Asia Pacific

Transcription

Asia Pacific

Asia Pacific Property Digest
First Quarter 2012
Growth Moderates in Q1 2012
Asia Pacific Property Digest • First Quarter 2012 3
Dear Reader,
Following a strong end to 2011, Asia Pacific’s property markets saw a moderation in activity levels in Q1 2012. Rents and capital
values continued to rise in most markets but generally at a slower pace. Despite the more uncertain global economic environment,
the Asia Pacific economy is expected to significantly outpace the rest of the world this year, and we are forecasting a moderate
outlook for the region’s property markets in 2012.
You can also view this report as an on-line version at www.joneslanglasalle.com/thehub where you will also find our other research
reports, property market indexes, clocks and research blogs.
Happy reading!
Best regards,
Dr Jane Murray
Head of Research – Asia Pacific
Feature Articles
Asia Pacific Economy and Property Market
China – China Residential Market Outlook
India – Operational Cost Arbitrage for IT Companies in India
Philippines – Metro Manila’s Emerging Urban Districts
New Zealand – Auckland Office Occupiers
Retail
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Office
Tokyo
Osaka
Seoul
Beijing
Shanghai
Guangzhou
Hong Kong
Taipei
Bangkok
Ho Chi Minh City
Manila
Kuala Lumpur
Singapore
Jakarta
Delhi
Mumbai
Bangalore
Kolkata
Sydney
Melbourne
Brisbane
Adelaide
Auckland
Cover picture: 1322 Golden Empire Tower, Manila, Philippines
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Beijing
Shanghai
Guangzhou
Hong Kong
Bangkok
Manila
Kuala Lumpur
Singapore
Jakarta
Delhi
Mumbai
Bangalore
Australia Sub-Regional
Auckland
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Residential
Beijing
Shanghai
Hong Kong
Macau
Bangkok
Kuala Lumpur
Singapore
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Industrial
Beijing
Shanghai
Guangzhou
Hong Kong
Taipei
Singapore
Sydney
Melbourne
Perth
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Asia Pacific Economy
Outperformance still expected this year despite global headwinds
Dr Jane Murray
The Asia Pacific economy continues to outpace the rest of the world.
However, recent economic indicators point to slower growth across
the region due largely to the impact of ongoing challenges in Europe
and the US. The first countries to report GDP results for 1Q12 –
including China, Hong Kong, South Korea and Indonesia – have
mostly registered lower growth than the previous quarter.
With many countries in the region having a heavy reliance on
exports, the current slowdown in world trade is a concern. In 1Q12,
key exporters including China, Japan, South Korea and Taiwan saw a
slowing in exports, mainly to Europe. The retail sector is still generally
performing well, but has weakened somewhat over the last few
quarters. In 1Q12, consumer confidence remained weak in Australia
and North Asia but was more buoyant in India, Greater China and
most of South East Asia. Manufacturing output is still expanding
in most countries. Regionally, business sentiment rebounded to a
one-year high in 1Q12, buoyed by initial signs of a steadying global
economy.
Slower growth for most countries
China: China’s real GDP growth slowed further to 8.1% y-o-y in
1Q12 (8.9% y-o-y in 4Q11), the weakest performance since 2Q09
and mainly due to deteriorating external demand. In April, there
was a further slowing in export growth, as well as weaker figures
for imports, retail sales and industrial production. The government’s
measures to cool the residential market and improve affordability
have seen average prices decline across the country in recent
months. At the same time, some banks are now offering preferential
lending rates to first home buyers. China is still expected to lead
the region this year with growth of around 8%, driven largely by
consumer and investment spending including government low cost
housing.
Figure 1: Real GDP Growth
India: Growth slipped to 6.1% y-o-y in 4Q11 (6.9% y-o-y in 3Q11)
as manufacturing output growth slowed further. India is expected to
achieve the second highest rate of economic expansion in the region
this year although IHS Global Insight (GI) expects growth to fall to
below 7%, the weakest result since 2009. Contributing factors include
weaker investment spending and exports, while the lack of progress
on structural reform remains a persistent downside.
Indonesia: One of the region’s brightest spots currently, Indonesia
recorded growth of 6.3% y-o-y in 1Q12, similar to 4Q11. Buoyant
consumer and investment spending is helping to offset slower
external demand. A similar rate of growth is expected to be
maintained for the rest of this year, with consumption being supported
by wage and employment growth, while low interest rates and strong
business sentiment should help to buoy investment spending.
Japan: Real GDP contracted by 0.6% y-o-y in 4Q11, following the
0.4% y-o-y decline in 3Q11, as weaker external demand offset
recovery from the natural disasters that occurred in March last year.
The Japanese economy is forecast to rebound by 1.5% this year,
although growth is expected to be largely driven by reconstruction
spending with consumer spending and exports remaining weak.
Australia: In 4Q11, the Australian economy grew by 0.4% or 2.3%
y-o-y on stronger consumer spending. While the mining sector
continues to experience buoyant demand and the rural sector has
benefited from favourable weather conditions, the strong currency
is having a detrimental effect on other sectors. Growth is forecast
to pick up to about 3% in 2012, mostly supported by the mining and
agricultural sectors.
Hong Kong: In 1Q12, real GDP growth weakened further to just
0.4% y-o-y (3.0% y-o-y in 4Q11) with exports declining by 6% y-o-y.
Given the weaker external environment, near-term economic growth
Figure 2: Consumer Price Inflation
10
20
18
8
10
y-o-y (%)
6
4
2
6
4
2
0
2011
2012F
Source: IHS Global Insight, April 2012
2011
2012F
Japan
Taiwan
New Zealand
Australia
Malaysia
South Korea
China
Singapore
Thailand
Philippines
Hong Kong
Indonesia
–2
India
Japan
Singapore
New Zealand
Australia
South Korea
Malaysia
Hong Kong
Taiwan
Philippines
Vietnam
Thailand
Indonesia
India
0
China
–2
8
Vietnam
y-o-y (%)
Economy
4 Asia Pacific Property Digest • First Quarter 2012
Economy
Key Performance Indicators
GDP (%)
Short-Term Interest
Rate (%)
CPI (%)
Unemployment
Rate (%)
Real Private
Consumption (%)
Industrial
Production
2011
2012F
2011
2012F
2011
2012F
2011
2012F
2011
2012F
2011
2012F
China
9.2
8.4
6.4
6.6
5.4
3.1
4.1
4.2
6.5
8.0
13.7
11.9
Hong Kong
5.0
3.7
0.2
0.5
5.3
4.2
3.5
3.5
8.6
4.8
NA
NA
Taiwan
4.0
3.8
0.7
0.9
1.4
1.4
4.4
4.4
3.0
2.3
5.0
2.4
Japan
-0.7
1.5
0.2
0.2
-0.3
-0.2
4.5
4.9
0.0
0.9
-3.5
4.2
South Korea
3.6
3.0
3.4
3.7
4.0
2.8
3.4
3.7
2.3
2.0
6.9
4.1
Philippines
3.7
4.1
1.2
2.0
4.8
3.3
7.0
7.2
3.8
6.4
1.0
4.2
Singapore
4.8
2.0
0.3
0.5
5.2
3.1
2.0
2.2
3.7
15.1
7.8
3.8
Malaysia
5.1
3.6
2.9
3.0
3.2
2.7
3.1
3.1
6.9
5.7
1.4
3.5
Thailand
0.1
5.9
2.8
3.0
3.8
3.7
0.7
0.9
1.3
3.5
-9.3
11.9
Indonesia
6.6
6.2
6.9
6.2
5.4
4.5
6.6
6.3
4.8
5.2
5.0
5.0
Vietnam
5.9
5.5
14.0
11.6
18.7
8.9
2.7
2.8
6.6
7.0
11.4
8.1
India
7.3
6.9
9.6
10.2
8.9
6.6
9.4
9.3
5.1
6.0
4.8
4.8
Australia
2.0
2.9
4.8
4.2
3.4
2.3
5.1
5.3
3.4
3.0
-0.1
3.0
New Zealand
1.4
2.4
2.6
2.7
4.0
1.6
6.5
6.2
2.5
2.7
1.9
1.9
World
3.0
2.8
3.2
3.3
4.1
3.3
8.1
8.0
2.4
2.4
3.7
3.8
will rely more on domestic spending. The retail sector remains one of
the strongest in the region, with March retail sales growing by 17.3%
y-o-y, bolstered by the surge in mainland Chinese tourists. The
Hong Kong government expects growth of just 1-3% this year, the
lowest since 2009.
Singapore: Based on preliminary estimates, growth fell to only 1.6%
y-o-y in 1Q12 (3.6% y-o-y in 4Q11), due mainly to a contraction in the
volatile manufacturing sector. Although domestic demand remains
resilient, GI expects overall growth to ease sharply to 2.0% in 2012
(4.8% in 2011), due to Singapore’s exposure to slower global trade
flows.
South Korea: The economy expanded by a slower rate of 2.8%
y-o-y in 1Q12 (3.3% in 4Q11). GI expects real GDP growth to weaken
slightly from 3.6% last year to about 3% in 2012, as investment
spending should help to partly offset slower export growth.
More policy easing expected
Inflation is starting to subside across the region although it remains
a concern for policy makers. In April, China’s CPI inflation rate fell to
3.4% y-o-y from 3.6% the month before, however in India wholesale
price inflation accelerated to 7.2% y-o-y from 6.9% in March. With
economic indicators generally pointing to slower growth, policy
makers have started to implement supportive measures. Australia,
India and most emerging SEA countries have cut interest rates
since 4Q11, with Australia slashing its cash rate by 50 bps in early
May. China and India have loosened bank reserve requirements,
with China easing again in May following the batch of weaker than
expected economic results for April. In 1Q12, Japan and Hong Kong
announced stimulus packages to shore up their economies. More
policy easing is likely around the region this year.
Regional outperformance expected this year
Worries persist about the state of the Eurozone and the sustainability
of the US recovery. However, at this stage we expect that the world
will avoid a major downturn. Most countries in Asia Pacific are
expected to see slower growth this year but countries recovering from
natural disasters (i.e. Japan, Australia, Thailand and New Zealand)
are forecast to strengthen. The Asia Pacific economy should continue
to significantly outpace the rest of the world and grow in aggregate
by about 5% in 2012 due to the recovery from last year’s disasters,
together with relatively resilient consumption expenditure and support
from further government policy measures.
Property Market
Asia Pacific Property Market
Moderating growth in Q1 2012
Following a strong end to 2011, Asia Pacific’s property markets saw
a moderation in activity levels in 1Q12. Last year was a record in
terms of take-up of office space across the region. Given the more
uncertain global economic environment over the last six months, it
was not surprising that leasing levels slowed in the early part of this
year. Consistent with the global trend, investment activity was also
more subdued across most of Asia Pacific during the quarter. Rents
and capital values are still rising in most markets although growth
momentum has slowed.
Rental growth slows in most markets
Office sector: In 1Q12, around 0.8 million sqm of new Grade A
space was completed in the Tier I markets of Asia Pacific, with India
accounting for about 40% of the total but with limited additions in
China. Aggregate net absorption fell by over 50% q-o-q and y-o-y
to around 0.6 million sqm. While corporates were generally more
cautious in taking up space, leasing remained solid in offshoring
destinations such as Manila while domestic occupiers remained
active in markets such as China and India. In Australia, overall
leasing activity was subdued across CBD markets as businesses
remained cautious and some headcount reductions have been
announced in the banking sector. We expect overall leasing demand
in Asia Pacific to weaken moderately during 2012 due to slower
economic growth and corporate hiring, as well as smaller supply
additions.
Most office markets saw a further slowdown in rental growth in
1Q12 and a few cities recorded moderate declines. The Hong Kong
and Singapore office markets moved further through the downturn
phase, registering quarterly declines of 5-6% in net effective rents
on the back of weak leasing activity by the financial sector. Beijing
and Jakarta continued to see the largest quarterly rental increases,
although growth eased to between 5 and 8%. Rental growth in
Shanghai slowed to below 1%, as landlords became less aggressive
on asking rents. Net effective rents in Tokyo and Seoul fell further
(up to 2%) as landlords remained generous with incentives, while
average rents in India were flat or grew marginally. In Australia, the
buoyant resources sector drove quarterly increases of between 3 and
4% in Brisbane and Perth.
The regional office market in general continues to favour landlords
although occupiers have become more reluctant to pay high rentals.
We expect rents to increase in most markets over 2012, but at a
slower pace than last year and generally by less than 10%. Beijing
and Jakarta are expected to outperform once again with annual
rental increases of up to 25%, while Hong Kong and Singapore
are projected to see falls of about 15%. A few other markets such
as Seoul and Taipei are also likely to see either no growth or some
residual rental declines.
Retail sector: Retail leasing demand remained strong in Greater
China, particularly from international retailers (e.g. fast fashion,
luxury and F&B), and weakened slightly elsewhere in the region. In
1Q12, rental growth continued in Greater China (except Shanghai),
Jakarta and Manila but rents remained largely flat in other markets.
Hong Kong continued to see the strongest quarterly rental growth
(4% q-o-q) on the back of sustained retailer demand and tight supply.
Most markets (Singapore being a notable exception) are expected to
see further rental increases over the next few quarters. Retail rents in
Hong Kong are likely to see continued strong growth in 2012 of about
10%.
Residential sector: Many luxury and high-end residential markets
saw a seasonal lull in leasing activity coupled with more cautious
hiring plans in 1Q12, although markets such as China, Jakarta
and Manila remained generally resilient. Rents continued to rise
moderately (1 to 4%) in most markets, but declined in Singapore and
Hong Kong, driven by reduced housing budgets and downsizing in
the financial services sector. More subdued rental growth is expected
for most markets in 2012, while Hong Kong and Singapore should
see some further declines.
Industrial sector: In 1Q12, retail sales continued to drive leasing
demand while the segment related to exports/imports remained
subdued. Rental growth continued for most markets, but Singapore
high-tech rents declined on the back of weaker demand for back
office space. Moderate rental growth is projected for most centres
over 2012 except for Hong Kong and Singapore.
Capital values edge higher
Total direct commercial real estate investment volumes totalled
USD 20 billion in 1Q12, down about 30% q-o-q and y-o-y. Apart from
Australia, all major markets posted y-o-y declines due to factors
such as a lack of available assets, a price mismatch between
purchasers and vendors, the continuation of tight credit conditions
coupled with global economic risks. Japan remained the region’s
largest investment market in 1Q12, by a significant margin, and
bucked the trend with a slight quarterly increase in investment
volumes. Cross‑border deals accounted for a high percentage of total
investment activity in Japan, Australia, Singapore and South Korea.
Acquisitions in most other markets were dominated by domestic
investors, although there was less REIT activity.
Most major markets outside Tokyo and Seoul continued to see
increasing capital values in 1Q12, largely in tandem with rentals.
Capital values in the office markets of Beijing and Jakarta recorded
the largest q-o-q increases (4 to 8%). Capital values in Singapore and
Hong Kong were largely stable despite rental correction, supported
largely by local investor interest.
Grade A Office
Prime Retail
SE Queensland, Melbourne*
Guangzhou
Shanghai
Beijing
Manila
Perth
Hong Kong
Growth
Slowing
Rents
Falling
Rents
Rising
Decline
Slowing
Beijing
Shanghai
Kuala Lumpur
Guangzhou
Manila
Bangkok
Sydney, Jakarta
Bangalore^
Delhi^, Mumbai^, Auckland
Wellington, Chennai
^ CBD & SBD
Sydney*
Singapore
Hong Kong
Singapore
Melbourne
Adelaide
Property Market
Rental Property Clocks, 1Q12
Ho Chi Minh City
Osaka, Canberra
Seoul
Kuala Lumpur, Taipei
Tokyo
Brisbane Bangkok
Prime Residential
Growth
Slowing
Rents
Falling
Manila
Rents
Rising
Decline
Slowing
Rents
Rising
Decline
Slowing
Chennai
Bangalore, Tokyo
*Regional
Singapore (Conventional)
Hong Kong
Singapore*
Shanghai
Beijing
Rents
Falling
Mumbai
Auckland, Delhi, Jakarta
Industrial
Hong Kong
Growth
Slowing
Singapore (High-Tech)
Shanghai
Beijing
Sydney
Melbourne
Brisbane
Growth
Slowing
Rents
Falling
Rents
Rising
Decline
Slowing
Bangkok
Jakarta
Auckland
Kuala Lumpur
*For High-end Residential Properties
The mature markets of Japan and Australia should remain popular
choices for commercial real estate investors during 2012. Growth
opportunities will also be sought in China. Continued investor interest
should drive further modest growth in capital values in most markets
and sectors, while yields are forecast to remain largely stable across
the region. Residential prices, however, are likely to see some
downward pressure in markets such as Singapore, Hong Kong and
Shanghai, although price declines are not expected to be severe.
A relatively stable year ahead
The outperformance of the Asia Pacific economy is expected to buoy
property market activity this year. Corporate balance sheets are
generally in good shape and this should underpin leasing activity.
Investors remain keen to purchase and many are currently in fund
raising mode. Rents and capital values are expected to increase
in most markets and sectors, although at a slower rate than 2011.
Under our base case scenario that the world avoids a recession,
we expect any decline in rentals and prices to be temporary and for
property market activity levels to pick up again in 2013.
Tokyo
*Business Parks (Singapore)
Logistics Space (Hong Kong, Shanghai, Beijing, Tokyo Bay Area)
About the Author
Dr Jane Murray joined Jones Lang
LaSalle in 1998 and in 2005 was
appointed as Head of Research
– Asia Pacific. In this role, Jane leads
a team of over 100 professional
researchers in the region, which
forms part of a network of around
300 researchers in 60 countries
around the globe.
The Asia Pacific Research team
produces a range of outputs to assist the clients of the Firm with their
decision making, including comprehensive market monitoring and
analysis across major institutional-grade real estate markets in the
region; forecasts of key real estate indicators; consultancy projects;
thought leading research papers on topical issues as well as regular
publications.
China
China Residential Market Outlook
Joe Zhou
Local Director – Research, China
Tightening measures and strict mortgage policies succeeded in
cooling down China’s residential market in 2011. This was evidenced
by a plunge in sales volume and a meaningful correction in sales
prices witnessed across the major cities in China as illustrated below.
Figure 2: 20 Cities’ Stage in Price Cycle, 1Q12
Shanghai
CV Growth
Slowing
Coming into 2012, some local governments continued efforts to ease
tightening measures in a bid to revive their local residential markets.
For example, in Shanghai, the local government announced that nonlocal residents who have held resident permits for three years were
permitted to buy second homes in Shanghai. However, the Central
government responded quickly and called off the easing measure.
Premier Wen reaffirmed strict implementation of tightening measures
this year at China’s Communist Party meeting in Beijing in March. We
believe the Central government is not likely to reverse its residential
market policy in the near term.
Beijing
Guangzhou
Dalian
Shenyang
Zhengzhou*
Tianjin
Xi'an*
Xiamen
Chongqing
Wuhan*
Qingdao
CV Decline
Accelerating
Shenzhen
Changsha*
Suzhou
Wuxi
Chengdu
Ningbo
CV Growth
Accelerating
Nonetheless, as we expected, policy fine-tuning to improve
affordability for first time buyers began to be implemented across
the country in the beginning of 2012. The People’s Bank of China
(PBoC), recently urged the major banks to both increase the
availability of mortgages for first time home buyers and to offer
them more affordable mortgage rates as well. In 4Q11, it was not
uncommon for first time home buyers to see their mortgage rates set
at a 10% or 15% premium to the base lending rate, while first time
buyers are now able to receive a 10% or 15% discount from the base
Hangzhou
Nanjing
CV Decline
Slowing
* Updated on a semi-annual basis
Source: Jones Lang LaSalle REIS China 1Q12
lending rate, leading to an improvement in affordability as illustrated
below.
In addition to the improvement in availability of mortgage finance,
many local governments announced additional measures focused
Figure 1: 20 Cities’ Sales Volumes
30
25
sqm (millions)
20
15
10
2007
2008
2009
2010
2011
* Transaction volume in Chongqing refers to the sales volume of all commodity properties, inclusive of commercial and residential.
Wuxi
Changsha
Zhengzhou
Chongqing*
Qingdao
Xiamen
Tianjin
Wuhan
Suzhou
Shenyang
Ningbo
Nanjing
Hangzhou
Xi'an
Dalian
Chengdu
Shenzhen
Guangzhou
Shanghai
0
Beijing
5
China
Figure 3: Sensitivity Analysis of Mortgage Rates
Total payment change from
benchmark total payment
2,500
-3%
-6%
-9%
Downpayment (LHS)
Total mortgage payment (LHS)
January
February
March
* Assuming down payment: 30% of the total purchase price; mortgage term: 30
years
* Transaction volume in Chongqing refers to the sales volume of all commodity
properties, inclusive of commercial and residential.
on supporting first time home buyers. For instance, the Shanghai
and Tianjin local governments redefined “ordinary housing” and
broadened coverage for the preferential deed tax treatment. As
shown in the chart above, support measures from the Central
government, along with more reasonable pricing from developers,
resulted in a recovery in sales volume in February and March as
first time home buyers gradually returned to the market in many
cities, such as Wuxi, Suzhou and Wuhan. Anecdotal surveys pointed
out that first time home buyers are making up a larger share of the
primary sales market than before as investors still remain blocked
from the market due to the home purchase restrictions (HPRs).
With first time home buyers returning to the market, we expect sales
volume to continue to pick up gradually through the course of the
year, particularly in lower tier cities with lower housing ownership
penetration. On the supply side, many developers have been
delaying new launches in 1Q12, awaiting better market conditions.
Looking ahead, as sales momentum picks up, the pipeline is likely
to grow steadily during the remainder of the year, which will limit
developers’ pricing power. Downward pressure on housing prices,
particularly in the high-end segment, will persist, as investors and
Wuxi
Changsha
Zhengzhou
Qingdao
Chongqing*
Tianjin
Xiamen
Wuhan
Suzhou
Ningbo
Shenyang
Mortgage rate discounts
0.0
Nanjing
-10% -15% -20% -25% -30%
Xi'an
-5%
Hangzhou
0%
Dalian
5%
0.5
Chengdu
10%
1.0
Shenzhen
15%
1.5
Guangzhou
500
2.0
Beijing
1,000
2.5
-12% -14% -17%
Shanghai
1,500
3%
Benchmark total payment
RMB (thousands)
6%
3.0
sqm (millions)
9%
2,000
0
Figure 4: Monthly Transaction Volumes of Commodity Housing
upgraders are mostly ineligible for home purchases under the existing
HPRs. Given the current market environment, we expect to see
developers increase the supply of small-size units to cater to the
needs of first time home buyers.
About the Author
Joe joined Jones Lang LaSalle in
2005 and is currently the Head of
Research for Shanghai. He is a
key contributor to various research
publications and is responsible for
coordinating consultancy projects
across the Yangtze River Delta
region. His area of focus is on
tracking and analyzing government
policies and economic data and
updating clients on the implications. Joe is one of Jones Lang
LaSalle’s media spokespersons and an active property market
commentator.
India
Operational cost arbitrage for IT companies in India - Are
Tier II/III cities the way to go?
Ashutosh Limaye
Head of Research and Real Estate Intelligence Service, India
IT companies in India are great assimilators of talent and this
talent pool is often a representation of India’s diversity, geography,
languages, cultures, and assembled as a whole in a Tier I city away
from its small town origin. While India’s Tier II and Tier III cities
continue to supply talented staff to the IT industry, IT companies want
to employ these people in their own cities because of perceived cost
arbitrage. However, ground reality suggests that these cities have
achieved less than expected in attracting IT companies. Does the
perceived cost arbitrage exist at all, and, if so, is it attractive enough
for IT companies to relocate or expand to these destinations? We
have limited this study to the coverage of the tactical factors of capital
and operational costs, but have excluded the cost of hiring talent.
Since India’s IT-ITeS industry is large, services a variety of
businesses and occupies space of all sizes, the case studies chosen
here assume:
• The business caters to the domestic market in the BPO category
• The space requirements are about 50,000 sq ft
• Since it will service domestic business, the necessity of being
located in an IT SEZ will not apply, and
• Space required is within next 18 months
Real Estate Cost: Rents in Tier II/III cities, interestingly enough,
remain comparable to the rents prevalent in the peripheral locations
of Tier I cities. So the only arbitrage is that of locations in respective
cities whereby some Tier III cities are able to offer city centre
locations at a cost similar to that of the peripheral locations in Tier I
cities. But land plots large enough to house a 50,000 sq ft building
may not be available in city centres and, if available, the owner or the
developer may not be the best entity to develop it. The prospective
occupier’s expectations in terms of the developer’s ability to construct
a good quality building on time which would then provide rental
income for at least three years before it was sold off as an income
yielding asset, would have to be met. Choosing an off-centre location
in a Tier II or III city might often mean additional expenses for
infrastructure as many of these cities are not well-developed beyond
the city centre. Rents in established peripheral locations of Tier I
cities such as Bangalore, Mumbai and Delhi NCR start from
INR 30–38 per sq ft per month while rents in city centres in Tier II
and III cities such as Jaipur, Chandigarh, Vizag, and Ahmedabad are
in the range of INR 30–40 per sq ft per month, and, in fact, buildings
in Mangalore and Kochi that are truly Grade A command rents up to
INR 60 per sq ft owing to short supply. Clearly there is not much real
estate cost arbitrage given this scenario.
Fit-out cost: It comprises interior decoration and services, labour,
transport costs and payment to the design-fitting out company. Here,
case studies reveal some facts not known to many of us. Most of the
materials used in fitting out are procured from branded, pan–India/
international suppliers and thus the competitive pricing obtained from
them is much the same irrespective of the location of the facility. This
method of sourcing matches if not betters the cost of items procured
locally. However, the cost of imported items or those sourced from
specific geographical areas in India has a marginal impact (positive
as well as negative) on overall costs, depending on the location of the
city.
