vacancy rate is below 15% and below 7% for Central Business District Grade A offices in the third quarter. Less than 200,000 square meters of new office space will be completed in the next two years while demand is expected to be of at least 300,000 square meters per year for the same period. Rents have risen by between 18-23% on a year to year basis, depending on building location and quality. Landlords are seeking significant rental increases on renewal of existing leases. With the high occupancy rates, rents in Bangkok are likely to continue to rise as very little new supply is being built.
**100 JPY = 35.1613 baht
About CB Richard Ellis
CB Richard Ellis (NYSE:CBG), a FORTUNE 1000 company headquartered in Los Angeles, is the world's leading commercial real estate services firm (in terms of 2004 revenue). The company serves real estate owners, investors and occupiers by offering strategic advice and execution for property leasing and sales; property, facilities and project management; corporate services; debt and equity financing; investment management; valuation and appraisal; research and investment strategy; and consulting. Including partners and affiliates, the company has over 300 offices in more than 50 countries around the world.
CB Richard Ellis established an office in Bangkok in 1988 and in Phuket in 2004. CB Richard Ellis (Thailand) Co., Ltd. has grown to be a leading real estate services provider, offering a full range of services including sales and leasing for all types of property, property and facilities management, valuation and advisory, and research and consulting. For more information, visit the company's website at www.cbre.co.th.
* Includes partner offices
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