Construction Labour and Fit-out Labour Cost: Tier II and III cities
used to offer considerable labour cost advantages, but no longer
as now much of the semi-skilled/skilled labour in India is sourced
from specific states such as Bihar, Uttar Pradesh and Rajasthan.
The hiring rates are negotiated with labour contractors on a PanIndia basis and are comparable with those for local labour. These
three states now produce “a talented labour force” and contractors
want these people for their experience with changing construction
technology, and for their hard work.
Management Cost: The former distortions in management fees for
construction and for fitting-out are increasingly being brought to the
same level. India’s thrust in creating a dense infrastructure in Tier II
and III cities has helped them reduce management costs since many
construction companies have developed facilities in these cities to
implement infrastructure projects.
Facilities Management Cost: Facilities management (FM) does
offer cost benefits in favour of smaller cities. Generally, within the
FM cost, labour costs amount to 27% to 33%, utilities cost 54% to
60% and repairs and maintenance (R&M) about 6–10%. The cost of
India
utilities depends on the state and there is little variation throughout
India. Usually, R&M costs are much the same everywhere. It is the
labour cost that is advantageous for smaller cities as it can offer a
saving (for mostly semi-skilled labour) of 5–10% of the FM cost.
Staff Transportation Cost: Tier II and III cities offer a significant
cost arbitrage for staff transportation, and this is a major component
of operating costs. In India, IT-ITeS companies facilitate the safe and
comfortable daily commuting of their staff, as public transportation is
under-developed and unreliable and this puts a significant burden on
operational costs. Significant savings in transportation costs can be
made as commuting distances are smaller in secondary cities, and
also transportation may not need to be provided for day shifts. While
in Tier I cities, the average distance travelled by staff is 10–15 km
one way, in Tier II and III cities it is only 2–6 km one way, hence about
30% of transportation costs can be easily saved in smaller cities.
The Path Breakers: Thus, with many of our perceptions about Tier
II/III cities offering substantial cost arbitrage being proven wrong,
and the continued sluggishness of IT space take-up in these cities
re-confirming the same, it is important to give credit to those Tier II/III
cities which have successfully attracted and retained IT companies.
This is no mean achievement if we note the big names these cities
are hosting:
• Coimbatore: Ford, CBay, Tata Consultancy Services, CTS, Robert
Bosch, Cordys and others collectively occupying about 1.5 million
sq ft with 25,000 IT-ITeS jobs
• Thiruvanathapuram: Infosys, TCS, Oracle, Ernst & Young, Tata
Elxsi, McKinsey and others absorbing about 0.5 million sq ft and
about 60 acres of campus sprawl with about 40,000 IT-ITeS jobs
• Chandigarh: Infosys, IBM Daksh, Winshuttle, Tech Mahindra,
eSys Technology, Taurus Agile and more taking up about
0.4 million sq ft and 40 acres of campus with about 15,000
IT-ITeS jobs
• Ahmedabad: EDCS-HP, HCL, TCS, Wipro, Patni and CMC
accounting for about 0.3 million sq ft with about 22,000 IT-ITeS
jobs
They attracted IT-ITeS companies because of:
• A good educational base and available personnel in the IT-ITeS
sector
• Ease of travel within and to nearest Metro/Tier I city
• Better governance and less perception of/actual corruption, and
• Evidence of quality real estate and committed real estate
developers
In our view, staff costs and willingness of staff to work (and settle
down) in a particular city are the most important strategic factors
that will decide if Tier II/III cities can pose a serious threat to Tier I
cities in attracting occupiers of IT-ITeS space. Real estate cost and
operational cost savings in Tier II/III cities are not attractive enough to
bring IT-ITeStes to Tier II/III cities. A scenario of unrealistic increases
in the cost of living (and the cost of real estate) in Tier I cities resulting
in much higher staff salaries might lead to the establishment of the
IT-ITeS sector in Tier II/III cities. However, Tier II/III cities can always
work constructively to attract IT-ITeS companies by investing in good
infrastructure, keeping the cost of living in check and continuing to
offer a better and more relaxed living environment. It is important
for them to find a way to keep talented people at home, rather than
forcing them to move to Tier 1 cities, and if they can do that then the
IT-ITeS industry will come to them.
About the Author
Ashutosh Limaye is the head
of Research and Real Estate
Intelligence Service, for Jones Lang
LaSalle in India, based in Mumbai.
He has an experience in real estate
consulting for over eight years
and was heading JLL’s Strategic
Consulting business for West India
until June 2011. He has worked
on several PPP projects in India,
including modernization of Mumbai and Bangalore Airports, World
Bank funded Mumbai Urban Transportation Project, and Seawoods
suburban train station, Mumbai. He is an architect and urban planner
with a total work experience of over 14 years in real estate, Urban
Planning, Urban Governance, and Architecture.
Philippines
Metro Manila’s Emerging Urban Districts’ Success Factors
Claro dG. Cordero, Jr.
Head of Research, Consulting & Valuation, Philippines
The evolution of Metro Manila’s urban landscape has increased in
pace in the last decade with the development of new areas across
the city. Apart from the traditional central business districts (CBDs) of
Makati, Ortigas and, of late, Bonifacio Global City (BGC), there are
presently about 900 ha (nine million sqm) of prime developed land
located in 18 emerging urban districts (EUDs) within the geographical
borders of Metro Manila.
There are three main factors which have contributed to the growth
of urban districts in Metro Manila: cheaper real estate, the need for
businesses to be near the sources of labour and the aggravation
of chronic traffic problems. These factors prompted developers to
make use of formerly idle land – e.g. excess land intended for military
installations, old industrial facilities and reclaimed areas – to house
new communities to cater to the growing demand for a “live-workplay” environment.
The decentralisation of commercial activities can be linked to the
dispersion of middle-income groups to the outer fringes of the
Makati, Ortigas and BGC CBDs, areas where home prices are more
reasonable. Further, the phenomenal growth of the offshoring and
outsourcing industry (O&O) in the Philippines has contributed to the
Figure 1: Emerging Urban Districts in Metro Manila
1
2
5
10 9
7
11
12 13
14
16
8
4
3
6
15
UP Techno Hub
Eton Cyberpod Centris
Eastwood City
Araneta Cyberpark
Greenhills Redevelopment
Rockwell BPO Complex
EDSA Central
Robinsons Cyberpark
Rockwell Center
Century City
McKinley Hill
SM Mall of Asia Complex
Metropolitan Business Park
Newport City
Aseana IT Business Park
Asiaworld City
Madrigal Business Park
Filinvest Corporate City
Ortigas CBD
Bonifacio Global City
17
18
Makati CBD
Source: Jones Lang LaSalle Leechiu Research & Consulting
1
Traditional CBDs
Office
(million sqm)
Residential
(units)
Retail
(million sqm)
1999
2011
1999
1999
2011
0.85
2.23
3,300 36,700
0.81
1.36
8.4%
22.4%
CAGR
EUDs
The Rise of Urban Districts in Metro Manila
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Figure 2: Office, Residential and Retail Stock in Metro Manila
CBDs and EUDs (1999-2011)
CAGR
0.12
1.28
21.8%
800
2011
31,800
35.4%
4.4%
0.15
0.66
13.1%
urgent need to be near this labour pool. Lastly, new urban districts
were developed as accessibility has significantly improved with the
completion of new transportation modes such as the two new lines of
the Metro Rail Transit and the completion of the initial two stages of
the Metro Manila Skyway System.
In general, urban districts are experiencing a major construction
boom with the pace of new supply far outstripping that of the
traditional CBDs. For example, between 1999 and 2011, the average
annual rate of growth for new grade A office developments in the
urban districts has been 21.8% compared with 8.4% in the traditional
CBDs. Also, the shopping mall supply in the traditional CBDs grew at
an average annual rate of only 4.4% from 1999–2011, compared to
the urban districts which expanded by 13.1%.
Implications for Real Estate Prices
The remarkable growth in physical stock within the urban areas has
also been accompanied by similarly strong growth in rents.
Between 1999 and 2011, office rentals in the traditional CBDs grew
by an annual average of 5.0%, while in the urban districts it was
approximately 6.8%. Consequently, the rental differential between
average office rents in the traditional CBDs and the urban districts
narrowed to 19.0% by end-2011 from 42.2% in 1999.
Residential rents, however, behaved differently. Rents in
condominium developments in the traditional CBDs grew at an
average rate of 6.2% from 1999–2011, while those in the urban
districts grew more slowly at some 4.9%, keeping the rental
differential relatively stable. The quality of existing condominium
stock in the traditional CBDs coupled with the larger concentration
of high-end and luxury developments, has kept values higher. In
contrast, most of the residential developments in the urban districts
are mid-end projects, characterised by the large share of studio and
one-bedroom units.
The Nuvali Business District, developed by Ayala Land, is an urban district located geographically outside Metro Manila.
Philippines
80,000
80
60,000
40,000
40
2015E
2014E
2013E
2011
2012E
2010
2009
2008
2007
2006
2005
0
2004
20,000
Supply - Traditional CBDs
Rents - Traditional CBDs
Supply - Traditional CBDs
Rents - Traditional CBDs
Supply - EUDs
Rents - EUDs
Supply - EUDs
Rents - EUDs
Rental Index (1999=100)
120
100,000
2003
2015E
2014E
2013E
2011
2012E
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
120,000
2002
50
1,000
160
140,000
2001
100
2,000
200
160,000
2000
150
3,000
Number of Condominium Units
200
4,000
Rental Index (1999=100)
5,000
0
180,000 Residential Stock and Rental Index
250
1999
6,000 Office Stock and Rental Index
1999
Annual New Office Supply (in thousand sqm)
Figure 3. Historical Cumulative Stock and Rental Indices
0
Key Success Factors
Based on our observations, successful urban districts are
characterised by:
1. The presence of a well-designed community master-plan
which ensures a balanced mix and growth of different property
developments within the district.
2. Single ownership of the urban district allows for a more controlled
and balanced development. The new urban districts in Metro
Manila (except those that were introduced prior to 1997) are
typically controlled by a single developer.
3. Lower business costs. The relatively low rents in these urban
districts are complemented by the presence of incentives in the
form of tax holidays on income and the importation of goods.
4. The advent of new and efficient technologies in building and
property management has paved the way for build-to-suit
developments (characterised by higher technical specifications,
lower cost space and larger floor plates).
5. The completion of new modes of transport and transport corridors
has enhanced the movement within and into these established
business districts. The majority of the existing urban districts are
located along these corridors which give good connections to the
traditional business districts.
The Outlook
In the near- to mid-term, we believe the traditional CBDs, primarily
Makati and BGC, will continue to have the highest rents and capital
values due to the maturity of their developments and the availability
of top quality real estate facilities. However, with rising business
costs, occupiers will seek new means to reduce their costs and one
option is seek out cheaper real estate. As the urban districts present
themselves as alternative locations, rents in the traditional CBDs are
expected to ease to competitive levels in the long-term.
The continued growth of the O&O industry will encourage the further
development of other urban areas. Furthermore, the improvement in
purchasing power fuelled by the continued increase in remittances
from overseas Filipinos will support the demand of the rising middleincome groups for quality accommodation and recreational facilities
that are closer to where they work.
Finally, the success of these first generation urban districts in Metro
Manila can become working templates upon which other emerging
urban districts can build. Capturing the successes of these preceding
models in order to develop further urban districts will contribute
positively to Metro Manila’s urban growth and evolving real estate
market.
About the Author
Claro dG. Cordero, Jr. leads the
Research, Consulting and Valuation
team in Manila. He is responsible
for the preparation of regular
market studies, reports, briefings,
publications and analyses, helping
the Manila team establish a strong
reputation for providing incisive
commentary on the Philippine
property market and offering
authoritative professional guidance to clients. Claro holds a Master of
Science Degree in Industrial Economics and also plays the lead role
in various consultancy studies and the professional property valuation
services unit of Jones Lang LaSalle Leechiu.
New Zealand
Which Auckland office occupiers will drive demand and
rents higher?
Chris Dibble
Associate Director – Research & Consulting, New Zealand
Auckland’s overall CBD office market1 comprises 1.2 million sqm of
office space and in comparison is smaller than many office markets in
the Asia Pacific region. However, Auckland – one of the southernmost
and most mature office markets in the region – is experiencing
further rises in occupier demand with vacancy rates falling and rents
increasing.
While business downsizing followed the onset of the Global Financial
Crisis, the large volume of vacant space that came to market in
Auckland between 2008 and 2009 is diminishing monthly. Consistent
consecutive periods of net absorption have been recorded since
a cyclical high vacancy rate of 12.9% reached in mid-2011. The
balance between landlord and tenant is now tilting back towards the
landlord with the vacancy rate currently at 11.8%.
Over two decades of Jones Lang LaSalle research in New Zealand
indicates this is a common cyclical occurrence for the mature
Auckland office market. However, while a noticeable and historically
consistent change is upon us, approximately 140,000 sqm of vacant
space remains in Auckland’s CBD market.
The question for landlords: who are the new tenants that will absorb
the remaining space, and, who are the existing occupiers that will
Figure 1: Auckland CBD Core Occupiers by Industry
Information Communication Technolgy
22,300
Travel, Transport & Storage
23,900
Education & Language Schools
38,000
Government Administration & Defence
43,200
Property & Business
103,000
Law
92,000
Finance, Insurance & Accounting
213,780
0
50,000 100,000 150,000 200,000 250,000
sqm
2006
2011
NB: CBD Core refers to the area bounded by Quay St to the North, Wellesley St to the South,
Hobson St to the West and Kitchener/Princes St to the East
Source: Jones Lang LaSalle
1
Closer analysis of the Auckland CBD Core occupier market, which
typically drives overall performance, provides valuable insight into
these questions. As can be seen on the chart below, during the
five-year period between 2006 and 2011 some industry categories
declined, some remained steady and others expanded.
The most significant industry classification which showed a decline
in occupancy between 2006 and 2011 was the Travel, Transport
and Storage sector. On further investigation, many of these
occupiers have moved out of the CBD. The focus has moved from
the requirement of a CBD office presence to being closer to the
day-to-day business operations near distribution warehousing in
decentralised industrial precincts.
In the category of stable occupiers, while typically a Wellington office
characteristic, the Government sector has been very stable. However,
as is well documented, the current National-led Government is
looking to reduce its office portfolio mean of 20 sqm per Full Time
equivalent (FTE) to 16 sqm per FTE - a 20% decline. While this can
only be a long-term strategy, destined for challenges in a political
environment, one would expect that a contraction in the Auckland
Government footprint in the Auckland CBD market will be a priority.
The Law and the Finance, Insurance & Accounting industries have
also been relatively steady over the last five years. There are some
large occupiers that provide the backbone of these industries and are
employing international best practice in floor optimisation strategies.
This is enabling them to employ more people within less workspace
per person and with fewer work stations.
26,000
Health, Community Services, Personal
& Other Services
continue to grow? Who will drive demand higher and rents to new
record highs?
Auckland’s overall CBD office market refers to Auckland CBD, Symonds St and Viaduct Harbour
The Education & Language School occupiers are in a growth mode.
This is noticeable when walking through the Auckland CBD area
with groups of students on the sidewalk during lesson breaks. The
high volumes of movement around the occupied space, elevators
and stairs, is seen by some as a disruption to normal business flow.
As a result, many landlords of Prime space refrain from including
such tenants in their portfolios. Education, however, is a proven filler
for landlords of Secondary space. The NZ Dollar remains elevated,
which reduces the attractiveness of New Zealand’s English as a
Second Language (ESOL) offering. However, depreciation in the
NZD towards historical levels when offshore conditions change could
provide a stimulus to this sector.
New Zealand
Figure 2: Auckland CBD Core Occupiers by Size
1500–1999
2%
Figure 3: Auckland CBD Core 1,000 sqm+ Occupiers by Grade
2000+
5%
Grade D
1%
Grade C
15%
1000–1499
6%
500–999
19%
Grade P
16%
Grade B
13%
0–499
68%
NB: CBD Core refers to the area bounded by Quay St to the North, Wellesley St to the South,
Hobson St to the West and Kitchener/Princes St to the East
The Information and Communication Technology (ICT) sector also
stands out as a growth occupier. While landlords will need to provide
the right technological facilities, there is a massive opportunity for
landlords to promote a differentiation in services for the ever-evolving
technology and communications sector.
The Property & Business industry continues to grow despite the
perception and sentiment of tougher trading conditions. New Zealand
remains a heavily dominated Small to Medium sized Enterprise
(SME) market which typically prevails over the long term as it adapts
more quickly to the changing economic environment.
This is supported by Figure 2 showing that in the Auckland CBD Core
87% of current tenants occupy space of 999 sqm or less.
Of the 13% of the Auckland CBD office occupiers comprising 1,000
sqm plus, Figure 3 shows that tenants prefer Prime quality space.
Approximately 71% of these tenants occupy either Premium or
A-grade space. Closer analysis also shows that of the 1,000 sqm
plus tenants, over half of the landlords are a Listed Property Vehicle.
In addition, almost a quarter is within the AMP Office Trust portfolio
and a fifth in Kiwi Income Property Trust . This provides some
guidance for tenants of 1,000 sqm plus on who they may encounter
as a landlord and who the major competitors are for private sector
landlords looking to find larger floor plate tenants.
Grade A
55%
NB: Occupiers in the same building
So, armed with the information above, we can answer the earlier
questions of who are the occupiers that provide further leasing
options and will continue to drive vacancy rates down and rents to
new record highs. Landlords of Auckland CBD Core space should
look to harmonise their leasing strategies and target the growth
occupiers of ICT, Property & Business and Education & Language
Schools. Furthermore, if landlords can successfully customise,
provide flexible layout and market their space to the appropriate
categories of growing tenants, then healthy office occupier conditions
and higher rental levels can be expected.
About the Author
Chris is the country head of the
Research and Consulting division,
with over six years’ experience in
property research. He provides
the insight for pragmatic decisionmaking through comprehensive
market research, strategic advisory
and thought-leadership papers.
He also works closely with a
broad range of clients undertaking
bespoke consultancy projects. Chris holds an undergraduate degree in
Economics, as well as post-graduate studies in Property and Marketing.
Tokyo: Office
• Vacancy rates continue to fall and remain below the market equilibrium rate
• Rents continue to edge down, albeit at a slower pace
• Capital values decline for the second consecutive quarter
Financial Indices
120
100
Demand
Index
80
60
20
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
Arrows indicate 12-month outlook
Index base: 4Q07 = 100
Supply
For the full year of 2012, nine buildings are expected to enter the market, adding a
total NLA of 360,000 sqm and increasing existing stock by 8.4% y-o-y, 70% of which is
notably concentrated in the prime sub-markets of Otemachi and Marunouchi.
Physical Indicators
600
8
450
6
300
4
150
2
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
Three buildings came on to the market in 1Q12, adding of 121,000 sqm (NLA) and
increasing the total stock by 2.8% q-o-q. They include the Marunouchi Eiraku Building
(NLA 51,000 sqm) and Palace Building (NLA 42,000 sqm).
Percent
Thousand sqm
Tokyo: Office
40
In 1Q12, Japan’s overall economy remained more or less flat due to the slowdown of
the global economy. Despite the economic environment, the vacancy rate in Grade
A office buildings in Tokyo stood at 3.4% at end-1Q12, down further from the 3.6%
seen in the previous quarter and remaining below the market equilibrium rate for the
second consecutive quarter. Net absorption reached 125,000 sqm in 1Q12 compared
with 25,000 sqm in the previous quarter. This considerable increase reflected in
part the flight to quality to new offices with higher specifications and better locations
at affordable rents, and the healthy occupancy rates in some of the new supply.
Information technology, manufacturing and the financial services were the most active
sectors.
0
Completions
Vacancy Rate
For 2007 to 2011, take-up, completions and vacancy
rates are year end annual. For 2012, take-up,
completions and vacancy rates are as at 1Q12, while
future supply is from 2Q12 to 4Q12.
Asset Performance
At end-1Q12, rents in Tokyo’s Grade A office market averaged JPY 27,005 per
tsubo per month. This was down 0.9% q-o-q or 1.8% y-o-y, representing a decrease
for the 16th consecutive quarter, although the pace has slowed to below 1% in the
fourth quarter. Some sub-markets are bottoming out in the current cycle but, overall,
landlords continued to reduce rents to improve occupancy rates in the face of the
persistently weak economy.
Investment volumes were driven by the acquisition of a 20% co-ownership interest in
Atago Green Hills by the Mori Hills REIT for JPY 25.6 billion and the purchase of a
46% co-ownership interest in Roppongi First Building by Mori Building for
JPY 20.46 billion. These assets were transacted mutually between a J-REIT and its
main sponsor as part of the J-REIT’s pursuit of the provision of higher dividends. The
NOI yield of the former asset was 4.7%.
12‑Month Outlook
Rental Information
Rental Value^
JPY 27,005 per tsubo
per month
Stage in Cycle
Decline slowing
No. of Quarters Since
Last Peak
16
^ gross, on NLA
Amid uncertainties surrounding the global economy, economic forecasts provided
by IHS Global Insight were revised downward in 1Q12 and Japan’s economy is now
expected to grow by 1.4% y-o-y in 2012, with expectations of a stronger recovery
postponed for a couple of years. Based on this economic outlook, the occupier market
is forecast to remain relatively tight over the next 12 months. New supply in 2012,
most of which is located in the prime sub-markets, should see an increase in the
forward commitment rate due to a continued flight to quality and historically low rental
levels. Reflecting this, rents are expected to emerge gradually from the current weak
phase in the latter half of the year, while prime yields are forecast to remain relatively
stable.
12-Month Outlook
Rental Value
Capital Value
Note: Tokyo Office refers to Tokyo’s 3 Kus Grade A office market.
Osaka: Office
Financial Indices
120
100
Demand
In addition, demand tightened slightly as the only new supply scheduled in 2012, the
Nakanoshima Festival Tower, reportedly achieved a high forward commitment rate with
tenants including manufacturer Kaneka, TV Asahi and the Consulate-General of Italy.
80
Index
The overall economy in the Greater Osaka region was weak in 1Q12, due in part to
the slowdown in exports. Despite this, the vacancy rate in the Osaka Grade A office
market stood at 5.1% at end-1Q12 compared with 6.7% in the previous quarter. The
rate has decreased constantly, approaching market equilibrium, since peaking at 8.1%
in 3Q10. Net absorption totalled 22,000 sqm in 1Q12 compared with 5,000 sqm in
4Q11. This increase in part reflected the continued flight to quality related to business
continuity planning as tenants sought office space located in the CBD that conforms to
the current aseismic standards.
60
40
20
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
Supply
At end-1Q12, rents exclusive of service charge in Osaka’s Grade A office market
averaged JPY 10,880 per tsubo per month, a decrease of 0.4% q-o-q or a rise of 0.8%
y-o-y. Rents remained mostly flat on the surface in the quarter, although net effective
rents have continued to creep down due to the expansion of rent-free periods as the
occupier market favours tenants in light of the major new supply scheduled in 2013.
The investment market remained quiet in 1Q12 as few opportunities were available,
due in part to the inconsistency of price levels between sellers and purchasers caused
by weak capital values.
12‑Month Outlook
According to the March 2012 Tankan survey for the Greater Osaka district, the
headline index, which measures the business sentiment of large manufacturers
located in Greater Osaka, scored -3 for expectations for June, an improvement from
the -8 seen in March but remaining negative. Given this, Osaka’s Grade A office
occupier market is expected to soften slightly over the next 12 months as demand is
forecast to deteriorate in light of the major new supply scheduled in 2013 as tenants
hesitate to relocate in expectation of further rental declines, although new supply in
2012 has already been mostly absorbed. Under these conditions, we forecast that
rents will continue to decline moderately. However, strong take-up in the Nakanoshima
Festival Tower at this early stage is one of the brightest prospects for Osaka’s Grade A
office market in the current rent cycle.
Thousand sqm
Asset Performance
Physical Indicators
160
8
120
6
80
4
40
2
0
07
08
09
10
Take Up (net)
Future Supply
11
0
Completions
Vacancy Rate
Rental Information
Rental Value^
JPY 10,880 per tsubo
per month
Stage in Cycle
Decline slowing
Last Peak
3
^ gross, on NLA
12-Month Outlook
Rental Value
Note: Osaka Office refers to Osaka’s 2 Kus Grade A office market.
12F
Percent
There is only one scheme in the development pipeline in 2012 and it will provide
an NLA of 60,000 sqm in 4Q12, increasing existing stock by 4.2%. The project, the
Nakanoshima Festival Tower, is a 39-storey, mixed-used building that includes office,
retail and conference space. The building has been adopted by the government as a
model for the promotion of cutting CO2 emissions given the consideration paid to its
environmental impact. It is also an advanced aseismic building with an interim seismic
isolation structure.
Capital Value
Osaka: Office
• Vacancy rates continue to fall due to an ongoing flight to quality
• Rents remain mostly flat, while rent-free periods continue to expand
• Capital values continue to decrease marginally as net effective rents soften
Seoul: Office
• The overall vacancy rate rises
• Overall rents increase, with the exception of the CBD, which remains stable
• Overall capital values increase marginally
Financial Indices
120
Demand
Index
110
100
80
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
9
400
6
200
3
0
0
–200
07
08
09
10
Take Up (net)
Future Supply
11
12F
Asset Performance
Percent
600
–3
Completions
Vacancy Rate
Rental Information
Rental Value^
KRW 153,656 per
pyung pm
Stage in Cycle
Rents stable
Last Peak
12
Supply
Some new supply planned for completion in 2012 may be delayed. In the CBD,
asset management company Chinet Korea, which is responsible for the Junghakdong Building (GFA 83,802 sqm), is facing legal issues. Meanwhile, there was some
speculation as to whether State Tower Kwanghwamoon (GFA 40,972 sqm) would
become a hotel or office space. For now, however, it appears that the office option will
progress, despite delays. The completion date of the Dongil Building in the Gangnam
sub-market has been moved to 2Q12 from 1Q12. Furthermore, construction of GT
Tower West faces delays, and did not begin as scheduled in 1Q12.
Physical Indicators
Thousand sqm
Seoul: Office
90
Negative take-up of 40,900 sqm was recorded for Seoul as a whole in 1Q12. This was
largely due to the LG Group moving back into its own building (approximately
40,000 sqm gross), which is owner occupied space not available in the leasing
market. Other recently completed buildings have also found new tenants, with the
KT&G Kosmo Seodaemun Tower (GFA 36,367 sqm) now fully leased and Signature
Tower (GFA 99,993 sqm) approximately 90% leased. Vacancy also fell in State Tower
Namsan due to Shin & Kim (17,400 sqm gross) taking space.
Overall net effective rents in Seoul increased 1.2% q-o-q in 1Q12. Districts with low
vacancy rates saw greater increases, with rents in the Gangnam sub-market up
approximately 4.1% q-o-q and those in Yoido up 1.5% q-o-q. However, rents in the
CBD remained at the same level seen at end-2011. Net effective rents for office space
in the Gangnam Prime sub-market rose 8.7% y-o-y in 1Q12 due to the reduction of
rental discounts as a result of the continuing popularity of this area among tenants.
Major sales transactions in 1Q12 included JR AMC’s purchase of Myungdong Central
Building (GFA 19,435 sqm) from Deka lmmobilien GmbH for KRW 87.8 billion. The
buyer plans to remodel the building as a hotel.
12-Month Outlook
In older buildings we expect to see an increase in vacant space, with tenants moving
into new buildings such as Signature Tower, 101 Pine Avenue (Mirae Asset Jeodong
Tower), OneIFC and others, resulting in positive take-up forecast.
Office rents in the Gangnam sub-market are forecast to remain stable. The 17%
vacancy rate in the CBD may push rents down and the expected new supply in Yoido
may put downward pressure on rents in older buildings. Overall capital values in Seoul
are forecast to increase marginally in 2012, except in the CBD which is expected to
see some yield expansion.
^ Prime net effective, on NLA
12-Month Outlook
Rental Value
Capital Value
Note: Seoul Office refers to Seoul’s Prime and Grade A office markets.
Beijing: Office
Financial Indices
220
Demand
The majority of net take-up was in newly completed projects as most existing Grade
A buildings are almost fully occupied. By sector, leasing demand was driven mainly
by the high-tech, manufacturing and financial sectors. Although financial services
companies were less active in the quarter, several were still considering expanding.
Expansions and renewals were the two leading demand drivers.
Overall vacancy rates continued to decline due to no new supply and stable demand.
In 1Q12, the vacancy rate reached 7.7%, a decrease of 1.4 percentage points q-o-q.
Among all of the sub-markets, Finance Street, Zhongguancun and East Second Ring
Road achieved the lowest vacancy rates; all of which recorded vacancies lower than
5%.
Supply
Asset Performance
As companies were still prudent about expanding their businesses, rental growth
momentum slowed in 1Q12, with overall net effective rents increasing to RMB 305 per
sqm per month (based on GFA), up by just 4% q-o-q.
Due to the slower rental growth, as well as the ongoing tightening of credit supply,
capital values increased by 3.2% q-o-q in 1Q12. Yields were flat in 1Q12 at 6.6% as
growth in both rents and capital values slowed.
Index
60
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Physical Indicators
1,500
30
1,250
25
1,000
20
750
15
500
10
250
5
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
0
Completions
Vacancy Rate
rates are year end annual. For 2012, take up,
12-Month Outlook
Over the remainder of 2012, seven office projects are expected to be launched in
the market, of which lease-only projects will add about 270,000 sqm of office space.
Overall demand in the Beijing office market is expected to experience stable growth in
the early part of 2012 and pick up later this year. While the overall vacancy rate should
remain low, rental growth is projected to continue, albeit at a slower pace than in 2011.
Rental Information
Rental Value^
RMB 305 psm pm
Stage in Cycle
Growth slowing
Last Trough
9
^ net effective, on GFA
12-Month Outlook
Rental Value
Note: Beijing Office refers to Beijing’s overall Grade A office market.
Percent
No new projects were completed in the quarter. By sub-market, Finance Street, the
CBD and Zhongguancun saw no new supply for the fourth consecutive quarter. As
such, there continued to be limited available space in the market, given that most
existing buildings are almost fully occupied.
140
100
Thousand sqm
Demand for office space in Beijing saw healthy growth in 1Q12 as several domestic
and international economic indicators picked up to some extent after the Chinese New
Year period. However, leasing demand in the Beijing office market did not experience
the strong growth it showed in 1Q11 due to a number of factors, including higher rents
than ever before, more time required to find suitable space and a lower GDP growth
target in the country’s 12th Five-Year Plan, all of which weakened the abilities of some
corporations’ management teams to make proactive decisions.
180
Capital Value
Beijing: Office
• Rents continue to increase, albeit at a slower pace than in 2011
• Healthy demand continues amid no new supply
• Yields remain flat, as rent and capital value growth slows
Shanghai: Office
• Leasing demand slows
• Domestic tenants make up a larger share of transaction volume in Pudong
• Take-up remains strong in non-core and decentralised areas
Financial Indices
140
Demand
Index
120
100
60
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
Supply
No new projects were completed in the CBD market on either side of the river, as a
number of building completion dates were pushed back to later in the year. Three new
decentralised projects were completed this quarter. Greentech Tower (31,702 sqm)
was completed in Zhabei District and opened with around a 15% pre-commitment rate.
In addition, Pole Tower (41,000 sqm) reached completion in decentralised Xuhui and
Central Towers (66,000 sqm) was completed in Putuo.
Physical Indicators
800
16
600
12
400
8
200
4
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
Asset Performance
Percent
Thousand sqm
Shanghai: Office
80
The leasing market was quiet in the first quarter as tenant expansion plans continued
to be clouded by economic uncertainty. In Pudong, leasing activity from MNC tenants,
particularly foreign financial companies slowed significantly. Leasing demand from
domestic companies improved, however, with domestic tenants contributing to a larger
portion of net take-up this quarter. In Puxi, there were a limited number of transactions
as MNC companies were largely inactive in the leasing market. Cost considerations
led many companies to look to non-core CBD locations where large-block space is
more readily available. For example, AIA pre-leased 10,000 sqm in the upcoming
project SML Center, located in New Huangpu District.
0
Completions
Vacancy Rate
Due to weakened leasing demand, rental growth was modest for the overall market
this quarter. Overall average rents for Grade A office space grew to RMB 8.9 per sqm
per day, an increase of 1.2% q-o-q and 11.4% y-o-y. Landlords in Pudong remained
confident due to the limited future supply pipeline, with rents increasing by 2.4% q-o-q
to RMB 8.6 per sqm per day. Meanwhile in Puxi, in light of slower leasing demand,
rents remained flat at RMB 9.1 per sqm per day. Premium Grade A rents grew by
1.5% q-o-q, continuing to outperform overall Grade A rents, especially in Puxi.
In the investment market, one Grade A office building was sold en-bloc in the first
quarter; Longyu International Commercial Plaza in Zhabei District was bought for
approximately RMB 35,000 per sqm by a domestic bank. Transaction volumes will
increase in the remainder of the year as a number of landlords have expressed
interest in selling assets, mainly in decentralised areas.
12-Month Outlook
Rental Information
Rental Value^
RMB 8.9 psm per day
Stage in Cycle
Rents rising
Last Trough
10
^ effective, on GFA
In Pudong, future supply in the leasing market will remain limited as new projects will
be taken largely by owner-occupiers, affording landlords in existing buildings greater
bargaining power. In Puxi, supply will remain limited in the core-CBD until the delivery
of the Premium Grade A Jing An Kerry Centre Tower 2 and Tower 3 in 3Q12. We
expect demand to remain limited in CBD areas over the next one to two quarters until
sentiment toward the economy improves. This will lead to stable rents as new supply
also remains limited. The decentralised market is set to receive a huge volume of new
supply, with 11 additional projects scheduled for completion in 2012. This market will
perform well due to strong upgrading demand from neighbouring areas and the rental
differential between CBD and peripheral areas, which makes the latter attractive for
increasingly cost-conscious tenants.
12-Month Outlook
Rental Value
Capital Value
Note: Shanghai Office refers to Shanghai’s overall Grade A office market consisting of Pudong and Puxi.
Guangzhou: Office
Financial Indices
160
140
Demand
In 1Q12, a total of about 4,000 sqm was leased in Bank of Guangzhou Square
(115,000 sqm) in Zhujiang New Town (ZJNT), which is expected to receive its
occupation permit in 2Q12, with Guangxin Lawyers leasing 2,200 sqm and Tianan
Insurance leasing 1,350 sqm. In addition, Wanlian Securities leased about 3,600 sqm
in G.T.Land Plaza III in ZJNT. Tongyi, another local law firm, took 4,000 sqm in Leatop
Plaza, suggesting strong demand from local enterprises. However, leasing demand
from MNCs remained subdued.
Supply
120
Index
Rising concerns over China’s economic outlook has led to a slowdown in leasing
requirements. Leasing demand was concentrated on either new buildings scheduled
for completion this year or low-tier buildings, where most tenants sought cost-saving
expansions. As such, net absorption registered 40,000 sqm in 1Q12, down further
from 58,000 sqm in 4Q11. The overall vacancy rate, however, remained at 11.3%
owing to the withdrawal of several older buildings from our Grade A office stock.
80
60
4Q07
The investment market remained active in 1Q12, highlighted by strata-title sales
at R&F Park Hyatt in ZJNT. About 35,000 sqm of office space has been sold in the
building since it was launched in December 2011, selling at an average of about
RMB 35,000 per sqm. Buyers were mainly local end-users, such as Anglee Beauty,
who acquired two floors (5,000 sqm) in 1Q12 for RMB 195 million. As at the end of
1Q12, there was no change in average capital values, which remained at RMB 31,941
per sqm (on GFA).
4Q09
4Q10
4Q11
Physical Indicators
Thousand sqm
800
28
600
21
400
14
200
7
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
completion and vacancy rates are as at 1Q12, while
Rental Information
Rental Value^
RMB 225 psm pm
Stage in Cycle
Growth slowing
Last Trough
11
^ net effective, on NFA
12-Month Outlook
Rental Value
Note: Guangzhou Office refers to the overall Grade A office market.
0
Completions
Vacancy Rate
12-Month Outlook
Leasing demand over the next 12 months is expected to remain slow given the gloomy
global economic outlook and a potential slowdown in economic growth in China.
Factoring in the slump in demand and the hike in vacancy rates over the short term,
landlords will likely adopt a more accommodative rental strategy to improve occupancy
rates, especially in newly completed or upcoming buildings. The considerable amount
of new completions in 2012 (about 600,000 sqm) will further constrain rental growth
this year, with rents for average Grade A office space projected to decline 5-10% over
the remainder of 2012.
4Q12
Capital Value Index
Percent
The quarter saw stronger leasing demand for lower-quality buildings as tenants sought
cost-saving options. As such, rents in lower-quality buildings edged up while rents in
top tier buildings experienced some rental declines in 1Q12. On average, Grade A
office effective rents in Guangzhou were largely stable, edging down by just 0.1%
q-o-q to RMB 225 per sqm per month (on NFA), the first quarterly decline since 4Q09.
4Q08
Rental Value Index
There were no new completions in 1Q12, leaving total office stock at 3 million sqm at
end-1Q12.
Asset Performance
100
Capital Value
Guangzhou: Office
• Market leasing activity slows
• Average rents decline marginally, the first time since 4Q09
• Average capital values remain unchanged, despite rising sales volumes
Hong Kong: Office
• Leasing activity rises but overall demand remains weak
• Rental correction in Central and Wanchai/Causeway Bay quickens
• Rebounding investment activity supports capital values
Financial Indices
160
140
Demand
Signs of improvement in the global economy along with gains in regional stock markets
led to a slight pick-up in leasing activity in 1Q12. Demand in the overall market,
however, remained weak; with gross leasing volumes down by about 70% y-o-y.
Index
120
100
60
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
In Central, the on-going consolidation of the banking sector continued to cast a
shadow over the Grade A office market, with several foreign investment banks closing/
downsizing their offices in 1Q12. Leasing activity was largely driven by smaller
requirements, typically less than 5,000 sq ft in size. Notwithstanding, some tenants
took on whole-floor expansion but at rents at or below the Central market average,
including: Compass Offices (20,000 sq ft, gross); GF Holdings (19,100 sq ft, gross);
and Hong Kong Exchanges and Clearing Limited (12,000 sq ft, net). Demand in office
markets outside of Central was underpinned by relocations driven by cost-savings and
small scale expansion requirements.
400
8
300
6
Net absorption in the overall market amounted to 697,000 sq ft (net) in 1Q12 but was
largely inflated on the realisation of pre-committed space in newly completed buildings
and the en bloc sale of 18 Kowloon East to China Construction Bank (CCB) for selfuse. Omitting these factors, net absorption was a more modest 112,600 sq ft (net).
Returning stock and lacklustre demand saw the Central Grade A occupier market
contract by 239,000 sq ft (net).
200
4
Supply
100
2
Physical Indicators
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
Percent
Thousand sqm
Hong Kong: Office
80
0
Completions
Vacancy Rate
rates are year end annual. For 2012, take up,
Hysan Place (224,200 sq ft, net) in Causeway Bay and Billion Development’s 55 King Yip
Street (215,000 sq ft, net) in Kwun Tong were issued with occupation permits in 1Q12.
Vacancy rates tightened in the decentralised submarkets (4.2%) while rising in Central
(4.6%) and Wanchai/Causeway Bay (2.7%). Vacancy in the overall market tightened to
3.8%.
Asset Performance
The rental contraction in Central and Wanchai/Causeway Bay gathered momentum,
down by 6.3% q-o-q and 1.3% q-o-q, respectively, while rents in all other markets held
firm, edging higher in most instances. Overall, rents still trended down in 1Q12, by
3.3% q-o-q.
Several properties were sold en bloc during the quarter, including CCB’s purchase of
18 Kowloon East in Kowloon Bay for HKD 2.51 billion (HKD 7,200 per sq ft, gross) and
locally listed Kingboard Chemical Holdings’ purchase of Delta House in Shatin for
HKD 1.28 billion (HKD 3,660 per sq ft, gross).
Rental Information
Rental Value^
HKD 58.1 psf pm
Stage in Cycle
Rents falling
Last Peak
2
^ net effective, on NFA
12-Month Outlook
Rental Value
Low interest rates, better-than-expected rental performance (especially strata-titled
properties) and renewed investor appetite for risk helped support capital values, which
edged up by 0.4% q-o-q in 1Q12.
12-Month Outlook
With tenants still largely focused on controlling costs, demand for office space at
premium rents will remain weak. Rising vacancy is expected to keep pressure on rents
in Central and Wanchai/Causeway Bay but rents are likely to hold firm in Tsimshatsui
and the decentralised markets where vacancy continues to tighten.
Capital Value
Note: Hong Kong Office refers to the overall Grade A office market.
Taipei: Office
Financial Indices
140
130
Demand
120
Index
The current economic downturn was expected to have bottomed out in 1Q12 but the
unemployment rate for February hit a three-month high of 4.25%. The vacancy rate
rose to 12.5% by quarter end, a marginal increase of 0.1 of a percentage point. It is
worth noting that MNCs that earned a profit last year looked to take advantage of the
current low rents to consider a move to a better location in the CBD.
110
100
90
4Q07
Supply
Asset Performance
In 1Q12, investment in the commercial property market shrank significantly, by 87.4%
q-o-q to NTD 4.5 billion due to the liquidation of the Kee Tai Star and Trident REITs,
and corporations’ year-end disposal of property in 4Q11, which was followed by a
fall in activity in 1Q12. Additionally in 1Q12, a pricing mismatch between buyers
and sellers, as well as falling rents, pushed investors to the sidelines and caused
investment volume to shrink.
12-Month Outlook
Despite substantial amounts of office space leasing, supply continues to outpace
demand, causing rents to fall. We believe that the correction in rents seen thus far is
likely to ease and that vacancy rates in the Taipei Grade A office sector, which have
seen five consecutive quarters of decreases, should underpin rental recovery in 2H12.
On the other hand, demand for real estate investment remains high because Taiwan’s
insurance companies and corporations continue to seek stable long-term property
investments. However, the short-term return on investment on commercial property
remains low due to a pricing mismatch between buyers and sellers, and the limited
availability of assets on the market.
4Q10
4Q11
4Q12
Capital Value Index
Physical Indicators
120
24
80
16
40
8
0
0
–8
–40
–80
07
08
09
10
Take Up (net)
Future Supply
11
12F
–16
Completions
Vacancy Rate
Rental Information
Rental Value^
NTD 2,383 per ping pm
Stage in Cycle
Rents falling
Last Peak
2
^ gross achievable, on GFA
12-Month Outlook
Rental Value
Note: Taipei Office refers to Taipei’s overall Grade A office market.
Percent
The vacancy rate in Taipei remains high, ensuring a tenant favourable leasing market.
Thus, landlords have been willing to offer favourable rents to tenants occupying large
volumes of space, causing rents to drop 0.6% q-o-q in 1Q12 to NTD 2,383 per ping
per month. Dunhua South was the only sub-market to see a rise in gross rents in
1Q12, up 2.2% q-o-q to NTD 2,410 per ping per month, due mainly to the fact that
it has the lowest vacancy rate of all the sub-markets. In the Xinyi and Dunhua North
sub-markets, gross rents dropped 1.6% q-o-q to NTD 2,689 per ping per month and
1.1% to NTD 1,875 per ping per month, respectively, while rents in the Dunhua North
sub-market remained unchanged at NTD 2,218 per ping per month.
4Q08
4Q09
Rental Value Index
Thousand sqm
No new supply was added to the market in 1Q12. There are two major projects
in the pipeline for 2H12, namely the Taiwan Life Headquarters Building and the
Songjina Nanjing MRT project by the Fabulous Group, both of which will be mostly
owner-occupied, with only 2,400 ping (7,900 sqm) available to the market. The
redevelopment of the United Entertainment Center is expected to add 8,038 ping
(26,600 sqm) of Grade A office space in 2H12.
Capital Value
Taipei: Office
• Vacancy rate increases marginally
• MNCs consider relocation to better quality space in the CBD
• High capital values push investors to the sidelines
Bangkok: Office
• Vacancy rate declines 1.6% due to limited supply
• Office rents bottom out, however are expected to recover
• Capital values rise marginally, resulting in yield compression
Financial Indices
110
Demand
Index
100
Leasing demand remained strong in Bangkok. There were several major leasing
transactions in Sathorn Square – a brand new premium grade office building in the
CBD South – including Canon (8,000 sqm), Easy Buy (2,000 sqm) and Samsung
Engineering (3,000 sqm). An existing building, CRC Tower, secured a 1,400 sqm
expansion from Toyota Motors.
90
70
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
25
100
20
75
15
50
10
25
5
0
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
Completions
Vacancy Rate
Percent
125
-25
Net absorption rose to 29,600 sqm, a 28% increase q-o-q. The vacancy rate
contracted from 21.7% in 4Q11 to 20.1% in 1Q12 as recent completions began filling
up. As the economy continues to recover from last year’s floods, leasing activity will
continue to be robust over the remainder of the year. Financial services and banking
still account for the most significant proportion of demand, with advertising agencies,
consumer product companies, legal and business services, hospitality services and
manufacturers also actively expanding.
Supply
Physical Indicators
Thousand sqm
Bangkok: Office
80
-5
Total Grade A office stock in the CBD declined slightly in 1Q12 as the 25-year old
Sathorn Thani Office Condo Buildings I and II were downgraded from A to B. With this
41,000 sqm withdrawal, total prime office stock has dropped by 3% q-o-q to
1.3 million sqm, and this year no new supply is expected. The nearest future supply
will be only 6,000 sqm in Magnolia Ratchadamri Boulevard, which is comprised
primarily of luxury residences and a Waldorf-Astoria Hotel.
Asset Performance
Rental values picked up as concerns about the widespread flooding last year abated
and activity resumed. Average gross rents grew slightly by 0.5% q-o-q to THB 614 per
sqm per month. Capital values continued to rise, by 1.9% q-o-q to THB 72,530 per
sqm, compressing yields by 10 basis points q-o-q to 7.4%.
The investment market was also active with one prime office building transaction
during the quarter. Real Estate Capital and Partners (RECAP) purchased Mercury
Tower, a mixed-use property including office and retail space, in the CBD North.
Although investment interest in office assets continues to build, there is a scarcity of
quality office assets for sale.
12-Month Outlook
Looking forward, we expect the Bangkok office market to recover, with the economy
rebounding from last year’s flooding. The vacancy rate is expected to decline further
due to no new supply coming onto the market, allowing some landlords to begin
increasing rents over the medium term.
Rental Information
Rental Value^
THB 5,819 psm pa
Stage in Cycle
Trough
Last Peak
19
^ net, on NLA
12-Month Outlook
Rental Value
Capital Value
Note: Bangkok Office refers to Bangkok’s CBD Grade A office market.
Ho Chi Minh City: Office
Financial Indices
160
140
Demand
120
Index
Office leasing activity remained moderate in 1Q12. New leases in the recently
completed Bitexco Financial Tower and Vincom Center helped reduce vacancy rates in
1Q12 by 180 bps to 26.5%.
Net absorption in 1Q12 was only 3,800 sqm, driven primarily by the performance of
the two abovementioned new buildings. The trend for relocation and/or upgrading
continued in 1Q12 as tenants took advantage of increasingly reasonable rents in highquality offices.
100
80
60
4Q07
4Q08
4Q09
4Q10
The number of foreign tenants in Grade A office buildings has increased over time, as
indicated by recent major leasing deals. In the older buildings that enjoy occupancy
rates higher than 90%, foreign tenants currently account for over 80% of the total, of
which approximately 38% are from Asia Pacific, 22% from the Americas and 17% from
Europe.
Supply
Physical Indicators
Asset Performance
Average net effective rents continued to fall in 1Q12, down by 1% q-o-q to USD 40.7
per sqm per month, the lowest rate seen since 2Q07. However, the rate of decrease
has been marginal, at less than 2% over the past year.
Average valuation-based yields for prime office buildings fell to the 10-12% range,
assuming 100% occupancy in the buildings examined.
4Q12
120
42
100
35
80
28
60
21
40
14
20
7
0
–20
07
08
09
10
Take Up (net)
Future Supply
11
12F
Completions
Vacancy Rate
Percent
Problems accessing capital, high inflation and an uninspiring market outlook are
hindering construction progress in many projects. However, three projects that are
expected to complete this year, namely Saigon M&C, Times Square and Le Meridien
Saigon, are in the final stages of construction.
Thousand sqm
As no new supply came on stream in 1Q12, marking the sixth consecutive quarter of
no new supply of Grade A office space, total office stock remained constant at just
over 209,000 sqm.
Projects under construction progressed more slowly in 1Q12 than in previous quarters,
due probably to the longer than usual Vietnamese Lunar New Year holiday. In addition,
all proposed projects remained quiet with no evidence of construction starting any time
soon.
4Q11
Rental Value Index
0
–7
12-Month Outlook
Total stock is expected to increase by about 70,000 sqm during 2012 after the
completion of three projects currently under construction.
Due to the high occupancy rate in six older buildings and the forecast increase in
demand, two of the newest Grade A office buildings in the city – Bitexco Financial
Tower and Vincom Center, are expected to see good take-up and lead to positive net
absorption over the next couple of quarters.
Given the difficult current market conditions nationally, especially following the release
of Vietnam’s GDP growth estimates in 1Q12, which were below expectations, and the
challenging global economic environment, there may be further downside risk to rental
growth for the remainder of 2012.
Rental Information
Rental Value^
USD 488 per sqm pa
Stage in Cycle
Decline slowing
Last Peak
14
^ net effective, on NLA
12-Month Outlook
Rental Value
Note: Ho Chi Minh City Office refers to the Grade A office market.
Capital Value
NA
Ho Chi Minh City: Office
• Office leasing activity remains moderate
• Rents continue to fall marginally
• Valuation-based yields compress
Manila: Office
• One new development adds 21,300 sqm to total office stock
• Rents increase marginally
• Positive investment sentiment sustains capital value growth
Financial Indices
Index
130
120
Demand
110
The office leasing market remained relatively active in 1Q12 as unfinished deals from
the preceding year were completed. Total net absorption for the quarter, however,
declined to 20,500 sqm from around 46,000 sqm in 4Q11 due to the lesser volume
of new office stock completed. Meanwhile, the average vacancy rate remained
unchanged at 3.9% as the office space occupied by new tenants was offset by space
vacated.
100
80
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
Physical Indicators
450
12
375
10
300
8
225
6
150
4
75
2
0
07
08
Apart from the offshoring and outsourcing (O&O) industry, office demand in 1Q12
stemmed from professional services, advertising, and industrial sector related
companies. Similarly to previous quarters, the majority of the office take-up was in
Bonifacio Global City (BGC) due to the availability of new space. Significant lease
transactions in 1Q12 included an advertising company leasing around 3,400 sqm in
Active Fun Building, and tenant pre-commitments in upcoming developments such as
Science Hub Tower 2 in McKinley Hill and Net Lima in BGC.
Supply
09
10
Take Up (net)
Future Supply
11
12F
Percent
Thousand sqm
Manila: Office
90
0
Completions
Vacancy Rate
Only one new development, Science Hub Tower 1, located at McKinley Hill, was
completed in 1Q12 and this contributed around 21,300 sqm to the total office stock.
In the pipeline are Net Lima in BGC and the Zuellig Building in Makati CBD which are
scheduled for completion in 2Q12.
Meanwhile, Daiichi Properties has started construction of its newest office
development in BGC, namely One World Place, which is due to complete by 2014.
Asset Performance
Similarly to the previous quarter, office rental growth in 1Q12 softened slightly to
around 1.0% q-o-q with rents at PHP 9,270 (USD 217) per sqm per annum as few
landlords were inclined to make increases.
Likewise, capital values improved modestly by around 1.2% q-o-q to PHP 84,000 per
sqm in 1Q12. There were no significant sales transactions recorded during the quarter.
However, prices of office space increased on the back of positive investor sentiment.
Investment yields declined marginally to 11.0%.
12-Month Outlook
For full-year 2012, the supply of new office space is projected to reach almost 400,000
sqm, which will be the highest recorded office space volume to be completed in Makati
CBD and BGC in a single year. For the next few quarters, supply will likely outweigh
demand, possibly leading to higher vacancy rates.
Rental Information
Rental Value^
PHP 9,270 psm pa
Stage in Cycle
Rents rising
Last Trough
9
The country’s growing O&O industry is expected to continue driving office demand,
which may support moderate rental growth despite the increasing supply. Even with
the pending US outsourcing bill and the fragile economic conditions in Europe, the
interest of international O&O companies wishing to expand in the country remains
strong.
12-Month Outlook
Rental Value
Capital Value
Note: Manila Office refers to the Makati and Bonifacio Global City Grade A office market.
Kuala Lumpur: Office
Financial Indices
110
Demand
The office market in the city centre registered net absorption of approximately
17,500 sqm, largely due to the relocation of the Department of Occupational Safety
and Health from a decentralised area to The Icon @ Tun Razak in the Golden Triangle.
Other notable leasing activity involved the relocation of a division of Adecco (a
business services provider) to Menara Citibank and several tenants to Menara
Standard Chartered in the Golden Triangle.
Supply
Index
The average vacancy rate in the city centre increased from 15.1% in 4Q11 to 18.7%
in 1Q12. Newly completed offices, namely Menara Worldwide and Menara 3 Petronas
have yet to register any physical occupation. However, Menara 3 Petronas was
reported to be fully pre-committed. Menara Prestij (NLA 47,845 sqm), a 36-storey
office building on Jalan Pinang continues to be available for lease and is yet to be
occupied despite being completed in 2011.
105
95
90
4Q07
In 1Q12, the average net rental reduced marginally by 1.8% q-o-q to MYR 601 per
sqm per year. Landlords are still holding the same headline rental rates but are willing
to offer attractive incentives such as longer rent free periods to attract prospective
tenants.
With limited stock available in the market and steady demand from Malaysian investors,
the market was relatively quiet in 1Q12 and no major transactions were concluded.
12-Month Outlook
4Q09
4Q10
4Q11
Source: Jones Lang Wootton
Physical Indicators
Thousand sqm
300
20
225
15
150
10
75
5
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
Despite limited available stock, many investors will be more cautious and very
selective until there are positive signs of sustainable rental growth in the market.
Generally, capital values are expected to remain stable but assets with good
occupancy rates and superior specifications within prime locations are expected to
register some capital appreciation.
Note: Kuala Lumpur Office refers to Kuala Lumpur’s Grade A office market.
0
Completions
Vacancy Rate
If buildings are delivered as scheduled, the oversupply scenario will become more
serious towards the end of 2012. With steady local demand but slowing foreign
demand the vacancy rate in the city centre is expected to increase. The higher
vacancy rate will result in some landlords reducing their rental expectations in a tenant
favourable market.
Driven by domestic occupiers, demand is expected to remain steady despite some
economic and political uncertainties. Take-up is expected to be driven more by the
relocation of corporates, particularly from old and tiring buildings to new and better
quality offices within easily accessible locations.
4Q12
Capital Value Index
Percent
Asset Performance
4Q08
Rental Value Index
The total existing supply of prime office space in Kuala Lumpur’s city centre increased
to 2.0 million sqm due to the completion of Menara Worldwide, a 27-storey office tower
(NLA 26,709 sqm) on Jalan Bukit Bintang and Menara 3 Petronas, a 59-storey office
tower (NLA 78,039 sqm) located next to Petronas Twin Towers.
The city centre prime office market is expected to increase by approximately
190,000 sqm during 2012 with the completion of Menara Binjai, Integra Tower, Menara
Darussalam and Menara Felda Platinum 3.
100
Rental Information
Rental Value^
MYR 601 psm pa
Stage in Cycle
Rents falling
Last Peak
2
^ net, on NLA
12-Month Outlook
Rental Value
Capital Value
Kuala Lumpur: Office
• The supply-demand imbalance continues
• The market becomes more tenant favourable
• Slowing demand puts rentals under pressure
Singapore: Office
• Vacancy rates edge up on weaker demand and increasing supply
• Rents decline for the second consecutive quarter
• Capital values stable as investors remain on the sidelines
Financial Indices
120
100
Demand
The office market continues to see softer demand, particularly from large occupiers in
the financial services sector. Bright spots are the commodities, pharmaceuticals, and
IT sectors where staff increases have been seen.
Index
80
60
20
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Net absorption of space in Raffles Place turned positive, going from -1,100 sqm in
4Q11 to 7,200 sqm in 1Q12, with several tenants moving into the area. Nevertheless,
vacancy rates rose from 8.7% in 4Q11 to 10.3% in 1Q12 against the backdrop of
weaker demand.
Supply
Physical Indicators
Marina Bay Financial Centre Tower Three reportedly attained TOP in March 2012,
with pre-commitments of 70%. This addition will be reflected in the next quarter after
the release of official statistics and is expected to increase the Raffles Place stock by
10%.
One Raffles Place Tower 2 was added to 1Q12 stock, boosting supply in the
Raffles Place sub-market by 2.5%. Leasing activity picked up after the building was
completed, bringing the occupancy level to 45% in 1Q12, up from 36% in the previous
quarter.
250
12
200
10
8
150
6
100
4
50
2
0
–50
Asset Performance
Percent
Thousand sqm
Singapore: Office
40
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
–2
Completions
Vacancy Rate
Rental decline continued for the second consecutive quarter on the back of weaker
leasing demand and greater pressure from new supply. In 1Q12, net effective rents fell
by 5.2% q-o-q to SGD 953 per sqm per annum.
Capital values, which are sticky on the downside, remained stable at SGD 26,156
per sqm as an expected economic slowdown put investors on the sidelines. No
transactions of above SGD 5 million were recorded within the CBD office market in
1Q12, although Twenty Anson, located on the fringe of Shenton Way in Tanjong Pagar,
changed hands at SGD 430 million (SGD 22,830 per sqm of NLA). The new owner,
CapitaCommercial Trust, will be providing income support of SGD 17.1 million to
ensure a stabilised net property yield of 4% per annum.
On the back of easing rentals, the market yield compressed marginally by 20 basis
points q-o-q to 3.6%.
12-Month Outlook
Rental Information
Rental Value^
SGD 953 psm pa
Stage in Cycle
Rents falling
Last Peak
2
Occupiers are likely to remain cautious and adopt a wait-and-see attitude as global
economic uncertainty continues. Weaker leasing demand, coupled with vacancy
pressures from increased supply, are likely to send rentals on a downward trend.
Yield compression is likely to arise with valuation based capital values being stickier.
Investment volume is expected to remain small, with bargain hunting for quality assets
at lower valuations.
12-Month Outlook
Rental Value
Capital Value
Note: Singapore Office refers to Singapore’s CBD Grade A office market in Raffles Place, Shenton Way and Marina Centre.
Jakarta: Office
Financial Indices
200
180
Demand
Supply
Asset Performance
The Grade A office market improved due to optimism over the domestic economy and
the scarcity of quality space. Rental growth strengthened to 7.9% q-o-q, compared
to 5.9% q-o-q in 4Q11 and by end-March average net rents stood at USD 207 per
sqm per annum. A number of projects adjusted their rates and asked higher rents,
particularly those projects located in premium locations and possessing better quality
buildings, such as the Jakarta Stock Exchange Building, Wisma 46, World Trade
Center and Sampoerna Strategic Square. Capital values grew in tandem with rents by
7.9% q-o-q in 1Q12, reflecting positive demand and low vacancy rates. However, with
the changes in rents and capital values, yields lingered at 8.2%.
12-Month Outlook
The Jakarta investment grade office market is expected to continue growing positively
driven by optimism surrounding the country’s economy, and the economy is expected
to further drive improvements in the business environment. Despite limited supply
in 2012, demand should continue growing, triggered by corporate expansions,
relocations and consolidations. Future supply in 2012 is expected to come from two
projects, World Trade Center II and Ciputra World office tower. Rents and capital
values in the investment-grade market are expected to continue improving over the
next two years, albeit at a slower rate than in 2011.
Index
140
120
100
80
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
Physical Indicators
300
24
250
20
200
16
150
12
100
8
50
4
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
0
Completions
Vacancy Rate
Rental Information
Rental Value^
USD 207 psm pa
Stage in Cycle
Rents rising
Last Trough
6
12-Month Outlook
Rental Value
Note: Jakarta Office refers to Jakarta’s Investment (Grade A) office market.
4Q12
Capital Value Index
Percent
The market remained quiet with no completions of Grade A projects, and, as a result,
supply remained unchanged at around 1.45 million sqm. Two prominent projects are
slated to enter the market in 2012 – the World Trade Center II and Ciputra World office
tower. However, these two projects already have pre-commitment deals with major
tenants, leaving limited space for others. Thus the Jakarta office market is anticipated
to continue to have limited supply of Grade A office space.
160
Thousand sqm
Jakarta’s investment grade office market continued to perform well, cushioned by the
strong domestic economy. Occupancy rates continued to climb with some buildings
close to full occupancy. Quarterly demand in 1Q12, however, moved more slowly
compared to 4Q11 in the face of limited available quality space in the market. Net
absorption stood at approximately 16,700 sqm, falling from around 30,100 sqm in
4Q11. Leasing enquiries remained plentiful, coming mostly from the banking, mining,
oil and gas, natural resources and service sectors. Leasing activity in existing buildings
was mainly from existing tenants, particularly small to medium sized firms which were
looking for expansion space. Notable deals included BII, relocating from BII Plaza to
Sentral Senayan III, and Samudera Indonesia which took around 800 sqm of space
and BTPN, which took around 400 sqm in Cyber 2. With the continued demand,
vacancy rates compressed to 3.8% from 5.0% in 4Q11.
Capital Value
Jakarta: Office
• Occupancy rates reach more than 96%
• Rental growth increases, due to the scarcity of space
• Capital values increase in tandem with rental growth
Delhi: Office
• Net absorption is the lowest seen in the last eleven quarters
• Rents stable with marginal increments in suburban sub-markets
• Capital values increase marginally amid subdued activity in the investment market
Financial Indices
120
Demand
Index
100
80
40
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
Financial Indicators are for CBD.
Physical Indicators
160
120
Both global and domestic firms were active during the quarter. Notable lettings in the
SBD saw Forrester Research leasing 14,000 sq ft (1,301 sqm) in Splendor Forum.
The Gurgaon sub-market saw Ingersoll Rand leasing 49,000 sq ft (4,552 sqm) and Rio
Tinto leasing 40,600 sq ft (3,855 sqm), both in Building 5A. Expedia, an online travel
firm, leased 41,600 sq ft (3,865 sqm) in Building 5C. Another notable letting included
Smart cube leasing 20,000 sq ft (1,858 sqm) in the newly completed Boston Tower in
the Noida sub-market.
16
Supply
12
New supply was 1.8 million sq ft (168,046 sqm) in 1Q12, with the Gurgaon sub-market
accounting for 1.6 million sq ft (148,645 sqm), while the remainder came from the
Noida sub-market. Supply rationalisation was observed as projects continued to face
delays on account of slow construction or lack of tenant enquiries.
80
8
40
4
Percent
Thousand sqm
Delhi: Office
60
Demand in 1Q12 was moderate, however slow business volumes led to a few firms
delaying or canceling their expansion plans. This had a negative impact, reducing
overall absorption, which was the lowest seen in last eleven quarters, at 750,000 sq ft
(69,074 sqm). The suburban sub-markets accounted for the majority of demand. The
CBD and SBD recorded moderate leasing activity, with the SBD vacancy rate declining
to 17.0% in 1Q12. On an overall basis, the vacancy rate rose to 21.4%, an increase of
120 basis points q-o-q.
Asset Performance
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
0
Completions
Vacancy Rate
Physical Indicators are for CBD + SBD.
Rents remained stagnant as slowing demand and rising vacancy acted as a frictional
force against any increase in rents. Rents in the CBD remained in the range of
INR 240 - 320 per sq ft per month. Rents in the Gurgaon sub-market saw marginal
increments in select precincts with low vacancy. Rents in the Noida sub-market
showed marginal appreciation on the back of transactions recorded at slightly higher
rents across selected projects.
Capital values remained sluggish in the wake of stagnant rents, and a q-o-q rise of
less than 1% was indicative of investor sentiment being guided by the risk-return
trade-off. Capital values remained stagnant in the CBD and SBD sub-markets, but
showed an increment of sub-1% in the Gurgaon sub-market. The Noida sub-market
saw capital values increase for the second successive quarter by 2.7%.
12-Month Outlook
Rental Information (CBD)
Rental Value^
INR 240 psf pm
Stage in Cycle
Rents rising
Last Trough
7
^ gross, on GFA
Rents are expected to strengthen in the CBD as active turnover in existing stock
leads to occupiers vying for space. The SBD, facing competition from the suburbs,
is expected to see a slow down in rental growth. Rents in the suburban sub-markets
are expected to be constrained in the wake of an oversupply situation, but select
precincts will continue to see marginal appreciation. Capital values are expected to
move upwards, albeit in a range-bound manner across various sub-markets. Yields
are expected to exhibit stability in the short to medium term across the suburban submarkets, and are expected to compress in the CBD and SBD. Capital value growth is
predicted to be faster compared to rents.
12-Month Outlook
Rental Value
Capital Value
Note: Delhi Office refers to overall NCR Grade A office market.
Mumbai: Office
Financial Indices
120
Demand
Supply
Additional supply during 1Q12 was recorded at 2.3 million sq ft (214,747 sqm). The
Thane and Navi Mumbai sub-markets accounted for 1.04 million sq ft (97,548 sqm),
while the Eastern Suburbs added another 520,000 sq ft (48,774 sqm), with the balance
coming from sub-markets such as SBD BKC, SBD North, and Western Suburbs.
Asset Performance
Rental values remained stable across all Mumbai sub-markets on the back of
cautious optimism exhibited by potential Grade A office occupiers. Similarly to the
trend recorded in the previous quarter, occupier sale transactions continued to remain
moderately active. Boomerang in Andheri (E) and Lodha Supremus buildings in Lower
Parel, Kanjurmarg, Powai and Thane closed some deals with small office occupiers.
Index
40
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
Physical Indicators
1,000
20
750
15
500
10
250
5
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
12-Month Outlook
Rental Value^
INR 245 psf pm
Stage in Cycle
Rents rising
Last Trough
7
^ gross, on GFA
12-Month Outlook
Rental Value
Note: Mumbai Office refers to Mumbai’s overall Grade A office market.
0
Completions
Vacancy Rate
Capital values also followed a similar trend to that seen in rents across all sub-markets
in the quarter. As a result, yields at the sub-market level remained unchanged.
Absorption during 2012 is expected to be moderate on the back of global macroeconomic uncertainties. Improved leasing activity is expected in 2H12 compared to
1H12, and re-location, re-negotiation and re-structuring will evolve as the crucial 3-R
strategy for office occupiers seeking cautious expansion. Despite short term q-o-q
stability, the probability of a rental correction is minimal as rents across sub-markets
are near their cyclical lows. Growth in rents and capital values at the city level will
likely be moderate over the short term, thereby encouraging corporate occupiers to
capitalise on these opportunistic market conditions in the coming quarters.
4Q12
Capital Value Index
Percent
Some notable lease transactions during the quarter included the pre-lease of
approximately 109,000 sq ft (10,126 sqm) by Pfizer in Patel Estate at Jogeshwari,
Acado’s leasing around 100,000 sq ft (9,290 sqm) in Supreme Business Park at Powai
and Perkin Elmer leasing approximately 70,000 sq ft (6,503 sqm) in G Corp Tech
Park at Thane. Other buildings that contributed to the gross leasing volume included
Kohinoor City and Equinox Towers at Kurla, Urmi Estate and Marathon Future Ex at
Lower Parel, Maker Maxity and Hallmark Plaza in BKC and Mindspace Buildings in
Airoli.
80
60
Thousand sqm
Demand for office space during 1Q12 remained subdued compared to a year ago
with the city recording overall net absorption of nearly 1.2 million sq ft (109,269 sqm).
However, net take-up during the quarter remained marginally above 4Q11 on the
back of some notable completions with high occupancies. Along with the prolonged
stilted global macro-economic scenario, the fact that major office occupiers in Indian
industries were awaiting the impact of the budget on their corporate real estate
strategy for the next fiscal year was the reason behind the slow leasing activity. There
was a healthy combination of both pre-commitments and transactions in existing older
buildings. However, net absorption was higher among the quarter’s new completions
as opposed to in existing older buildings. Also, more than half of the pre-commitments
were signed only in those buildings which were nearing completion and as supply
continued to outstrip demand. The vacancy rate rose by 90 basis points to 20.6%.
100
Capital Value
Mumbai: Office
• Absorption is subdued compared to 2011
• Rents remain stable across all sub-markets
• Capital values trend similar to rents
Bangalore: Office
• Absorption was mainly concentrated in SBD and Whitefield
• Rents increase in the SBD and Whitefield sub-markets
• Overall vacancy rate declines
Financial Indices
120
110
Demand
The Bangalore office market again saw healthy transaction activity in the quarter,
especially for large office formats. Total transaction volume in 1Q12 was
960,000 million sq ft (89,187 sqm), against 1.3 million sq ft (120,774 sqm) in 4Q11.
Absorption in the city in 1Q12 was 869,000 sq ft (80,733 sqm) against 2.2 million sq ft
(204,387 sqm) in 4Q11.
Index
100
90
70
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
The combination of strong demand and restricted supply was instrumental in bringing
the city’s overall vacancy rate down from 10.6% in 4Q11 to 9.7% in 1Q12 and, in turn,
perpetuated rental growth in the SBD and Whitefield sub-markets.
The IT/ITES sector accounted for the majority of leasing activity, with major companies
in the sector leasing office space in Bangalore including Net App, Intercall, Caterpillar
Inc, Cisco, IXIA, LIARD Technologies, Enterprise Nube, Carl Zeiss, Time Warner,
InMobi, Indegene, SmileInteractive, Flipkart and Quintiles.
Supply
Physical Indicators
800
8
600
6
400
4
200
2
A total of 300,000 sq ft (27,871 sqm) of office space became operational in Bangalore
in the quarter compared with 927,000 sq ft (86,121 sqm) in the previous quarter, with
the Whitefield sub-market accounting for 100% of completions in 1Q12. The Icon India
became operational in the Whitefield sub-market with a 0% occupancy rate.
Percent
Thousand sqm
Bangalore: Office
80
Healthy pre-commitments and large-scale transaction activity contributed to the launch
of new projects by developers in locations such as the Outer Ring Road and Bellary
Road.
Asset Performance
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
0
Completions
Vacancy Rate
Rental Value^
INR 81 psf pm
Stage in Cycle
Rents stable
Last Trough
6
Average rents for office space increased marginally in the SBD and Whitefield submarkets. In the SBD, they rose from INR 46 per sq ft per month in 4Q11 to INR 47 per
sq ft per month in 1Q12. This was largely due to limited supply and increased demand
from IT occupiers and this sub-market’s proximity to the city’s residential catchment
areas, while in the Whitefield sub-market rents rose from INR 32 per sq ft per month
in 4Q11 to INR 32.5 per sq ft per month in 1Q12. This can be attributed to the lack of
available office space ready for immediate occupation in other sub-markets, such as
the CBD and the SBD.
12-Month Outlook
Market sentiment seems to have been rejuvenated in light of the absorption trend
and, given existing enquiry levels and demand, 2012 could see a further boost in
transaction activity, especially in the Whitefield and Secondary sub-markets. The city is
expected to see absorption of approximately 5.7 million sq ft (520,257 sqm) of space
by end-2012 due mainly to strong pre-commitments in upcoming projects in the SBD,
as well as expected demand for space in completed and upcoming projects in the
Whitefield sub-market.
Rents across the sub-markets are expected to rise in the remainder of 2012 due to
increased demand and a lack of supply in the pipeline.
^ gross, on GFA
12-Month Outlook
Rental Value
Capital Value
Note: Bangalore Office refers to Bangalore’s overall Grade A office market.
Kolkata: Office
Financial Indices
150
Demand
Notable new lettings this quarter included Cognizant taking up around 250,000 sq ft
(23,226 sqm) in Unitech Infospace and Reacon taking approximately 31,900 sq ft
(2,964 sqm) of space in Infinity Benchmark on an outright basis.
Supply
There was one new completion in 1Q12. Terminus Mall (a mall that was later
converted to office space) became operational at Rajarhat adding a total of
194,999 sq ft (18,116 sqm) to existing office stock in the city. The total Grade A office
stock in the city stands at 14.2 million sq ft (1.3 million sqm) at end-1Q12.
Index
There was a strong resurgence in demand in 1Q12, with net take-up of 720,000 sq
ft (67,217 sqm) recorded. The suburban sub-markets continued to account for the
majority of demand, particularly Salt Lake Sector V. The overall vacancy rate declined
to 29.1% from 33.3% in 4Q11. No leases in the CBD and SBD were recorded in the
quarter.
125
100
75
50
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Physical Indicators
40
Overall, rents witnessed a 4% q-o-q increase and now stand at INR 47 per sq ft on the
back of reviving sentiment. Individually, rents rose in varying degrees across all submarkets. Rental values in CBD witnessed appreciation of 2.9%.
40
30
30
20
10
10
Overall capital values witnessed a q-o-q increase of 4.2% and rose in varying degrees
across all sub-markets. This increase in capital values can be partly attributed to the
increased cost of inputs. Capital value growth in the CBD maintained its momentum
and increased by 2.5% q-o-q, settling at INR 10,300 per sq ft. Among suburban
sub-markets there was a 4.8% jump in capital values in Salt Lake and a 4.3% jump
in capital values in Rajarhat. Investors demonstrated cautious optimism as they
continued to weigh their risk-return trade-off, and favoured retaining their funds in
leased assets which offered consistent returns.
Thousand sqm
50
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
Percent
Asset Performance
0
Completions
Vacancy Rate
12-Month Outlook
Rents are now on a growth trajectory and are forecast to rise marginally across all
sub-markets during the course of the next 12 months. The SBD is expected to face
competition from the suburban sub-markets which may cause rental growth to slow.
Rents in the suburban sub-markets are expected to see an oversupply situation but
despite this, may continue to see marginal appreciation. Capital values are clearly
exhibiting an upward trend and are likely to further escalate across all sub-markets
in the near term. Investor sentiment is expected to be primarily directed towards
leased assets and new projects from reputed developers. The suburban sub-markets,
however, are expected to witness investor activity in line with leasing activity, which
may keep yields stable in the short to medium term. Vacancy levels will continue
to remain in double digits across sub-markets if all projects under-construction are
completed as scheduled.
FFor 2007 to 2011, take-up, completions and vacancy
completions and vacancy rates are as at 1Q12 while
Rental Information
Rental Value^
INR 108 psf pm
Stage in Cycle
Rents rising
Last Peak
4
^ gross, on GFA
12-Month Outlook
Rental Value
Note: Kolkata office refers to overall Grade A office market.
Capital Value
Kolkata: Office
• Absorption remains strong amid a buoyant market
• Terminus Mall at Rajarhat commences operations
• Rents and capital values continue to strengthen
Sydney: Office
• As demand softens, the vacancy rate increases marginally
• Rental rates increase modestly after strong growth in 2011
• Sales activity slows, while yields remain stable
Financial Indices
120
110
Demand
Net absorption of –8,900 sqm was recorded in 1Q12, ending the run of ten
consecutive quarters of positive net absorption for the Sydney CBD. Major tenant
movement activity this quarter was driven by consolidation and relocation decisions,
with contraction from a broad range of sectors driving the negative result. On a
positive note, a number of businesses moved into the CBD during the quarter.
Index
100
90
70
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
Supply
12
150
9
100
6
50
3
0
0
–50
Percent
200
–100
–3
07
08
Significant tenant moves this quarter included: Atlassian expanding into 5,600 sqm at
341 George Street; the Ministerial and Parliamentary Services leasing 4,900 sqm at
1 Bligh Street; and British American Tobacco taking 3,200 sqm at 405 Sussex Street.
The Commonwealth Bank of Australia moved out of 9,600 sqm at 52 Martin Place as
part of their move to their new Darling Walk headquarters.
Total vacancy increased slightly in 1Q12 to 8.7% from 8.5% in 4Q11 and up from 7.3%
one year prior. Prime grade vacancy was 9.2%, with A-grade rising and Premium
grade falling, while secondary grade vacancy is down to 8.0%.
Physical Indicators
Thousand sqm
Sydney: Office
80
09
10
Take Up (gross)
Future Supply
11
12F
–6
Completions
Vacancy Rate
Sydney’s CBD has entered a clear pause in the construction cycle. No new supply was
completed in 1Q12 and no projects are scheduled to complete throughout 2012. In
2013 we will see new towers at 161 Castlereagh Street/242 Pitt Street with ANZ Bank
and Freehills as major tenants and 8 Chifley Square with Corrs Chambers Westgarth
the major tenant, along with two smaller refurbishment projects. The pipeline then
picks up in 2015, with some major developments with planning approval that are yet to
announce progress on leasing activity.
Asset Performance
Reflecting the softer leasing conditions in the quarter, prime gross effective rents
increased 1.0% in 1Q12 to be up 11.3% for the year after very strong growth in the
second half of 2011.
Investment activity was very slow in 1Q12, with only one major property sale to report
totalling AUD 40.6 million. The vacant 149 Castlereagh Street was sold to Blackstone
Funds Management. It has been reported that Macquarie Group Limited has agreed
to purchase two office buildings in Martin Place from the Commonwealth Bank of
Australia, though no sale price has been announced.
Average equivalent yields were unchanged at 6.25% to 7.50% for prime grade stock
and 7.25% to 8.25% for secondary grade stock in 1Q12. The prime grade capital value
indicator increased 1.0% for the quarter, reflecting modest rental growth and steady
yields.
Rental Information
Rental Value^
AUD 628 psm pa
Stage in Cycle
Rents rising
Last Trough
9
^ gross effective, on NLA
12-Month Outlook
The uncertain global economic outlook is likely to weigh on net absorption, though
positive take-up is expected in aggregate over the year. A lack of construction activity
will see vacancy decline gradually as a result. Rental growth is expected to remain
positive, mostly as a result of rising face rents and a modest decline in average
incentives. No significant tightening in the yield band is forecast.
12-Month Outlook
Rental Value
Capital Value
Note: Sydney Office refers to the Sydney CBD office market (all grades).
Melbourne: Office
Financial Indices
120
110
Demand
Market conditions remain relatively modest in the wake of turbulent financial markets
however; the outlook is for a minor deterioration. Forthcoming supply will push
vacancy higher as backfill space becomes available and speculative components
within projects complete. The key metric of market confidence moving forward will
be the level of sub-lease availability. A number of tenants are currently holding
excess capacity but remain hesitant to release this space until they clarify their future
requirements.
100
Index
Net absorption in the first quarter of 2012 was essentially flat as a few tenant
expansions were offset by a number of fresh sub-lease offerings. There was also
some Origin Energy space expiring throughout the quarter following their consolidation
into 321 Exhibition Street in 4Q11. Demand at the smaller end of the market has
slowed but major tenants are still moving forward with their requirements. During the
quarter there was one major pre-commitment deal. Medibank signed onto 30,000 sqm
of space at Cbus’s Bourke Junction development at 720 Bourke Street (47,000 sqm).
Another major pre-commitment deal is in advanced stages of negotiation.
80
70
4Q07
Asset Performance
Prime gross effective rents grew by 0.7% in 1Q12 to AUD 409 per sqm per annum.
The growth, however, was attributable to higher outgoing charges with flat net face
rents and no movement in incentives. Equivalent yields remained unchanged for the
third consecutive quarter and range from 6.50% to 7.75%.
4Q10
4Q11
4Q12
Capital Value Index
Physical Indicators
Thousand sqm
200
8
150
6
100
4
50
2
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
Rental Information
Rental Value^
AUD 409 psm pa
Stage in Cycle
Rents rising
Last Peak
2
12-Month Outlook
Rental Value
Note: Melbourne Office refers to the Melbourne CBD office market (all grades).
0
Completions
Vacancy Rate
12-Month Outlook
Tenant expansion activity will slow over the coming year as a result of slower
employment growth. Other non-traditional drivers of office space will be the catalyst for
leasing activity in the coming year. Many tenants are initiating a renewed push towards
improving productivity growth by consolidating multiple tenancies and improving
interaction and communication between departments. Tenants are also seeking to
relocate into buildings with large efficient floor plates, or buildings that can provide
vertical connectivity at a higher rent, but making savings on the overall occupancy cost
by taking less space and using it more efficiently.
Percent
The refurbishments at 357 Collins Street (30,000 sqm) and 555 Bourke Street
(17,300 sqm) will be the next projects to complete and are both expected around
mid-2012. Of the space currently under construction, 73% has been pre-committed.
4Q08
4Q09
Rental Value Index
Supply
There were no new projects that reached practical completion in 1Q12. The
development at 150 Collins Street (20,000 sqm) commenced construction during the
quarter with a pre-commitment from Westpac Banking Corporation (14,000 sqm). This
brings the current level of stock under construction to 285,000 sqm, equivalent to 6.7%
of existing stock. The aforementioned Medibank project will commence construction
within the coming months and a further project which is still finalising pre-commitment
details is likely to commence in the second half of the year.
90
Capital Value
Melbourne: Office
• The vacancy rate remains stable
• Prime gross effective rents increase marginally, attributable to higher outgoings
• Prime equivalent yields remain unchanged for the third consecutive quarter
Brisbane: Office
• Vacancy falls marginally to 6.1%
• Prime and secondary effective rents increase
• Yields remain stable
Financial Indices
120
Index
100
Demand
80
40
4Q07
4Q08
4Q09
4Q10
4Q11
4Q12
Capital Value Index
Rental Value Index
12
200
10
160
8
120
6
80
4
40
2
07
08
09
10
11
12F
-40
Percent
240
0
0
-2
Take Up (net)
Future Supply
Completions
Vacancy Rate
completions and vacancy rates are as at 1Q12 while
Rental Information
Rental Value^
AUD 476 psm pa
Stage in Cycle
Rents rising
Last Trough
5
12-Month Outlook
Rental Value
The overall CBD vacancy rate fell in the quarter by 0.2 percentage points to 6.1%.
Since reaching its peak in 2Q10 at 10.6%, the Brisbane CBD vacancy rate has fallen
4.5 percentage points. Strong tenant demand and a lack of new supply have led to the
decline in vacancy over this period. Prime vacancy continued to fall in the quarter and
is now 2.6%. Secondary vacancy increased by 0.4 percentage points to 8.9%.
Supply
Physical Indicators
Thousand sqm
Brisbane: Office
60
Net absorption of 1,700 sqm was recorded in 1Q12. This figure takes into account
the withdrawal of 2,300 sqm of secondary space from the stock list. Tenant demand
continued to be particularly strong at the prime end of the market with 7,900 sqm of
net absorption recorded in the quarter. Net absorption was boosted by the Queensland
Treasury Corporation relocating into 3,800 sqm at 123 Albert Street and Xstrata
taking 2,500 sqm at 160 Ann Street. Recent tenant activity in the CBD continues to
demonstrate the strong appetite for quality office space.
Capital Value
No new supply was added to the market in 1Q12. The completion of Dexus’ 38,000 sqm
123 Albert Street development in 3Q11 has been the only major supply addition since
the refurbishment of the Transit Centre completed in 1Q10. Supply additions have
been very subdued as financing conditions continue to remain difficult. Nevertheless,
the supply pipeline is starting to build with several projects currently under
construction.
At the end of 1Q12 three new projects were under construction totalling 110,400 sqm
of space. These projects were: GPT’s 111 Eagle Street development (64,000 sqm,
50% pre-leased or under offer); Grocon’s 55 Elizabeth Street development (fully
pre-leased to the Australian Tax Office); and Leighton Properties’ 145 Ann Street
development (27,900 sqm, 80% pre-leased).
Asset Performance
Prime gross effective rents increased by 2.8% to AUD 476 per sqm per annum. The
average level of leasing incentives fell to 27 months rent free on a ten year lease.
Secondary gross effective rents increased 4.2% to AUD 355 per sqm per annum.
The continued lack of immediately available prime space has forced some tenants to
commit to short term leases in good quality secondary space, creating further rental
growth for secondary assets.
Two major sales (≥ AUD 5.0 million) totalling AUD 155.5 million were recorded in
1Q12. These sales were: ANL House, located at 391 Queen Street, which sold for
AUD 21.0 million to Kingsmede Property Management and 215 Adelaide Street which
sold for AUD 134.5 million to Pramerica Real Estate Investors. Prime yields were
unchanged and range between 7.00% and 8.00%. Secondary yields also remained
unchanged at between 8.25% and 9.50%.
12-Month Outlook
Strong tenant demand is expected to continue through 2012 as Queensland’s
economic recovery becomes more broadly based. Tenant activity outside of the
resources sector is beginning to emerge and is expected to build over the next 12 months.
Vacancy is likely to rise slightly in 2012 as new stock is added to the market. Solid
rental growth is expected over 2012.
Note: Brisbane Office refers to the Brisbane CBD office market (all grades).
Adelaide: Office
Financial Indices
160
Demand
Significant tenant moves this quarter included: the Department for Health and Ageing
moving out of 2,000 sqm at 100 Waymouth Street and consolidating within existing
Government tenancies; the South Australian Attorney-General’s Department leased a
further 1,100 sqm and Cosoff Cudmore Knox vacated 1,100 sqm at 25 Grenfell Street
and moved into their newly refurbished offices at 73–75 Wakefield Street (900 sqm).
Total vacancy increased slightly in 1Q12 to 8.1% from 7.6% in 4Q11 and up from 7.2%
in 3Q11. However, this vacancy rate is around the historic long term average. It is
expected that vacancy will continue to climb given the increase in office space supply
which will enter the market from 3Q12.
Index
Negative net absorption of 4,400 sqm was recorded over 1Q12. Key trends which
caused the negative net absorption were a rise in sub-lease vacancy, a decrease in
space requirements for tenants moving offices, and consolidations. These trends led
to a contraction in occupied stock. Industries most active in the leasing market are
banking and finance, IT and telecommunications and there was evidence of increasing
interest from the resource and mining sector.
140
100
80
4Q07
In the 12 months to March 2012, there were a total of six sales worth AUD 273.0 million.
In 1Q12 one sale (≥ AUD 5.0 million) transacted. Lifeplan House at 111 Gawler Place
was purchased from Campana Pty Ltd (Australian Unity) by an undisclosed private
investor for AUD 15.6 million, representing an initial yield of 10.4%.
4Q10
4Q11
Physical Indicators
Thousand sqm
100
10
80
8
60
6
40
4
20
2
0
0
07
08
09
10
Take Up (net)
Future Supply
11
12F
Indicators are pointing towards moderate growth in the local economy and positive net
absorption. However, the impact of new supply (along with unoccupied back-fill space)
hitting the market, is expected to have a negative effect on Adelaide’s office market.
Vacancy is forecast to rise and rental growth to slow. On a positive note, demand from
the resources sector has been growing and is expected to continue to strengthen,
particularly towards the end of 2012 as BHP Billiton board approval for the Olympic
Dam is anticipated in mid-2012.
Rental Information
Rental Value^
AUD 373 psm pa
Stage in Cycle
Rents rising
Last Peak
11
12-Month Outlook
Rental Value
Note: Adelaide Office refers to the Adelaide office market (all grades).
–2
Completions
Vacancy Rate
Average equivalent yields were unchanged at 7.50% to 9.75% for prime grade stock.
The secondary grade equivalent yield range widened to 8.75% to 10.50%. Over the
past 12 months, average prime grade capital values have increased by 6.5%.
12-Month Outlook
4Q12
Capital Value Index
Percent
Reflecting steady leasing conditions, prime gross effective rents increased by 6.8%
over the past 12 months. The majority of growth has been in face rents, with incentives
tightening only moderately.
4Q09
-20
Asset Performance
4Q08
Rental Value Index
Supply
Five projects are under construction, bringing 92,400 sqm of office space into supply
over the next two years. The largest development is City Central Tower 8 (36,200 sqm),
which is pre-committed by the Australian Tax Office and Australia Post. Other major
projects currently under construction are the completion of Rundle Place (22,000 sqm)
for Bendigo and Adelaide Bank, 58-76 Franklin Street (18,700 sqm) which commenced
speculatively but has since secured some tenants and the speculative refurbishment
of 30 Flinders Street (13,000 sqm).
120
Capital Value
Adelaide: Office
• Five projects totalling 92,400 sqm are currently under construction
• Vacancy increases marginally
• Prime gross effective rents increase 6.8% over the past 12 months
Auckland: Office
• Growing occupier demand amid limited new supply
• Consecutive quarterly rental increases and cooling incentives
• Capital values on the rise with rents up and firmer yields
Financial Indices
110
100
Demand
Index
90
80
60
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
Supply
The only Auckland CBD building due for completion in 2012 is the AECOM building at
8 Mahuhu Crescent. The completion date is expected to be in 3Q12, with 6,955 sqm
still available. KIPT’s ASB Bank development of 18,000 sqm in the Viaduct Harbour
is on track for completion in 2013. This will leave approximately 15,000 sqm vacant in
the Auckland CBD if not leased. Manson TCLM’s 162 Vic is now completed, however,
it is just on the outer boundary of our CBD survey
Physical Indicators
60
15
40
10
20
5
0
0
–20
07
08
09
10
Take Up (net)
Future Supply
11
12F
Percent
Thousand sqm
Auckland: Office
70
There is growing occupier demand in Auckland’s overall CBD office market. After
reaching a vacancy rate peak of 12.2% in 2010, the vacancy rate has moved down
steadily to an estimated 11.8% for 1Q12. The Auckland CBD prime vacancy rate,
excluding the Viaduct Harbour, continues to exhibit a faster pace of absorption than
the secondary sector. We forecast the prime vacancy rate will move even lower
over the next quarter to approximately 8%. There also remains a limited supply of
prime contiguous space. Anecdotal evidence suggests an active market in 2012
as competition for limited prime vacant space intensifies. Jones Lang LaSalle is
already working with around 18,000 sqm of office tenants signed up to look for new
accommodation in 2012.
–5
Completions
Vacancy Rate
Rental Information
Rental Value^
NZD 377 psm pa
Stage in Cycle
Rents rising
Last Peak
14
Asset Performance
Average net prime rents have increased to NZD 377 per sqm per annum, up 0.8%
since mid-2011, with secondary rents remaining flat. Most importantly the prime rent
increase is the third consecutive increase recorded since mid-2011. The increase
in demand and limited new supply in the CBD is also enabling leasing incentives to
reduce which are expected to cool even further over the remainder of 2012. Investors
remain active, however, in search of investments that provide strong supporting
fundamentals. Average prime Auckland initial yields are at 8.50%, with upper initial
yields at 7.75%. The increase in rents and the firming of investment yields has enabled
capital values to rise 2.4% y-o-y, currently at NZD 4,438 per sqm.
12-Month Outlook
Rising occupier demand for prime space in tandem with the neutral five-year supply
pipeline in the Auckland CBD is likely to result in the vacancy rate declining over the
short-term. Stronger economic conditions and employment growth in Auckland is likely
over 2012, which could result in take up of prime vacant space overflowing into the
secondary sector. It is likely that prime office net face rents will experience a lift over
2012, as demand for prime office space rises. Suitable options for Auckland CBD
prime space is likely to steadily diminish over the next 12 months, which will lead to a
reduction in tenant incentives.
^ net face, on NLA
12-Month Outlook
Rental Value
Capital Value
Note: Auckland office refers to CBD, Symonds Street and Viaduct Harbour.
Beijing: Retail
Financial Indices
160
Demand
Fashionable designs and favourable pricing policies have ensured that fast fashion
has become increasingly popular among domestic consumers, encouraging fast
fashion brands to accelerate their expansions in order to secure prime space. UNIQLO
and WE opened new stores in Capita Crystal and GAP will soon open a store in
Parkview Green. Domestic fast fashion brands are also expanding, with Urban
Renewal and MC Jeans opening new stores in Capita Crystal and Fortune Mall,
respectively. Importing new fashion brands has become a good way for shopping
malls to attract consumers. Thus, US fast fashion brand Forever 21 will open its first
store in Beijing in Beijing APM, a four-storey duplex covering an area of 2,500 sqm,
and Galleria has attracted fashion brand Hollister to the city for the first time.
Supermarkets and cinema tenants were also active in the quarter. BHG opened in
Capita Crystal; Yonghui high-end supermarket was unveiled in New World Department
Store in Shunyi District; Tesco opened a new branch in Greenland Central Plaza; and
high-end supermarket City Shop is going to open in Parkview Green. New cinemas
include Bona, CGV and the first Lumiere Pavilions in Beijing, which are located in
Capita Crystal, One Indigo and Parkview Green, respectively.
Supply
In 1Q12, two new shopping centres, Capita Crystal and the Macau Center, were
launched, adding a total GFA of 98,565 sqm to the market. Following refurbishments
and adjustments of tenant mixes in several projects in 2011, projects such as Kerry
Center, Glory Mall and Chaoyang Joy City, started or planned to start refurbishment or
repositioning to comply with the demands of retailers and to remain competitive.
Asset Performance
Index
120
100
80
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Physical Indicators
1,000
800
Thousand sqm
In 1Q12, retailers of jewellery, watches and luxury clothing continued to expand.
Vacheron Constantin, Cartier, Piaget and Rolex were unveiled in the Macau Center;
the first Beijing store of high-end footwear brand J.M. Weston opened in Yintai Park
Life; Montblanc’s first global conception store, covering an area of more than
2,000 sqm over four floors, held its grand opening in The Village North; and luxury
jewellery brand Van Cleef & Arpels will open soon in Parkview Green.
140
Beijing: Retail
• Demand remains robust, with fashion brands actively expanding
• Two shopping malls open in Beijing
• Despite relatively low rents in new projects, overall rents still increase marginally
600
400
200
0
07
08
09
10
Completions
11
12F
Future Supply
For 2007 to 2011, completions are year end annual.
For 2012, completions are as at 1Q12, while future
supply is from 2Q12 to 4Q12.
Despite robust demand, the average net effective rent did not significantly increase,
rising by just 1.1% q-o-q to RMB 709 per sqm per month (based on NLA), due mainly
to relatively low rents and rent-free periods offered in new projects. The addition of two
new shopping centres, as well as the refurbishment and adjustment of tenant mixes in
some existing projects, caused the vacancy rate to increase slightly, up by
0.7 percentage points q-o-q to 10.7%.
12-Month Outlook
Jones Lang LaSalle predicts that demand for retail space will maintain its momentum
over the remainder of 2012. Ten projects are scheduled to open in the remaining
quarters of the year, adding about 730,000 sqm of new space to the market and taking
the total supply in 2012 to around 830,000 sqm, with the vacancy rate likely to rise as
a result.
Rental Information
Rental Value^
RMB 709 psm pm
Stage in Cycle
Rents rising
Last Trough
9
12-Month Outlook
Rental Value
Note: Beijing Retail refers to Beijing’s Urban retail market.
Capital Value
Shanghai: Retail
• Retail projects continue upgrading tenants to attract more foot traffic
• Leasing demand remains strong from luxury, fast fashion and F&B retailers
• Average ground floor prime rents grow marginally
Financial Indices
150
140
Demand
Index
130
120
110
100
90
4Q07
4Q08
4Q09
Rental Value Index
4Q10
4Q11
4Q12
Capital Value Index
Physical Indicators
Supply
In the prime market, the 20,000 sqm New Road project reopened as Bailian Xuhui
Shopping Center. Two-storey flagship stores from Gap, H&M, C&A, Ochirly and
Chocoolate allowed the project to achieve 100% occupancy. Bund 5 began renovation
this quarter and plans to upgrade its tenant mix before re-opening in the second
quarter with the new name “B5”. In the decentralised market, Huge Lifestyle Center
(30,000 sqm) opened in March with a 70% occupancy rate including retail brands
Selected, La Chapelle, Watson’s, and F&B brands Costa and Fengshouri.
400
Thousand sqm
Shanghai: Retail
500
300
200
100
0
Leasing activity remained strong this quarter due to retailer expansion and continued
growth in retail sales. According to the Shanghai Commerce Center, total retail sales
of 452 mid-to-large-scale retailers grew 14% y-o-y to RMB 5.66 billion during the
CNY holiday. Leasing demand from mid-range fashion tenants remained robust as
brands such as Gap, H&M, C&A, Muji, and Mango continued to announce ambitious
expansion plans in Shanghai and throughout China. In prime areas, new openings
by fashion and accessories tenants declined for the third consecutive quarter, while
the share for F&B steadily increased. Measured by commitments, around 20% of
demand in decentralised malls came from services retailers (e.g. English schools,
banks, and weight loss clinics). Upgrading continued in pockets around the city. West
Nanjing Road’s Sunny 993 chose not to renew several sporting goods brands to make
room for a Sephora flagship store. Bund 5 and Hongyi Plaza also are in the midst of
shuffling their tenant mixes in an effort to move further upscale. In order to draw more
foot traffic through its large property, SML Center has begun increasing its percentage
of F&B and entertainment tenants.
07
08
09
10
Completions
11
12F
Future Supply
Asset Performance
Average ground floor rents in the prime market edged up 0.6% q-o-q to RMB 46.51
psm per day, while rents in the decentralised market increased by 1.1% q-o-q to
RMB 18.6 psm per day. The vacancy rate decreased by 0.4% to 1.6% in prime areas
due to a decline in vacancy in over ten major shopping malls. In the decentralised
market, the vacancy rate remained low at 3.1%, with notable decreases observed in
Skymall and IMAGO.
12-Month Outlook
Rental Information
Rental Value^
RMB 46.5 psm per day
Stage in Cycle
Rents rising
Last Trough
1
^ net, on NLA
Looking ahead, 2012 remains a massive year for new supply. Around 552,000 sqm
and 1.19 million sqm of retail space will be delivered respectively to the prime and
decentralised markets by end-2012. Some notable upcoming projects this year are
the 120,000 sqm IAPM and the 95,000 sqm Kerry Center Phase II. Both projects
have already made good leasing progress due to strong market demand and good
locations. New supply may push up the vacancy rate in the short term, but strong
leasing demand will steadily absorb the resulting vacant space. Pre-commitment of
2012 supply has already reached 67% in the prime areas and 58% in decentralised
areas, thanks in part to the large number of properties from name-brand developers
with strong leasing teams.
12-Month Outlook
Rental Value
Capital Value
1
This quarter we have moved the Hongqiao Area from the Decentralised area to the Prime Area so the rents in both prime
and decentralised areas are slightly different from rent figures last quarter.
Note: Shanghai Retail refers to Shanghai’s overall Prime retail market.
Guangzhou: Retail
Financial Indices
130
Demand
Index
Retail sales in Guangzhou remained strong, growing by 14.0% y-o-y in the first two
months of the year, but slower than the 16.1% growth registered for the same period
in 2011.
120
Some retailers have been expanding into the newer and higher quality malls, such
as Taikoo Hui and Seasons Mall, while others closed down some of their shops in
older and less popular malls. As a result the vacancy rate edged down to 2.4% in the
quarter.
Leasing activity was more evident in the Tianhe CBD and Zhujiang New Town (ZJNT)
sub-markets, where a number of new shopping malls were completed last year.
Notable leasing deals included Armani Jean’s leasing 140 sqm in Tee Mall, Japan
Daiso committing to 1,100 sqm in Mall of the World Phase 1 and Miss Sixty leasing
600 sqm in Taikoo Hui.
Supply
100
90
4Q07
12-Month Outlook
4Q10
4Q11
4Q12
Capital Value Index
Physical Indicators
500
400
Thousand sqm
Asset Performance
Although the Guangzhou Housing Bureau reiterated its restrictions on the purchase of
commercial properties by foreign individuals in March, there was no immediate impact
on the investment market for prime retail properties. The quarter saw yields remain
largely stable, in line with interest rate trends. Capital values rose by 3.4% q-o-q in
1Q12.
4Q08
4Q09
Rental Value Index
The quarter saw no new completions, with total prime retail stock at about 1.3 million
sqm.
Sustained leasing demand and the growth in retail sales continued to support rental
growth, with average net effective rents rising by 3.4% q-o-q to RMB 783 per sqm per
month (on NFA). The stronger leasing demand in newer and more popular malls led to
more vibrant rental growth in malls like Taikoo Hui and some others within the Tianhe
CBD.
110
Guangzhou: Retail
• Solid retail sales growth continues
• Prime retail rents rise in line with capital values
• Five new retail schemes are scheduled to complete in 2012
300
200
100
0
07
08
09
10
Completions
11
12F
Future Supply
supply is from 2Q12 to 4Q12
Sustained retail sales growth in Guangzhou is expected to continue, but at a slower
pace. We expect to see retailers continue to expand their operations in Guangzhou
but shopping malls with inferior specification and management practices will face
increasing pressure from the newer developments.
The retail market will see substantial new supply in 2012, boosting prime shopping
space by approximately 400,000 sqm. This large amount of space is likely to drive
vacancy rates higher, and dampen rental growth. However, retailers remain confident
in Guangzhou’s retail market outlook, and we therefore expect rents to continue to
experience growth for the remainder of 2012, albeit more subdued.
Rental Information
Rental Value^
RMB 783 psm pm
Stage in Cycle
Rents rising
Last Trough
11
^ net, on NFA
12-Month Outlook
Rental Value
Note: Guangzhou Retail refers to Guangzhou’s Prime retail market.
Capital Value
Hong Kong: Retail
Financial Indices
240
220
• International retailers underpin leasing demand
• Sustained demand and low vacancy environment fuels rental growth
• Capital values surge as speculators return to the investment market
200
Index
180
160
140
Demand
120
100
80
4Q07
4Q08
4Q09
4Q10
4Q11
4Q12
RV Index (Street Shop)
CV Index (Street Shop)
RV Index (Premium Prime Shopping Centres)
RV Index (Overall Prime Shopping Centres)
Physical Indicators
160
Thousand sqm
80
40
Hong Kong: Retail
Keen demand from international retailers contributed to a relatively active leasing
market for high street shops in traditional core retailing districts. Moreover, the limited
availability of space on some high streets resulted in demand spilling-over into some
secondary streets, pushing rentals of street shops higher.
Prince Watches and Jewellery leased a ground floor shop (460 sq ft, gross) at 51–52
Haiphong Road in Tsimshatsui for HKD 850,000 per month, which was more than
twice the amount paid by the previous tenant. Retailers were also keen on prime
shopping centres in non-core locations. Popcorn, a new 215,280-sq ft shopping centre
above Tseung Kwan O Station, for example, opened in March 2012 and was fully
leased with feature tenants such as Log-on and Star Cinema.
120
0
Total retail sales value continued to post robust growth through 1Q12, growing by
15.9% y-o-y, after rising by 24.9% in 2011. The strong growth in retail sales was partly
sustained by the continuing growth of visitor arrivals, which rose by 15.6% y-o-y to
11.2 million.
Supply
07
08
Completions
09
10
11
12F
Future Supply
Rental Information (Prime Street Shops)
HKD 640.9 psf pm
Rental Value^
Stage in Cycle
Rents rising
No. of Quarters Since 12
Last Trough
^ net, on GFA
Rental Information
(Premium Prime Shopping Centres)
HKD 261.7 psf pm
Rental Value^
Stage in Cycle
Rents rising
Last Trough
^ net, on LFA
Rental Information
(Overall Prime Shopping Centres)
HKD 130.6 psf pm
Rental Value^
Stage in Cycle
Rents rising
Last Trough
Hysan Place (450,000 sq ft, gross) was issued with its occupation permit in March.
Over 90% of the retail space has already been leased. Anchor tenants include Apple
Store, GAP, DFS, and Eslite Bookstore. The retail portion of the development is
scheduled to open in August 2012.
Asset Performance
The sustained demand for retailing premises and low vacancy environment continued
to provide a platform for landlords to raise rents in 1Q12, increasing by an average of
3.8% q-o-q in prime shopping centres and 4.5% q-o-q for high street shops.
Activity in the investment market picked-up noticeably in 1Q12, with investors targeting
street shop properties. The quarter also saw the return of speculators to the market,
with a significant number of confirmor transactions (the resale of property before the
initial transaction has been concluded) being recorded.
The pick-up in investment activity and return of speculators saw the capital value of
high street shops surge by 9.7% q-o-q in 1Q12 after remaining broadly stable in 4Q11.
12-Month Outlook
Easing inflationary pressure on everyday living expenses will lend further support to
domestic retail sales and demand in the retail property market. With vacancy rates
expected to remain at low levels, and growing demand from international retailers, we
expect rents to continue to trend higher. However, emerging signs of weakness in the
labour market and the slower growth in visitor arrivals is expected to result in a slower
pace of rental growth.
^ net, on LFA
12-Month Outlook
Rental Value
Prime Street Shops
Capital Value
Prime Street Shops
Premium Prime
Shopping Centres
Overall Prime
Shopping Centres
Note: Hong Kong Retail refers to Hong Kong’s overall Prime and High Street retail markets.
Bangkok: Retail
Financial Indices
110
105
Demand
Supply
Two new projects - Rain Hill (10,000 sqm) and The Walk (45,000 sqm) were completed
in 1Q12. Rain Hill was developed by Boutique Group. The Walk was developed by
Index Living Mall, one of the leading home furnishing stores in Thailand. The project
is their first major retail project, and Index Living Mall serves as the anchor tenant
occupying 11,000 sqm of space.
Additionally, Central World is finally back to full operations in the aftermath of the 2010
fires with the completion of the refurbishment of Zen department store (50,000 sqm) in
January.
Asset Performance
Strong demand from both expansions and newcomers helped support another
increase in rent in the quarter. The average gross rent for prime retail centres
increased slightly, by 0.1% q-o-q to THB 2,176 per sqm per month. Although effective
rents are being pressured by rising operational costs, capital values rose by
1.2% q-o-q to THB 160,633 per sqm. As a result, the market yield declined marginally
to 12.8%.
Index
100
95
90
85
80
4Q07
4Q08
4Q09
4Q10
Looking ahead throughout 2012, the outlook for the retail market is still sound.
Construction delays to several projects due to the flooding last year will result in
a huge amount of new supply in 2012, with more than 900,000 sqm (gross) from
both new completions and refurbishments expected to enter the market from 2Q12
onwards. Most of the new supply is located in neighborhood and specialty centres.
Nevertheless, approximately 80% of the future space has already been secured. As a
result, vacancy is expected to jump only in the short term and decline relatively quickly
as tenants move in and start operations. Rent and capital values should continue to
rise given current market conditions and high interest in owning retail assets.
Physical Indicators
1,200
900
600
300
0
07
08
09
10
11
12F
Future Supply
Rental Information
Rental Value^
THB 20,509 psm pa
Stage in Cycle
Rent rising
Last Trough
12
^ net, on NLA
12-Month Outlook
Rental Value
Note: Bangkok Retail refers to Bangkok’s Prime retail market.
4Q12
Capital Value Index
Completions
12-Month Outlook
4Q11
Rental Value Index
Thousand sqm
A recovering Thai economy, robust retail activity and the introduction of new retail
formats in recent years continues to spur strong leasing demand. Transactions in
1Q12 continue to come from both branch expansions and newcomers. Asia Books
expanded its biggest store, at Central World, to an area of approximately 1,000 sqm.
Fitness First, The Rink Ice Skate, and Fun Planet also expanded and occupied space
of 2,100 sqm, 3,000 sqm and 6,500 sqm respectively at Central Plaza Rama IX. In
addition, Food Republic, the food court chain from Singapore started its first operation
in Thailand at Central Rama IX occupying 1,600 sqm.
Bangkok: Retail
• Leasing remains active, from both expansions and newcomers
• Two malls complete – Rain Hill and The Walk
• Capital values continue to rise as yields compress
Capital Value
Manila: Retail
• Food and beverage (F&B) stores dominate the leasing scene
• One new shopping mall opens, adding 26,000 sqm to total retail stock
• Positive rental growth due to retailer expansions
Financial Indices
110
100
Demand
Net absorption in 1Q12 declined to 900 sqm from 22,600 sqm in 4Q11 as demand
during the post-holiday season eased. Consequently, the vacancy rate increased 0.4%
q-o-q to 2.4% as the recent completions had yet to achieve full occupancy. The higher
vacancy rate was also partly due to several store closures in existing developments,
some of which were for the purpose of renovations.
Index
90
80
70
60
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Physical Indicators
Supply
400
One new shopping centre opened in 1Q12, namely Lucky Chinatown Mall in the City
of Manila. This new development contributed approximately 26,000 sqm to the total
retail stock.
300
Thousand sqm
Manila: Retail
New store openings during the quarter were mostly in the food and beverage category.
The continuing popularity of milk-tea products has fuelled the expansion of milktea related stores such as the Hong Kong brand Happy Lemon and the local chain
Serenitea, both of which have recently opened branches, in Bonifacio High Street
and Robinsons Galleria respectively. Meanwhile, Indonesian brand J.Co Doughnuts
and Coffee opened its first store in the country at SM Megamall, with additional new
branches planned for the rest of the year. Fashion retailers are expanding as well, with
Japanese clothing brand UNIQLO planning to open around three stores within the
year.
200
Noteworthy completions slated for 2012 include the redevelopment of Glorietta 1 and 2
in Makati City as well as the expansion of Alabang Town Center in Muntinlupa City.
100
Asset Performance
0
07
08
09
10
Completions
11
12F
Future Supply
For 2012 completions are as at 1Q12, while future
Retail rents have continued to inch up slowly in 1Q12, growing by 0.7% q-o-q to reach
PHP 13,781 per sqm per annum. The entry of new supply has had a minimal effect
on rents as existing prime developments continue to benefit from the growth and
expansion of retailers.
Capital values increased marginally by 1.0% q-o-q to PHP 155,500 per sqm.
Consequently, investment yields remained at the previous level of 8.9%.
12-Month Outlook
The positive growth outlook for the economy and the projected sustained inflow of
remittances from overseas Filipinos are expected to continue priming local consumer
demand throughout the year. This will likely encourage more retailer expansion,
providing room for rental growth.
Rental Information
Rental Value^
PHP 13,781 psm pa
Stage in Cycle
Rents rising
Last Trough
8
In terms of vacancy, the completion of several retail developments in the remainder of
2012 is not likely to be a cause for concern as significant portions of their space have
already been pre-committed. Hence, vacancy rates are projected to remain relatively
stable.
^ net, on NLA
12-Month Outlook
Rental Value
Capital Value
Note:Manila Retail refers to Manila’s Prime retail market.
Kuala Lumpur: Retail
Financial Indices
130
Demand
Leasing activity in the city centre included: Versace Jeans, Nine West and Steve
Madden opening at Suria KLCC, while at Pavillion Kuala Lumpur Spasso Milano
restaurant commenced operations and internal tenant-shuffling saw the relocation
of Cole Haan into the space formerly occupied by Furla. Bang & Olufsen and Lancel
opened flagship stores in Gardens Mall. In the suburbs, notable leasing activity
included Tangs department store relocating from The Pavillion and commencing
operations at 1 Utama, Sa Sa cosmetics opening its flagship store in Bangsar
Shopping Centre and MANGO opening at Alamanda in Putrajaya.
Supply
Supply increased marginally in the quarter, with the completion of the refurbishment
and extension of the old wing of 1 Utama in the suburbs, adding approximately
8,500 sqm to the total stock.
Completions expected in 2012 include the extension of the Intermark Mall in the city
centre and The Paradigm and Setia City Mall in the suburbs. All three are expected to
increase the total stock by approximately 131,000 sqm.
Asset Performance
Rental and capital values generally remained stable in 1Q12. With limited stock on
the market, no en bloc transactions involving prime retail centres were recorded,
however investor interest remained strong with a keen focus on prime retail investment
opportunities in either the city centre or the suburbs.
12-Month Outlook
In the city centre, the average vacancy rate is forecast to decline over the next
12 months as retailers take physical occupancy upon completion of their fit-outs and
renovations. In the suburbs, the market is expected to enter a temporary adjustment
period where the vacancy rate is anticipated to increase slightly as substantial supply
is expected to progressively enter the market during 2012.
Rentals values are not expected to show significant movement, nonetheless there is
room for increase over the next 12 months. Capital values are more likely to increase
as many owners are “unwilling” vendors and demand from both local and foreign
investors remains strong.
Index
110
100
90
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
Physical Indicators
400
300
200
100
0
07
08
09
Completions
10
11
Future Supply
12F
Rental Information
Rental Value^
MYR 3,515 psm pa
Stage in Cycle
Rents stable
Last Trough
7
^ net, on NLA
12-Month Outlook
Rental Value
Note: Kuala Lumpur Retail refers to Kuala Lumpur’s Prime shopping centre market.
4Q12
Capital Value Index
Thousand sqm
The average vacancy rate increased by 0.7 percentage points to 9.0%, predominantly
due to retail centre owners and retailers undergoing refurbishments of their space.
Demand remained generally strong with the majority of vacant space already
pre-committed.
120
Kuala Lumpur: Retail
• Rental and capital values remain stable
• Vacancy rates increase marginally as a few major retailers relocate
• Strong investor appetite for prime retail assets
Capital Value
Singapore: Retail
• Islandwide Grade A occupancy rate stabilises
• Rents decline marginally on the back of deteriorating business sentiment
• Capital values hold steady as investor sentiment improves
Financial Indices
110
Demand
100
Index
Vacancy rates remained stable island-wide despite consolidations among certain
retailers. Notably, brands such as Topshop and River Island have scaled back
operations in the Marina sub-market. This has however been mitigated by strong
interest from international retailers in the primary market and healthy take-up by the
F&B sector.
90
80
4Q07
4Q08
4Q09
Rental Value Index
4Q10
4Q11
4Q12
Capital Value Index
The slowdown in visitor arrivals emphasised with the growth rate of a mere of 8.4%
y-o-y in 4Q11, contrasting with the double digit growth (14.7% y-o-y) witnessed in
3Q11. This is in line with an earlier statement by the STB, which forecast a moderation
in tourism growth prospects this year.
Supply
Physical Indicators
The only completion this quarter, JCube, added 18,952 sqm of retail space to the
Suburban sub-market with a pre-commitment level of over 90%. This kick-starts a total
makeover for the Jurong Gateway, which looks set to become a vibrant commercial
hub with the eventual additions of Westgate (37,372 sqm), JEM (53,196 sqm) and
Big Box (24,000 sqm).
200
Thousand sqm
Singapore: Retail
250
150
Several completions are slated for the rest of the year, including The Atrium @
Orchard extension (11,797 sqm) in the Orchard sub-market, Bugis+ (18,052 sqm) and
100AM (11,799 sqm) in the Marina sub-market and Star Vista (15,143 sqm) in the
suburban sub-market.
100
50
0
January’s retail sales index recorded slower growth of 2.8% y-o-y as compared to the
preceding months of November (6.4%) and December (4.2%), suggesting a possible
weakening of consumer sentiment in spite of the Chinese New Year festivities.
07
08
09
10
Completions
11
12F
Future Supply
Rental Information
Rental Value^
SGD 4,214 psm pa
Stage in Cycle
Rents declining
Last Trough
8
12-Month Outlook
Rental Value
Capital Value
Asset Performance
Primary and Marina retail rents declined by 10 and 50 basis points respectively amid
an uncertain business climate. However, support came from healthy take-up of retail
space by the F&B sector and low unemployment which have lent support to retail
sales. Rents for the Suburban sub-market remained stable.
Investment volume grew by an astounding 60% q-o-q in 1Q12, boosted by the
Government Land Sale at Sengkang West/Fernvale Road. Excluding institutional
investments, it still represented growth of 17% q-o-q, reflecting a bullish investment
climate. This is likely due to the Additional Buyer’s Stamp Duty (ABSD) which has
forced investors into an alternative property sector and Singapore maintaining its
Triple-A investment grading.
Average capital values were stable across all sub-markets this quarter, with an
expected slowdown in investment activity likely to soften capital values going forward,
reflecting elevated market risk.
12-Month Outlook
With slower economic growth expected (1% to 3%) as the country transits towards
a more productive and sustainable work environment, cracks are surfacing in the
retail market with the slowdown in retail sales. Coupled with inflationary pressures
and a huge retail supply pipeline (277,560 sqm) over the next two years, rents and
occupancy levels are expected to soften in the short to medium term.
Note: Singapore Retail refers to Singapore’s Prime, Suburban and Marina retail markets
Jakarta: Retail
Financial Indices
110
Demand
Supply
No new retail developments entered the market during the quarter. Total stock
remained at around 1.3 million sqm. Future supply in 2012 is expected to come from
two prime shopping centres located in Kuningan area, Kota Kasablanka and Ciputra
World. These projects are expected to provide approximately 140,000 sqm of new
retail space upon completion.
Asset Performance
Rents continued to improve given limited available supply and strengthening demand.
By end-March, rents picked up by approximately 1.5% q-o-q. Several projects
introduced new rents, however service charges stabilised. On the back of a strong
leasing environment, capital value growth continued and moved in tandem with rents.
The market did not witness any major transactions in 1Q12, with yields remaining
steady at 11.2%.
12-Month Outlook
The growing middle class and the on-going lifestyle shift by Indonesia’s young and
productive demographic segment are predicted to continue encouraging retailers to
capitalise on their potential and the sustained demand expected in 2012. However, as
the pre-commitment rate in the two proposed retail developments coming on stream
is relatively high, the market is likely to face limited supply over the coming year. As
a result, vacancy rates should compress to below 5% in the next two or three years.
Hypermarkets, department stores, entertainment outlets and fashion stores are
predicted to continue to be active in the market.
The strong economy and a healthy leasing environment are expected to allow rents
to increase at a faster pace during the next two years before gradually slowing down.
Capital values are also expected to increase accordingly, given the solid market
fundamentals.
Index
100
95
90
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
Physical Indicators
200
150
100
50
0
07
08
09
10
Completions
11
12F
Future Supply
Rental Information
Rental Value^
IDR 4,774,636 psm pa
Stage in Cycle
Rents rising
Last Trough
4
12-Month Outlook
Rental Value
Note: Jakarta Retail refers to Jakarta’s upper class retail market.
4Q12
Capital Value Index
Thousand sqm
The Jakarta prime retail market continued to perform positively, reflected in the high
occupancy rates in most projects, and cushioned by optimism over the national
economy and robust domestic consumption. Net absorption totalled around 9,700 sqm,
less than in the previous quarter due to limited available space. Fashion retailer Muji
expanded by opening new stores in Pondok Indah Mall 1 and Mall Taman Anggrek.
Waraku Holdings also took a large area of retail space in Mall Taman Anggrek.
Meanwhile, the opening of several F&B stores was seen in newer projects such as
Epicentrum Walk, Gandaria Main Street and Plaza Senayan. Foreign brands were
also looking for new space in prestigious shopping malls, with a view to capitalising
on the growing market. Pre-commitment rates in future retail developments were
strong, particularly in prominent projects located in strategic locations such as Kota
Kasablanka and Ciputra World. With high demand and limited available space in the
market, vacancy rates continued to decline to around 4.8% from 5.6% in 4Q11.
105
Jakarta: Retail
• Retail demand continues to grow, albeit at a slower rate
• The leasing market remains active, dominated by fashion and F&B stores
• Moderate rental growth, with several projects adjusting rents
Capital Value
Delhi: Retail
• Vacancy rate continues to decline
• Domestic and international retailers looking at strategic expansion
• Rents and capital values remain stagnant across all sub-markets
Financial Indices
110
100
Demand
Index
90
80
70
60
50
4Q07
4Q08
4Q09
Rental Value Index
4Q10
4Q11
4Q12
Capital Value Index
Financial Indicators are for Prime South.
500
Thousand sqm
400
Delhi: Retail
Net take-up was 415,500 sq ft (38,601 sqm), mostly contributed by select existing
projects in the Suburbs sub-market. Prime South and Prime Other sub-markets saw
absorption constrained by lack of supply in well performing malls. Overall, vacancy
declined by 100 basis points, to 25.3%.
A few notable leases included Buzz Iceland leasing 2,160 sq ft (201 sqm) in MGF
Metropolitan in the Prime South sub-market and Reliance Digital leasing 24,000 sq ft
(2,230 sqm) in DLF City Centre in the Prime Others sub-market. In the Suburban submarket, Grand Mall in the Faridabad precinct was completely leased, with Big Bazaar
leasing 50,000 sq ft (4,345 sqm) and Royal Orchid Hotels leasing 250,000 sq ft
(23,226 sqm). Other notable leases included Brauhaus Pub leasing 7,000 sq ft
(650 sqm) and The Linen Club leasing 1,500 sq ft (139 sqm) in the DLF Southpoint
Mall.
Physical Indicators
300
Supply
200
Two completions were recorded in 1Q12 with Eros Metro Mall (100,000 sq ft or
9,290 sqm) and Savoy Outlet Mall (175,000 sq ft or 16,258 sqm) becoming operational
in Prime Others and Suburbs sub-market, with 0% and 35–40% occupancy rates,
respectively.
100
0
Demand was moderate during 1Q12, as retailers were restricted by a lack of available
space in prominent malls. Retailers are either looking at upcoming vacant space in
well performing malls or looking at pre-commitments in upcoming projects that are
expected to perform well. Retailers continue to focus on controlling costs and selective
expansion which ensures business volume growth, and are looking towards previously
untapped markets and quality retail projects. Demand was generated mostly by
apparel and lifestyle product retailers along with F&B and hypermarket formats.
07
08
09
10
Completions
11
12F
Future Supply
Physical Indicators are for all micro-markets.
Asset Performance
Overall rents remained stagnant as retailers exercised caution and looked at cost
control as a means of improving profitability, thus resisting increments in rents.
Capital values also remained stagnant in line with the trend in rental values. Overall,
yields remained stable at 10.7% for the seventh successive quarter.
12-Month Outlook
Rental Information (Prime South)
Rental Value^
INR 242 psf pm
Stage in Cycle
Rents rising
Last Trough
5
^ gross, on GFA
12-Month Outlook
Rental Value
Though retailers will continue to adopt a conservative business model, demand is
expected to remain healthy as domestic consumption fundamentals should remain
strong. A lack of vacancies in retail projects of choice may result in demand being
slightly slow off the blocks in the coming quarters. However, both vanilla and largeformat retailers are expected to continue to chase deals in under-construction projects
that provide good branding and business potential.
An active churn and jostling among retailers for retail assets in Prime South is
expected to result in rents rising in this sub-market. Select projects in Prime Others
and Suburbs sub-markets are expected to see healthy retailer interest, though rental
growth will be constrained by the large amount of stock and vacancy in both these
sub-markets and the propensity of retailers to mix expansionary movement with real
estate cost control measures.
Capital Value
Note: Delhi Retail refers to Delhi’s overall retail market.
Mumbai: Retail
Financial Indices
110
100
Demand
Supply
90
Index
In 1Q12, overall take-up moderated on the back of modest absorption in the only
newly completed mall, although a few malls that became operational recently
continued to see rising occupancy rates in the quarter. The city recorded total net
absorption of 480,000 sq ft (45,338 sqm) in 1Q12 compared to 1.3 million sq ft
(121,115 sqm) in 4Q11. Retailer demand was concentrated in malls in the Suburbs
sub-market because of its superior infrastructure and vast residential catchment.
International retailers in the luxury segment continued to expand their footprints in
various pockets of the city. Demand among retailers for space in the Prime North
sub-market remained under pressure, with the vacancy rate remaining stable at 4Q11
levels. Selected retailers that expanded in the quarter included Bombay High, which
occupied approximately 2,700 sq ft (251 sqm) in Infiniti Mall, Malad; Zodiac, which
took 972 sq ft (90 sqm) in Growel 101-Phase 2, Kandivali; and Reliance CDIT, which
occupied 13,700 sq ft (1,273 sqm) in Market City, Kurla.
70
60
4Q07
12-Month Outlook
Absorption is expected to strengthen over the remainder of 2012, with an increase in
take-up forecast in existing malls, as well as the completion of a few major malls in the
Suburbs sub-market. Polarisation of demand is likely to continue as demand focuses
on strategically located and well-designed malls with good management. Vacancy
rates are expected to decline gradually as supply dries up over the coming years, and
developers increasingly prefer standalone and mixed development retail formats as
alternative retail destinations. Growing brand awareness among modern consumers
is increasingly attracting international retailers to the city’s retail market. Rents and
capital values are likely to increase steadily in all sub-markets, albeit to different
degrees.
4Q10
4Q11
4Q12
Capital Value Index
Financial Indicators are for Prime South.
Physical Indicators
400
300
Thousand sqm
Rents remained stable in all sub-markets, except Prime South, where they rose 1.3%
q-o-q due mainly to limited options being available to retailers. The continued high
vacancy rates in the Suburbs and Prime North sub-markets resulted in stable rents
in 1Q12. In addition, select malls in suburban locations provided rent free periods of
between two to three months as an incentive to attract retailers. The lack of sufficient
demand for poorly designed malls in the Prime North sub-market caused rents to
stabilise in the quarter. Similar to rents, capital values increased marginally by 1.3%
q-o-q in the Prime South sub-market and remained stable in other sub-markets.
4Q08
4Q09
Rental Value Index
Mumbai recorded the completion of Magnet Mall in Bhandup in 1Q12, adding
700,000 sq ft (65,032 sqm) of new operational mall space. As a result, total retail
stock in the city was 17.9 million sq ft (1.7 million sqm) by end-1Q12, with an average
vacancy rate of 23.0%.
Asset Performance
80
Mumbai: Retail
• Net take-up moderates as malls become operational with modest occupancy
• Vacancy rates increase except in the Prime South sub-market
• Rents and capital values stabilise except for in the Prime South sub-market
200
100
0
07
08
09
10
Completions
11
For 2012, take-up, completions and vacancy rates are
as at 1Q12, while future supply is from 2Q12 to 4Q12.
Rental Information (Prime South)
Rental Value^
INR 238 psf pm
Stage in Cycle
Rents rising
Last Trough
4
^ gross, on GFA; Prime South Mumbai
12-Month Outlook
Rental Value
Note: Mumbai Retail refers to Mumbai’s overall retail market.
12F
Future Supply
Capital Value
Bangalore: Retail
• Bangalore’s retail market sees continued steady consumer demand
• One new mall is added, with 86% occupancy
• Rents and capital values remain stable across all sub-markets
Financial Indices
110
Demand
Index
100
Bangalore’s retail market saw continued steady consumer demand in 1Q12, with
interest observed from retailers across all segments. The city witnessed absorption
of 878,100 sq ft (81,578 sqm) against 767,300 sq ft (71,285 sqm) in 4Q11 and overall
vacancy rates decreased from 11.0% in 4Q11 to 9.1% in 1Q12.
90
80
70
4Q07
4Q08
4Q09
Rental Value Index
4Q10
4Q11
4Q12
Capital Value Index
Supply
Financial Indicators are for Prime City.
The market saw the completion of Orion Mall by Brigade Group in Rajajinagar in 1Q12,
offering a built-up area of 830,000 sq ft (77,110 sqm) and opening with an occupancy
rate of approximately 86%. The mall is located in the Brigade Gateway Enclave, a fully
integrated project that includes the World Trade Center, the Sheraton Bangalore Hotel,
more than 1,200 apartments, a Columbia Asia Hospital, The Brigade School and the
Galaxy Club. The Signature Road Mall and The Phoenix Market City malls are the other
recent completions in this sub-market.
Physical Indicators
250
200
Asset Performance
Thousand sqm
Bangalore: Retail
Retail brands that leased space in Bangalore in 1Q12 included Reliance Digital, GK
Vale, Century Ply India, RSP Gourmet Foods, Vision Express, Madura Garments,
Health Glow, KFC, Hyundai, Mufti, The Time Factory, Pape Jeans, Clarks, Louis
Philippe, Sangeetha Mobile, Reliance Trends and Nilgilis.
150
Rents in all sub-markets remained stable at 4Q11 levels in 1Q12. Rents in malls in the
Prime sub-market have remained stable over the past eight quarters, with average
gross rents at INR 178 per sq ft per month.
100
50
0
07
08
09
10
Completions
11
12F
Future Supply
The relatively continuous supply in the Secondary sub-market has provided retailers
with many options and kept average rents stable at INR 85 per sq ft per month in
1Q12, while average rents in the Whitefield sub-market remained at INR 55 per sq ft
per month in 1Q12.
12-Month Outlook
Bangalore’s retail market is likely to enjoy continued steady consumer demand over
the remainder of the year. The future supply of malls (excluding proposed projects)
expected to become operational in Bangalore from 2012–16 is predicted to add a total
of 8.8 million sq ft of new space (821,460 sqm). Of this, around 49% is to become
operational in the Secondary sub-market and around 50% in the Suburbs sub-market.
Rents and capital values are expected to remain stable across all sub-markets in 1H12
and appreciate marginally in 2H12.
Rental Information (Prime City)
Rental Value^
INR 178 psf pm
Stage in Cycle
Rents stable
Last Peak
13
^ gross, on GFA
12-Month Outlook
Rental Value
Capital Value
Note: Bangalore Retail refers to Bangalore’s overall retail market.
Australia: Sub-Regional Shopping Centres
Financial Indices
120
Demand
Tenant demand for retail property remains soft particularly from the fashion industry.
Nevertheless, despite the soft retail backdrop, sub-regional vacancy rates have been
resilient and fell from 3.3% in 2Q11 to 2.8% at the end of 2011. The low vacancy rate
may be misrepresenting the challenges centre owners are facing when attracting
tenants and also with tenant retention. Short term leasing is becoming more prevalent
in order to maintain occupancy rates and rental reductions and leasing incentives are
also reportedly becoming more evident.
110
Index
The retail sector remained subdued in 1Q12. Global economic uncertainty and slowing
employment growth domestically continues to weigh on consumer sentiment. Retail
turnover grew by 2.0% over the 12 months to February 2012, below the current rate of
inflation (3.1%). Spending continues to be drawn away from apparel to food retailing
and cafés and restaurants. Performance by state also varies. Western Australia has
continued its strong rebound in spending (8.5% per annum) while New South Wales
continues to weaken (–0.6% per annum). Victoria (2.9% per annum) and Queensland
(2.1% per annum) are faring slightly better but are still well below long term average
levels.
100
90
4Q07
Two projects completed in 1Q12. The Majura Park Shopping Centre (formerly Brand
Depot Canberra) was converted from a factory outlet centre to a 20,500 sqm subregional centre comprising a Woolworths supermarket and Big W. An extension to the
Pasadena Shopping Centre in South Australia also completed adding 7,000 sqm. A
further eight projects totalling 137,200 sqm of space were under construction in 1Q12.
Asset Performance
Average specialty store rents have now stabilised in all markets except Adelaide in
1Q12. Rents in Adelaide remain under downward pressure and are now declining at
approximately 4% per annum.
4Q09
4Q10
4Q11
4Q12
Financial Indicators are for Sydney Sub-Regional.
Physical Indicators
30
25
Thousand sqm
Supply
The supply pipeline of sub-regional centres continued to grow in 1Q12 with four project
commencements totalling 74,900 sqm. The largest of these was Lend Lease’s
Craigieburn Central in Melbourne, a new 55,000 sqm sub-regional centre anchored by
Coles and Woolworths supermarkets, a Big W and a Target.
4Q08
Rental Value Index
Australia: Sub-Regional
• Average rents stabilise across most states in line with soft retail conditions
• Performance continues to diverge between prime and secondary centres
• Risk aversion increases and investors remain selective with acquisitions
20
15
10
5
0
07
08
09
10
Completions
11
12F
Future Supply
Physical Indicators are for Sydney sub-regional only.
For 2012, completions are as at 1Q12 while future
Centro continues its asset sell-down program, disposing of one sub-regional centre
(AUD 36.5 million) so far in 2012. Additionally, Wanneroo Central sold for AUD 70.0
million in April.
Our reported equivalent yield range for sub-regional assets widened in 1Q12 to
6.50% to 9.50% from 6.50% to 9.00% in 4Q11. The softening reflects heightened risk
aversion and limited access to debt funding for secondary assets.
Rental Information
Rental Value^
AUD 986 psm pa
12-Month Outlook
Stage in Cycle
Rents stable
The retail sector in 2012 is likely to remain subdued but a gradual turnaround in retail
spending from 2013 is expected to drive a recovery in rental growth as sentiment
among retailers improves and margins are rebuilt. Investor focus on prime assets will
support yields at the upper end of the range while risk aversion may see yields at the
lower end of the range soften further.
Last Trough
2
^ net, on GFA
12-Month Outlook
Rental Value
Note: Australia Sub-Regional Shopping Centres refers to sub-regional shopping centres in Australia’s major metropolitan
markets.
Capital Value
NA
Auckland: Retail
• Consumer confidence lifts on the back of rising economic confidence
• New supply forecast in the CBD for Britomart and Upper Queen Street
• Prime rents rise and investors drive yields firmer
Financial Indices
110
Demand
Index
100
90
80
70
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
10,000
Asset Performance
8,000
6,000
sqm
Auckland: Retail
Supply
Small footprint premises are proving popular with developers in the upper location of
Queen Street. We forecast approximately 200 new premises comprising 3,500 sqm
of reconfigured space in FY12. Auckland CBD’s Britomart is also expected to expand
with fashion icons Kate Sylvester, WORLD and Zambesi moving from High Street into
the precinct. The recently redeveloped and repositioned Imperial Building at 44 Queen
Street is proving popular with the café and restaurants now well visited. Only below
ground retail space is left.
Physical Indicators
4,000
2,000
0
The most recent retail spending data from Statistics NZ suggests that consumer
confidence has performed strongly over the second half of 2011. Two successive
strong quarters were recorded, well ahead of market expectations. This shows that a
recovery in household spending may be gathering momentum, under pinned largely
by a further recovery in labour markets. This is supported by the overall Auckland CBD
vacancy rate decreasing from 5.0% in mid-2011 to 4.6% in December 2011.
07
08
09
10
Completions
11
12F
Future Supply
supply is from 2Q12 to 4Q12
Rental Information
Rental Value^
NZD 1,906 psm pa
Stage in Cycle
Rents rising
Last Peak
14
The lack of suitable prime CBD space, unwavering landlords and a tenant flight to
quality are the reasons behind Average prime Auckland net face retail rents increasing
4.8% y-o-y to NZD 1,906 per sqm per annum. Some landlords of lower quality space
are finding it difficult to raise rents and in some cases find suitable tenants. This is
especially noticeable in secondary locations with low foot traffic and sub-par shop
fit-out. While prime rents are expected to show further rental uplift over 2012, other
landlords may enter a plateau period. Prime Auckland CBD retail yields consolidated
on the gains made earlier in 2011 remaining at an average 7.50%, with the prime
upper yield at an all-time low of 6.25%. However, this is likely to move lower over the
next quarter with recent auction results indicating investors can move sub-6%.
12-Month Outlook
Consumer spending levels are on the mend and are expected to further improve over
2012. This is likely to drive occupier demand, keeping the amount of vacant space
at current levels over the medium term. The gravitation towards prime retail space is
positive for owners of good quality retail space, however, owners of secondary space
in unpopular locations may have a challenging year ahead. Location remains the key
for successful retailers. This is likely to continue over the long term, as consumers
remain attracted to central retail precincts. Rents have advanced over the last six
months, on the back of sufficient demand and limited quality supply. These are likely
to continue inflating as the limited supply pipeline is resulting in low levels of available
space within the CBD.
^ net, on NLA
12-Month Outlook
Rental Value
Capital Value
Note: Auckland Retail refers to CBD, Newmarket and Takapuna strip and shopping centre retail.
Beijing: Residential
• Leasing demand improves
• The number of high-end apartment units sold decreases 41.4% q-o-q
• High-end apartment sale prices decline
Financial Indices
220
Demand
In the new high-end apartment sales market, the number of units sold totalled 810, a
decrease of 41.4% q-o-q and 62.8% y-o-y. However, some real demand remained in
the market; several buyers sold small or old residences in order to buy bigger houses
and a number of cash rich buyers bought large houses through their companies or
parents to evade the purchase restrictions.
Index
Rental increases in Beijing’s residential market have significantly affected multinational
companies. In most cases, despite no increases in leasing budgets, rental increases
of less than 10% are generally approved when renewing contracts. However, firms
also often prefer to sign contracts for more than one year in order to protect against
further rental increases. In the serviced apartment leasing market, tenants from small
to medium sized companies have an advantage over larger companies because of
more flexible budgets; this supported rental growth of over 10% q-o-q for renewals
in the first quarter of 2012. Domestic companies based outside of Beijing with strong
business links in the city began to lease serviced apartments in major business areas
with long term commitments.
180
140
100
60
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Physical Indicators
12,000
Supply
9,000
Units
In 1Q12, no new serviced apartment projects were completed and in addition, several
existing projects were affected by a number of factors. The Ascott in the CBD can only
offer short term leasing contracts up to June 2012 and the serviced apartments at
the Kerry Centre have been adversely affected by the refurbishment of the shopping
centre. In 1Q12, the number of newly launched high-end apartments increased from
the previous quarter, reflecting the desire of developers to launch projects quickly.
6,000
3,000
Asset Performance
Influenced by the decreasing number of units sold, the average sales price of high-end
apartments dropped 2.3% q-o-q and 7.4% y-o-y to RMB 39,216 per sqm.
0
07
08
09
Completions
10
11
12F
Future Supply
12-Month Outlook
Looking forward to the remaining three quarters of 2012, four serviced apartment
projects are expected to be completed, offering 748 units in total, which will alleviate
the shortage of available housing. At the same time, booming leasing demand for
apartments will be beneficial to newly opening serviced apartment projects, and the
average rent should experience an increase similar to that of 2011. More new projects,
mostly located between the fourth and fifth ring roads, will be launched for sale in
2Q12 with asking prices ranging from RMB 35,000 to 45,000 per sqm. At the same
time, developers will continue to offer incentives to potential purchasers in the highend apartment market, which will help to increase the number of units sold.
Rental Information
Rental Value^
RMB 114.6 psm pm
Stage in Cycle
Rents rising
Last Trough
9
^ gross, on GFA
12-Month Outlook
Rental Value
Note: Beijing Residential refers to Beijing’s Luxury and High-End residential market.
Capital Value
Beijing: Residential
Steadily increasing demand and limited supply resulted in a new historical low vacancy
rate of 6.2%. Several landlords of serviced apartments increased their rents from
February levels by, in general, more than 8%. In 1Q12, rents increased 14.5% y-o-y to
RMB 194.5 per sqm per month (based on GFA).
Shanghai: Residential
• Government begins policy fine-tuning to support first-time home buyers
• Sales volume recovers as first-time home buyers return to the market
• High-end sales volume remains low; prices fall as developers offer discounts
Financial Indices
140
Demand
Index
120
100
80
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
In the high-end leasing market, demand remained fairly strong in 1Q12 as MNCs in
the automotive, retail and pharmaceutical industries continued to deploy expatriates
to Shanghai to facilitate their business expansions plans. As a result, the average
vacancy rate for serviced apartments fell to 10.3% in 1Q12.
Physical Indicators
10,000
8,000
Supply
6,000
Units
Two high-end projects launched sales in 1Q12. Located on the Pudong riverfront, the
SHKP-developed Shanghai Arch launched 195 units in March, while Shui On launched
Four Seasons Place in the high zone of 21st Century Tower in Lujiazui. In the serviced
apartment market, Peninsula Residence on the Bund and The One - Executive Suites
Shanghai in Jing’an District each held soft openings this quarter.
4,000
2,000
0
07
08
09
Completions
10
11
12F
Future Supply
Shanghai: Residential
In 1Q12, both the Central and Shanghai local governments began fine-tuning policies
aimed at supporting first-time home buyers. Measures included improvements to
the availability of mortgage finance and broader coverage for a reduced deed tax.
Sales volumes of commodity housing in the primary market plunged in January due
to the Spring Festival holiday, but rebounded quickly to 429,000 sqm in February and
continued to trend upwards in March, increasing 84% m-o-m as first-time home buyers
gradually returned to the market. Growing sales volume late in the quarter can be
attributed to government support measures along with more reasonable pricing from
developers. The high-end sales market, on the other hand, remained subdued and
only recorded 237 units sold in 1Q12 as potential buyers continued to be held back
by home purchase restrictions (HPRs). The majority of sales this quarter came from
projects offering significant discounts, such as Star River in Pudong, Greenland Hysun
and Shanghai Bay in Xuhui District.
For 2007 to 2011, completions is year end annual.
Asset Performance
High-end primary sales prices fell by 2.8% q-o-q in 1Q12 as some developers in
emerging high-end locations such as the Xuhui Binjiang area and the Huamu area
in Pudong offered significant discounts to promote sales. In established high-end
residential areas, developers generally held sales prices steady because of limited
future land supply in these locations. In the secondary market, prices remained largely
unchanged as individual sellers were still reluctant to lower their price expectations. In
the leasing market, serviced apartment rents showed moderate growth of 1.6% q-o-q
as landlords remained confident on the back of strong demand.
12-Month Outlook
Rental Information
Rental Value^
RMB 125.9 psm pm
Stage in Cycle
Rents rising
Last Trough
9
^ gross, on GFA
We maintain our view that the Central government will not reverse its tightening
measures (particularly the HPRs) in the near future as these measures have now
begun to gain traction in taming price growth. However, over the year we expect
further easing of policies to improve the affordability for home purchases by first-time
buyers. We expect more first-time home buyers to return to the market, helping sustain
a recovery in mass market sales volumes. In the high-end segment, the HPRs will
continue to depress demand for the remainder of 2012. However, we do not expect
price cuts to broaden or deepen in this segment.
12-Month Outlook
Rental Value
Capital Value
Note: Shanghai Residential refers to Shanghai’s High-End residential market.
Hong Kong: Residential
• Waning expatriate leasing demand brings rents down further
• Market sentiment improves on the back of increasing sales
• Luxury residential capital values stabilise
Financial Indices
180
160
Demand
The number of residential sale and purchase agreements increased by 36.5% q-o-q
to 18,749 in 1Q12, reflecting a more active sales market. The figure was, however,
35.0% lower than that of the same period a year ago. Demand for luxury properties,
however, remained soft with only 52 properties above HKD 50 million being sold, down
45.3% q-o-q and 40.2% y-o-y.
The primary market saw more projects put up for sale. The response to these new
projects was positive. Wheelock Properties, for instance, sold 101 units out of 104
at Lexington Hill in Kennedy Town at an average price of HKD 11,600 per sq ft while
China Overseas sold over 80% of the 253 houses at The Green in Sheung Shui at an
average price of about HKD 9,000 per sq ft.
The appetite of developers to replenish their land banks remained strong owing to the
tight supply pipeline. A total of five residential sites were sold via government public
tender for a total consideration of HKD 7.86 billion, providing some 2,000 units to the
market upon completion.
Weak demand and reduced housing budgets led to a further decline in rents.
Leasing activity was still, however, largely dominated by expatriates but on lower
accommodation budgets.
Index
140
120
100
80
60
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
Physical Indicators
1,000
800
600
Units
A more proactive attitude towards mortgage lending by the banks along with a better
performing stock market and the absence of further austerity measures in the 2012–13
Budget Speech all helped improve sales volumes and market sentiment in 1Q12.
400
Supply
Asset Performance
Improving sentiment resulted in buyers being more willing to chase up prices with
luxury residential capital values edging up by 1.4% q-o-q in 1Q12 after two quarters of
decline. Luxury rents, however, fell by 3.5% q-o-q over the same period.
200
0
07
08
09
10
Completions
11
12-Month Outlook
The stalemate between vendors and buyers is not expected to change significantly
over the near term. Low holding costs will to continue to support the asking prices
of vendors while uncertainties in the economic outlook will keep buyers from
overzealously chasing prices higher. Signs of improvement in the global economy,
however, suggest that a collapse in fundamental buying demand drivers is becoming
increasingly unlikely. As a result, we now hold a more cautiously optimistic outlook
for the residential property market in 2012 and have revised our full-year forecast
for luxury residential, accordingly; with capital values to contract by a milder 0–5%.
Uncertainties in the overall business environment will continue to negatively affect the
inflow of expatriates into the city and curtail corporate housing budgets. As such, we
hold firm on our forecast that luxury rentals will retreat 10–15% in 2012.
Rental Information
Rental Value^
HKD 37.7 psf pm
Stage in Cycle
Rents falling
Last Peak
2
^ net, on GFA
12-Month Outlook
Rental Value
Note: Hong Kong Residential refers to the Luxury residential market.
12F
Future Supply
Capital Value
Hong Kong: Residential
A total of six luxury projects (61 units) were completed in 1Q12, including Sun Hung
Kai Properties’ Shouson Peak in Shouson Hill and 37 Severn Road, providing 31
houses and seven houses, respectively.
Macau: Residential
• Sustained demand from expatriates fuels rental growth
• New project launches stimulate capital value growth in the secondary market
• Investment and upgrading demand underpins the sales market
Financial Indices
140
Demand
Index
120
100
80
60
4Q07
4Q08
4Q09
4Q10
4Q11
Rental Value Index
4Q12
Capital Value Index
Physical Indicators
Figures from DSEC (Macau Statistics and Census Service) indicated that the number
of non-resident workers in February reached 98,274, up 4.5% from end-2011. Among
the key industries recording strong growth has been hotels and restaurants and
real estate businesses, all of which are drivers of leasing demand in the high-end
residential property market.
4,000
Units
3,000
2,000
Supply
1,000
No new developments were completed in the quarter. Nevertheless, a total of 2,616
residential units are expected to be completed over the remainder of the year. Key
projects include: One Grantai (856 units) and Villa de Mer (1,332 units), located in
Taipa and on the Macau Peninsula, respectively.
0
07
08
09
Completions
10
11
12F
Future Supply
Macau: Residential
Sentiment in the Macau residential sales market improved in 1Q12, underpinned by
long-term investment and upgrading demand. Hong Kong developer, Chinese Estates,
launched its first residential project in Macau – La Scale. Located in the southeast
region of Taipa near the Cotai area, the project will be developed in four phases.
The developer launched Phase 1 of the project in the quarter, which consists of nine
residential towers providing 899 units. Standard unit sizes range from 480 to 3,200
sq ft with prices ranging between HKD 5,700–7,800 per sq ft. Tower 10 of One Oasis,
Park Residence in Cotai South was also launched for sale in the quarter, with prices in
the range of HKD 4,500–5,500 per sq ft gross. Launched in stages, the first stage was
comprised of about 300 units with more than 220 units sold by end-1Q12. In the Pearl
District, Macau Peninsula, the developer of Bayview launched the remaining stock of
about 100 units during the quarter. Within one month 98 units had sold, at between
HKD 3,500–4,100 per sq ft, gross. We understand that most of the buyers are local
residents within the district upgrading.
For 2012, completions are as at 1Q12 while future
Asset Performance
Underpinned by sustained sales demand, capital values of high-end residential
properties surged by 6.8% q-o-q in 1Q12, after remaining stable for the previous three
quarters. The increased demand for rental homes pushed high-end residential rents
up by 6.5% q-o-q in 1Q12. Investment yields remained broadly stable at 2.3%.
12-Month Outlook
Rental Information
Rental Value^
HKD 9.2 psf pm
Stage in Cycle
Rents rising
Last Trough
11
The opening of Sands Cotai Central in April is expected to attract more tourists to
Macau, driving gaming revenue growth. Together with the construction of the Macau
Light Rapid Transit (LRT), the number of expatriate workers will continue to rise,
lending support to the leasing market and lifting residential rents. The Special Stamp
Duty was launched by the Macau government in mid-2011 in an effort to cool down the
residential market. They also plan to launch further policies in the remainder of 2012
to regulate the pre-sale residential market. These, combined with limited future supply,
will restrict stock placed on the market in both the primary and secondary markets.
As such, we remain optimistic that pricing levels will also see positive growth over the
coming 12 months.
^ net, on GFA
12-Month Outlook
Rental Value
Capital Value
Note: Macau Residential refers to the High-end residential market.
Bangkok: Residential
• Strong take-up in the quarter amid less new supply
• Gross rents rebound whilst effective rents fall slightly
• Capital values rise, compressing yields to 4.0%
Financial Indices
110
Demand
Index
Demand remained strong in 1Q12, carrying over from the previous quarter. Since
the beginning of the year, the economy has shown continued signs of improvement
and favourable sentiment among end-user buyers and investors has increased.
Furthermore, the leasing market has been active in 1Q12.
100
80
Given the uncertainty in the global economy and regulations restricting foreign
ownership of Thai property, local buyers continued to be the major source of demand
for high-end condominiums, both for self-occupancy and investment purposes.
The 26th House and Condominium Fair held at Queen Sirikit Convention Center
in March was well received by the public and reportedly stimulated robust sales for
participating developers.
90
70
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Supply
Physical Indicators
One new high-end condominium project was launched in 1Q12, namely The Capital
Ekamai-Thonglor. This is the second condominium project from the KPN Group and
has 281 units. In addition, two notable projects in the CBD are lined up to launch in the
coming months. Three projects with a total of 466 units are scheduled to complete in
2Q12.
Effective rents dropped 0.4% q-o-q from THB 4,101 to 4,085 per sqm per annum, as
an increase in outgoings outpaced the pick-up in rents. Gross rents increased slightly
from 4Q11, by 100 basis points, as compassionate rents offered during the flooding
were withdrawn as the city dried out.
Capital values continued rising and grew 1.1% q-o-q to THB 102,889 per sqm as
condominium demand strengthened in the flood-spared city centre. Interest rates were
also lower and yields compressed slightly in 1Q12, averaging 4%.
12-Month Outlook
3,000
Units
Asset Performance
4,000
2,000
1,000
0
07
08
09
Completions
10
11
12F
Future Supply
The Thai economy has proven resilient to the many setbacks faced over the past
several years. This bodes well for condominium demand and should support the
confidence of both end-user buyers and investors. As such, demand from both is
expected to remain sound following renewed interest in high-rise developments in the
city centre.
Although the amount of new supply being completed is falling compared to previous
years, rents are expected to continue to experience some pressure from existing
and future supply. Nevertheless, capital values are expected to trend upward as
comdominiums continue to attract buyers who are flush with liquidity.
Rental Information
Rental Value^
THB 4,085 psm pa
Stage in Cycle
Rents falling
Last Peak
2
12-Month Outlook
Rental Value
Note: Bangkok Residential refers to Bangkok’s Central High-end luxury residential market.
Capital Value
Bangkok: Residential
Pearl Residence, on Sukhumvit 24 was the only project completed in 1Q12, adding 78
units to the total stock. The overall stock now stands at 23,102 units.
Kuala Lumpur: Residential
• High-end project launches slow
• Developers concentrate on mid-price range condominuims
• The average yield compresses marginally
Financial Indices
Index
120
110
Demand
100
The number of high-end launches slowed as developers focused on the more saleable
mid-price range condominiums.
90
80
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
In 1Q12, one high-end development, M City, located on Jalan Ampang (approximately
8 km east of the city centre) was launched. This leasehold development comprises
500 units within one block of 35 storeys. The development has a ‘garden city’
concept with six different themed gardens located on various levels of the building.
The majority of units are considered to be small at between 506 and 1,018 sq ft
which equates to a more affordable unit price and is attractive to local investors. The
developer, Mah Sing Group offered a 5% price discount and a developer interest
bearing scheme to purchasers and achieved a 90% sales rate.
Supply
Supply increased from 20,929 units to 21,214 units with the completion of 285 units
in Bangsar. Gaya @ Bangsar by UDA Holdings Bhd is a freehold development which
offers built-up areas ranging from 671 sq ft to 1,610 sq ft.
Physical Indicators
4,000
Asset Performance
Generally capital values and rental values remained stable in 1Q12. However, with the
introduction of new condominiums with innovative designs and “value adds“, which
command a premium, there was an overall increase in both capital and rental values.
Units
3,000
2,000
With the greater increase in capital values compared with rental rates, the average
yield for high-end condominiums compressed marginally to 5.0% in 1Q12 compared
with 5.2% in 4Q11.
1,000
0
12-Month Outlook
07
08
09
10
Kuala Lumpur: Residential
Completions
11
12F
Future Supply
Rental Information
Rental Value^
MYR 416 psm pa
Stage in Cycle
Rents stable
Last Peak
14
The high end condominium market is expected to remain soft in the short term, in line
with more caution in the market and continuing global economic uncertainties.
Developers are expected to adopt a wait and see attitude and many are expected to
promote and market their products to gauge demand before officially launching them.
Demand in both the sale and leasing markets has been stronger for smaller units
and this trend will continue with developers developing smaller ‘more affordable’ units
which cover a larger pool of buyers.
Due to construction cost increases, prices of new launches will effectively continue
to increase. To justify price increases, developers are expected to be more creative
and introduce new designs and features, link up with hotel brands and obtain green
building certification. Market prices and rentals are generally expected to consolidate
in 2012.
^ gross, on NLA
12-Month Outlook
Rental Value
Capital Value
Note: Kuala Lumpur Residential refers to Kuala Lumpur’s Prime residential market.
Singapore: Residential
Financial Indices
110
100
Preliminary estimates for sales volume1 in the prime districts was 350 units2 in 1Q12
compared with the 573 units sold in 4Q11, a fall of some 56.4% q-o-q. The fall was
especially steep in the new sale and sub-sale markets, which both recorded drops
in excess of 70% q-o-q as buyer demand weakened. This was due to the combined
impact of the Additional Buyers Stamp Duty (ABSD) introduced in December and the
traditional slowdown during the Christmas and Chinese New Year festive periods.
The number of new launches in the prime districts remained low in 1Q12, with only two
new projects launched in January and February and only 111 units launched overall in
the Core Central Region, which incorporates the prime postal districts. These projects,
Aspen Linq and 26 Newton, added a combined total of 48 units to the market with
mixed success. At Aspen Linq, all but one of the 18 units (94%) launched was sold.
However, at 26 Newton only one unit of the 30 launched was sold, a take-up rate
of just 3.0%. The contrast in sales performance between these two projects can be
attributed to price and location. Reportedly Aspen Linq offers a lower price per sq ft
and better neighbourhood characteristics.
Index
Demand
Asset Performance
The average luxury prime rental value in 1Q12 decreased by 4.1% q-o-q to SGD 531
per sqm per annum and the average typical prime rental value also decreased, by
6.8% q-o-q to SGD 418 per sqm per annum. The recent completion of several prime
projects has increased the supply of new rental properties available in the market.
While the influx of expatriates, and demand from people choosing to rent instead of
buy following the introduction of ABSD in December, has helped to maintain consistent
demand, the increase in supply of new properties has put downwards pressure on
rents, especially for older properties.
80
70
60
4Q07
4Q08
4Q09
RV Index (Prime)
CV Index (Prime)
4Q10
4Q11
4Q12
RV Index (Luxury)
CV Index (Luxury)
Physical Indicators
4,000
Supply
3,000
Units
New completions slowed in the quarter, with an estimated 300 units completing, down
36.2% q-o-q. This is the lowest number of completions since 4Q08 when only 250
units completed. Key projects granted TOP in 1Q12 included Holland Residences,
where 83 units completed, and The Mercury, with 67 units.
90
2,000
1,000
0
07
08
09
Completions
10
11
12F
Future Supply
In 1Q12, the average resale capital value for luxury prime properties fell by 2.0% q-o-q
to SGD 26,372 per sqm, after remaining stable for seven consecutive quarters. Resale
capital values for typical prime properties also fell, down by 1.4% q-o-q to SGD 14,747
per sqm.
12-Month Outlook
Despite steady demand, supply pressure, combined with the latest round of cooling
measures, is likely to maintain downwards pressure on rents and capital values for
properties in the prime districts and as such we expect both rents and capital values to
continue to soften in 2012.
Rental Information
Rental Value^
SGD 531 psm pa
Stage in Cycle
Rents falling
Last Peak
3
12-Month Outlook
1
Total sales volume includes new sales, sub-sales and resale transactions
2
Based on caveats lodged and retrieved from the Urban Redevelopment Authority (URA) Real Estate Information System
(REALIS) on 28 March 2012
Note: Singapore Residential refers to Singapore’s Prime and Luxury residential markets.
Rental Value
Capital Value
Singapore: Residential
• Approximately 300 units complete in 1Q12, down 36.2% q-o-q
• Sales volume continues to fall as the impact of the new measures are felt
• Rents for residential properties continue to fall as supply hits the market
Beijing: Industrial
• Market activity slows, with limited space available
• One new project enters the market
• Rents and capital values continue climb
Exports
20
Demand
USD (Billion)
16
12
8
4
0
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
Total Value of Exports
Source: General Administration of Customs
Supply
Utilised F.D.I.
One new project, China Merchants Logistics Park Phase III in Tongzhou Logistics Park
entered the market, adding 20,000 sqm of new supply and pushing total stock up to
1.3 million sqm. Some potential clients are paying attention to this new project since it
was the only one to enter the market in 1Q12, but no agreements have been signed to
date. It is predicted that tenants will move into this property in the next quarter.
25
Billion RMB
20
15
Asset Performance
10
5
0
1Q07
In 1Q12 due to limited available space, the cyclical effect of the Chinese Spring
Festival and industry restructuring of the e-commerce sector, activity in the Beijing
logistics market slowed. However, e-commerce firms, retailers and third party
logistics companies (3PL) continued to be the main drivers of market demand. It is
noteworthy that, after a year of explosive growth, many e-commerce firms are now
facing capital constraints and it is likely that several SMEs will be forced out of the
market. By contrast, some e-commerce giants that value refinement and differentiation
of operations are expected to merge with their smaller competitors in this round of
industry restructuring. By end-1Q12, net take-up in the logistics market was only
2,400 sqm which was mostly attributable to limited leasable space available in the
market. The overall market vacancy rate remained low, up 1.3 percentage points to
1.9%.
1Q08
1Q09
1Q10
1Q11
1Q12
Utilised FDI per quarter
Source: Beijing Municipal Commission of Commerce
Primarily driven by renewed leasing demand and limited space, the average net
effective rent climbed to RMB 1 per sqm per day, increasing 1.6% q-o-q and
10.7% y-o-y. By end-1Q12, the average capital value of logistics property reached
RMB 4,740 per sqm, up 6% q-o-q and 22.6% y-o-y. Rising land costs and relatively
limited supply contributed to the continued rise in capital values. Logistics property
yields continued their stable downward trend as capital value appreciation eclipsed
rental growth.
12-Month Outlook
Looking forward to the remainder of 2012, leasing demand is expected to remain
relatively robust. Growth of large e-commerce firms and the fast expansion of retailers
and 3PL companies will still serve as the main driver of market demand. Some
companies with strong financial capabilities will begin to turn to build-to-suit or selfbuild opportunities.
Beijing: Industrial
Rental Information
Rental Value^
RMB 30.5 psm pm
Stage in Cycle
Rents rising
Last Trough
9
Five projects are projected to enter the market in the remainder of 2012, steadily
pushing up market vacancy. Offering more than 200,000 sqm of new supply, they will
provide clients with more options, while high quality logistics projects in the pipeline
will continue to push market rents up.
An increasing number of international and domestic logistics developers are beginning
to shift their attention to Langfang, a satellite city on the outskirts of Beijing. BLogis
has established a logistics centre of more than 80,000 sqm there. Some international
developers including GLP, Prologis and Goodman are also considering purchasing
land plots to build logistics properties.
12-Month Outlook
Rental Value
Capital Value
Note: Beijing Industrial refers to Beijing’s Industrial Logistics market.
Shanghai: Industrial
• Leasing activity in the non-bonded market is mainly focused in Pudong
• Rental growth continues in West Shanghai as supply remains limited
• Tenants look to areas outside of Shanghai to find available logistics supply
Container Throughput
10.0
9.0
Demand
8.0
TEUs (Million)
Demand in Shanghai’s logistics market remained stable in 1Q12. In the non-bonded
market, West Shanghai remained fully occupied while take-up continued in parts of
Pudong. Space in West Shanghai continues to be sought after by potential tenants
from the e-commerce, consumer goods, and automotive industries. Demand from
the e-commerce industry slowed this quarter as firms became more cautious about
expanding in the face of increasing industry competition. As logistics space is
extremely limited in West Shanghai, an increasing number of potential tenants are
considering alternatives such as Jiaxing, Taicang and Kunshan where there is more
new supply and lower rents. For example, a consumer products company leased
approximately 20,000 sqm in Taicang this quarter because of a shortage of
single-floor space in Shanghai. Leasing demand near Pudong International Airport
remained stable as logistics companies handling imports and exports sought space
there. Deppon Express expanded by 10,000 sqm in GLP Park PVG, doubling its space
in the property. Falling vacancy near Pudong International Airport helped lower the
overall non-bonded vacancy rate to 5.9% from 6.5% in 4Q11. The bonded market saw
no transactions this quarter, leaving the vacancy rate unchanged at 22.0%.
Asset Performance
Average non-bonded rents rose by 0.6% q-o-q to RMB 1.14 per sqm per day.
Continued enquiries in West Shanghai led landlords there to raise rent expectations
this quarter. In non-bonded projects in Pudong, rents remained flat in spite of the
leasing activity and falling vacancy. Bonded rents remained flat at RMB 1.06 per sqm
per day. Less vacant space and stronger demand allowed Waigaoqiao to maintain
significantly higher rents compared with Lingang.
6.0
5.0
4.0
3.0
2.0
1Q07
1Q08
1Q09
1Q10
TEUs shipped per quarter
1Q11
1Q12
1Q11
1Q12
Source: Government Statistics Bureau
Freight Traffic Volume
260
Supply
240
Metric Tons (Million)
The 45,000-sqm Blogis Park Songjiang Phase I was completed in the non-bonded
market in 1Q12. It was fully committed before completion. There were no new
completions in the bonded market for the 13th consecutive quarter in light of limited
demand.
7.0
220
200
180
160
140
1Q07
1Q08
1Q09
Freight Volume
1Q10
Source: Government Statistics Bureau
12-Month Outlook
Rental Information
Rental Value^
RMB 1.12 psm per day
Stage in Cycle
Rents rising
Last Trough
9
^ gross, on GFA
12-Month Outlook
Rental Value
Note: Shanghai Industrial refers to Shanghai’s Industrial Logistics market.
Capital Value
Shanghai: Industrial
New non-bonded supply this year will be limited compared to the past three years,
meaning that competition for space will be intense. Although developers have nonbinding agreements with the local government to build logistics projects in Shanghai,
land allocation is currently being prioritised for other land usage types. As a result,
quite a few projects have been postponed to 2013 and only two new logistics projects
are scheduled for delivery this year. Landlords therefore expect continued growth in
non-bonded rents. Tenants are less sanguine about prospects for the world economy,
however, and anticipate a slowdown in rental growth. Given such contradictory
expectations, both sides prefer shorter tenancy agreements of about two years rather
than the typical three. Moving forward, increasing scarcity of supply in West Shanghai
will lead tenants who may have preferred Shanghai to seek space instead in regions
to Shanghai’s west that have similar accessibility to the Yangtze River Delta. Many
tenants have expressed particular interest in Kunshan and Jiaxing, where both current
and future supply is substantial.
Guangzhou: Industrial
• Leasing demand weakens as the global economy cools down
• No new completions in the quarter
• Rents increase marginally for both business parks and warehouses
F.D.I. Contracts
350
325
Demand
300
During the first two months of 2012, both industrial output and exports suffered a
significant setback, with exports edging down by 0.2% y-o-y and industrial output value
(large-scale enterprises) slowing by 12.5 percentage points to 2.5% y-o-y. Despite this,
the overall vacancy rate in the warehouse market continued to tighten, reaching 5.3%
in 1Q12. Backed by strong sales, retailers continued to dominate the non-bonded
warehouse property market. Demand from other warehouse users, however, remained
subdued.
Number
275
250
225
200
175
150
4Q06
4Q07
4Q08
4Q09
4Q10
4Q11
FDI contracts signed per quarter
Source: Guangzhou Statistical Bureau
Supply
Utilised F.D.I.
There were no new completions in either the warehouse or business park markets in
1Q12. In the business park market, Shilian Science & Technology Park (27,800 sqm)
in Science City will complete in 2Q12. Construction on the Ascendas Park (400,000
sqm), developed by Ascendas in Sino-Singapore Guangzhou Knowledge City in
Luogang District, commenced in 1Q12 and phase 1 is scheduled for completion in
2016.
12
10
Billion RMB
8
6
In addition, a 140,000-sqm non-bonded warehouse facility in the Guangzhou
International Airport R&F Integrated Logistics Park in Huadu District is due for
completion in 2Q12.
4
2
0
4Q06
In the business park market, demand from domestic high-tech enterprises, which
traditionally favour self-built office accommodation, continued to drive market activity.
In 1Q12, the joint venture between the High & New Tech Industries Group and
Southernpec Corporation (Guangzhou) signed an agreement with Tianhe Software
Park to establish High & New Industries Park (73,428 sqm) for self-use.
Asset Performance
4Q07
4Q08
4Q09
4Q10
4Q11
Utilised FDI per quarter
Source: Guangzhou Statistical Bureau
Weakening demand driven by slowing economic growth caused rents for warehouse
properties to remain broadly steady, edging up by just 0.1% q-o-q to an average of
RMB 344 per sqm per annum in 1Q12.
Similarly, the business park market saw only marginal movement in rents in 1Q12, up
by 0.8% q-o-q to RMB 679 per sqm per annum.
12-Month Outlook
Guangzhou: Industrial
Rental Information
Rental Value^
RMB 679 psm pa
Stage in Cycle
Rents rising
Last Trough
12
We believe that demand in the business park market will gain momentum on the back
of government incentives which are expected to encourage large-scale high-tech
enterprises to establish R&D centres in Guangzhou. Demand will be focused primarily
in business parks with high levels of new supply, such as Tianhe Wisdom City and
Sino-Singapore Guangzhou Knowledge City.
^ net, on GFA
12-Month Outlook
Rental Value
Capital Value
The combined effects of subdued global demand and a slowing domestic economy
point to weaker demand in both the warehouse and the business park markets.
However, we remain cautiously optimistic about the warehouse market as it will be
supported by strong retail sales over the next 12 months. Leasing demand in the nonbonded warehouse market is predicted to rise, while interest in the bonded market will
remain subdued. In addition, the increase in new supply of overall warehouse space,
amounting to 540,000 sqm in 2012, will put upward pressure on the city-wide vacancy
rate in the coming year.
NA
Note: Guangzhou Industrial refers to Guangzhou’s Warehouse and Business Park markets.
Hong Kong: Industrial
• Market sentiment improves despite weak trade data
• Goodman’s 2.4 million sq ft development completes
• Renewed investor appetite for risk lends support to capital values
Financial Indices
150
140
Despite recording a notable pick-up in 4Q11, Hong Kong’s external trading sector
is expected to post only modest gains in 2012. The total value of exports in 1Q12
contracted by 1.5% y-o-y. Air-freight cargo volumes also contracted, down by 1.5%
y-o-y over the same period.
130
Sentiment in the leasing market, nevertheless, continued to show improvement,
buoyed by signs of improvement in the global economy and especially from the
encouraging economic data coming out of the US. 3PLs were among the most
active user group in the leasing market. Schenker International, Yamato International
Logistics and Bonway Onza Logistics Godown all expanded their warehouse
operations during the quarter. The contraction in air-freight cargo volumes, however,
provided little support for ramp access properties with low floor-usage efficiency;
typically affordable only to high margin users such as air-freight logistics operators.
A notable pick-up in investment activity was recorded in 1Q12. Industrial property fund,
Goodman, increased its stake in Dynamic Cargo Centre in Tsuen Wan to about 90%
after acquiring the lower floors from Nippon Express for HKD 180 million while Yusen
Logistics acquired several low floor properties in Ever Gain Centre and Ever Gain
Building, in Tsuen Wan and Shatin, respectively, for a combined HKD 62.7 million.
Index
Demand
110
100
90
4Q07
China Merchants won the bidding for a logistics development site in Tsing Yi
(TYTL181) through a Government tender for HKD 1.28 billion. Conditions of sale
stipulate that the 258,300 sq ft site, which has a maximum developable GFA of
1.05 million sq ft, be fully developed by no later than 30th June 2018.
Asset Performance
The accumulation of shadow space in the market, which was close to 1 million sq ft at
end-1Q12, had little impact on the rental strategy of landlords, who continued to set
rents against the prevailing low vacancy rate environment; pushing rents up by 2.2%
q-o-q in 1Q12.
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Physical Indicators
250
200
Thousand sqm
Supply
Interlink, Goodman’s 2.4-million sq ft warehouse development in Tsing Yi was issued
with its occupation permit in January 2012. The warehouse, which is the largest
completed in the market over the past ten years, was close to being fully let upon
completion.
120
150
100
50
0
07
08
09
10
Completions
11
12F
Future Supply
Rising rentals and renewed investor appetite for risk continued to exert pressure on
market yields and provide support to capital values, which also grew 2.2% q-o-q in
1Q12.
Improving sentiment among tenants along with expectations of modest growth in
the external trading sector is expected to reduce the pressure on vacancy rates.
Notwithstanding, the accumulation of shadow space in the market will continue to
put some downward pressure on rents as we move forward. Against this backdrop
we have now revised our full-year rental forecast for 2012 and now expect rentals to
contract by a relatively milder 0–5%.
Rental Information
Rental Value^
HKD 8.6 psf pm
Stage in Cycle
Rents peaked
Last Trough
9
^ net, on GFA
12-Month Outlook
Rental Value
Note: Hong Kong Industrial refers to Hong Kong’s Industrial Warehouse market.
Capital Value
Hong Kong: Industrial
12-Month Outlook
Taipei: Industrial
• Leasing demand continues to soften
• Effective rents fall as tenants remain cautious
• Investment activity is mainly from individuals and owner occupiers
Financial Indices
160
140
Demand
Global economic uncertainties had an impact on the high-tech industry, especially
in the technology corporation cluster in the Neuhu Technology Park (NHTP). Fewer
than expected new orders and an adjustment in the business strategy of international
computer brands also had an effect on the business development of Taiwan’s OEM
corporations. Since 3Q11, a number of high-tech companies have decided to close
some of their business lines in the park, returning their space.
Index
120
100
80
60
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Although demand from IT-related corporations has weakened, relatively low rents
are attracting corporations that do not require prime locations in the CBD, but do
need proximity to public transportation. For example, the consumer product industry
has the budget to rent Grade B office space in the CBD, but is willing to relocate to
quality space in NHTP. However, demand from other industries is still much lower than
from the IT industry compared to a year ago, and demand for industrial office space
continues to fall.
Supply
No new supply was added to the Neihu market in 1Q12.
Asset Performance
Since the Luxury Tax came into effect on 1 July 2011, transactions of investment-grade
commercial property in the NHTP have dropped significantly. The foreclosure of the
3,600-ping Yahsin Technology Building has been suspended several times, and the
tender for the 7,000-ping E-TEN Information Systems Building failed in the first round
before being sold after negotiations to Delta Electronics Inc. for NTD 2.53 billion. There
are also some properties for sale in the fifth phase of Neihu land adjustment sector,
including the Huaku V Park, comprising 20,903 ping of space over three properties.
The weak outlook for rents and a pricing mismatch between buyers and sellers caused
investors to look to either strata-titled or en bloc quality property in the CBD. Therefore,
investment in the NHTP has been replaced by owner-occupiers. For example, in
1Q12, TransAsia Airways purchased the 1,197-ping Jiuzhon Building for NTD 0.7 billion
and made it the company’s new headquarters in Taiwan.
12-Month Outlook
Due to existing uncertainty among enterprises concerning the short-term outlook for
the economy, rents in the specifically IT-related NHTP are unlikely to rise over the next
few quarters as demand from high-tech corporations continues to shrink.
Taipei: Industrial
Rental Information
Rental Value^
NTD 800–1,200 per
ping per month
Stage in Cycle
Rents stable
Last Peak
4
Given the fact that most en bloc properties for sale are newly built and vacant,
insurance companies, the main player in the investment market, are unlikely to
increase their presence in the NHTP, not least as the Financial Supervisory Committee
has set limits on their property investment, namely that the property must be incomeproducing and must have a current capitalisation rate of above 1.875%. As a result,
we believe that the NHTP investment market will remain similar to last year, with
investment coming mainly from individuals and owner-occupiers.
^ on GFA
12-Month Outlook
Rental Value
Capital Value
Note: Taipei Industrial refers to Taipei’s Neihu Technology Park.
Singapore: Industrial
Financial Indices
180
160
Demand
Leasing demand for space within business parks, however, remained resilient,
supported by the high quality of the buildings and lower rentals compared to prime
office space. Net absorption in 1Q12 stood at 13,000 sqm, marginally lower than the
net absorption seen in 4Q11, with transaction activity primarily within Changi Business
Park.
Supply
Index
Latest data released by the Economic Development Board showed manufacturing
output rebounded in February by 12.1% y-o-y, with all sectors posting growth except
electronics and chemicals. However, on a m-o-m basis, output contracted a seasonally
adjusted 1.1% in February. On the back of a 30.5% rise in February’s non-oil
domestic exports (NODX), output contraction indicates uncertainties in demand for
manufacturing goods, leaving the economy vulnerable. The monthly contraction also
poses a worry as the factory shutdowns for the Chinese New Year in January likely
formed a lower base.
140
120
100
80
60
40
4Q07
4Q08
4Q09
4Q10
Rental Value Index
4Q11
4Q12
Capital Value Index
Physical Indicators
25
200
20
Four new completions are expected in 2012 which comprise the upcoming UE Bizhub
East (expected TOP in 2Q12), One @ Changi City, Infinite Studios @ Mediapolis and
Fusionopolis Phase 2A. These developments will add around 191,000 sqm of new
business park space, with Infinite Studios and Fusionopolis located in the one-north
western region and the other two within the eastern Changi Business Park.
150
15
100
10
50
5
0
0
Asset Performance
Effective rents for high-tech space continued their second quarter of decline in 1Q12,
as the weaker external business environment amidst uncertain global economic
conditions caused tenants to remain cautious with their expansionary plans.
Despite declining rents, indicative capital values for high-tech space rose 5.0% to
a new record high of SGD 6,157 per sqm in 1Q12, the eighth consecutive quarterly
growth since 1Q10. The higher yields and minimal government restrictions offered by
the industrial market are factors that supported the continued growth in capital values.
Ascendas REIT further enhanced its portfolio through the acquisition of Cintech I to
IV for SGD 183.0 million, bringing its list of properties within Science Park to nine
buildings.
12-Month Outlook
Rising oil prices, tepid growth and uncertain global economic conditions are factors
expected to push companies into taking a more cautionary attitude. Companies are
likely to consolidate operations and manage costs more efficiently, with some shelving
expansion plans. As a result, rents could ease further as demand for hi-tech space
declines.
With the government keeping a closer watch on leasing activities especially to
unauthorised tenants who have been inflating industrial demand, the subsequent
expected decrease in occupancy could see average capital values easing in the latter
half of the year as investors re-evaluate their investment returns from industrial assets.
Note: Singapore Industrial refers to Singapore’s Island-wide Business Park market.
Thousand sqm
250
–50
07
08
09
10
Take Up (net)
Future Supply
11
12F
Percent
CleanTech One, the first building in CleanTech Park, was completed this quarter,
providing tenants with around 14,000 sqm of space with a focus on the research and
development of sustainable green resources.
–5
Completions
Vacancy Rate
Rental Information
Rental Value^
SGD 308 psm pa
Stage in Cycle
Rents falling
Last Peak
2
12-Month Outlook
Rental Value
Capital Value
Singapore: Industrial
• Leasing demand remains resilient
• Effective rents ease further due to a slower business environment
• Indicative capital values reach a new high with minimal sector restrictions
Sydney: Industrial
• Tenant demand steadies
• Rents increase modestly and are forecast to grow in line with inflation
• Investment activity is solid and yields are stable
Financial Indices
110
Demand
Index
100
90
80
70
4Q07
4Q08
4Q09
Rental Value Index
4Q10
4Q11
4Q12
Capital Value Index
Financial Indicators are for Outer Central West.
Activity in the first quarter of each calendar year is typically slower than the following
quarters. Approximately 88,400 sqm of gross take-up was recorded in 1Q12. However,
given that only 40,600 sqm of gross take-up was recorded in 4Q11 it is evident that
demand is subdued. Anecdotal evidence suggests occupiers are cautious about
the economy and tenant enquiry reflects this. There has been a lack of major prelease activity – although a number of smaller pre-lease deals were completed, which
indicates smaller occupiers are focusing on growth and efficiency.
The majority of leasing activity was focused on the Outer Central West precinct of
Sydney. Approximately 80% of major tenant moves were for transport and storage or
logistics companies. This was to be expected following expansionary pre-lease deals
made by major retailers in the Outer West precincts throughout 2010.
Supply
400
Approximately 210,400 sqm of new stock completed in 1Q12, almost all of it in western
Sydney. This high level of supply in one quarter reflects the very large pre-lease
projects that began construction in 2010 and 2011. A further 329,700 sqm of space is
under construction for 2012 completion and 52,200 sqm is in the planning stages. New
supply in 2012 should end up around the ten year annual average of 553,900 sqm
after having been well below average over the previous three years. However, this is
a temporary blip and construction momentum is likely to slow somewhat, as no new
projects are under construction for 2013 and only 274,200 sqm is in planning stages.
200
Asset Performance
Physical Indicators
1,000
Thousand sqm
800
600
0
07
08
09
10
Take Up (gross)
Future Supply
11
12F
Completions
For 2007 to 2011, take-up and completions are year
end annual. For 2012, take up and completions are as
at 1Q12, while future supply is from 2Q12 to 4Q12.
Market rents have been growing broadly since early 2010 and have more recently
accelerated in the Outer West precincts as prime grade existing warehouse vacancies
have been tight and the pre-lease market remains prohibitive to some occupiers.
There has been a steady volume of sales in Sydney’s industrial market, with AUD
173.5 million of sales recorded, well up on the equivalent quarterly period of any year
since 2008. Of note was the sale of Stockland’s interest in the SIMTA Moorebank
Inland Terminal Development to existing partners in the project Qube Logistics
Holdings and QR National for AUD 123.0 million.
12-Month Outlook
Rental Information
Sydney: Industrial
Rental growth was broad based in the year to 1Q12, though growth rates varied
significantly between sub-precincts. Annual growth in prime net face existing market
rents was 5.4% in the Outer Central West, 3.0% in the North, 2.4% in the Outer South
West, 1.7% in the Outer North West, 1.6% in the Inner West and 1.5% in the South.
Rental Value^
AUD 110 psm pa
Stage in Cycle
Rents rising
Last Trough
7
^ net, on GFA
Tenant demand is expected to remain below average for the next 12 months. New
supply will largely be driven by projects already under construction or new pre-lease
deals. Tight supply and demand conditions could encourage developers to start new
speculative projects as the rental price gathers pace. Rents for existing stock are
expected to grow around trend, though there is the possibility of higher growth should
demand prove stronger than expected.
12-Month Outlook
Rental Value
Capital Value
Note: Sydney Industrial refers to all grades of the Sydney industrial market.
Melbourne: Industrial
Financial Indices
110
Demand
Housing investment has slowed over the past 12 months after a construction boom
in the state in 2010/2011. Building approvals in Victoria are down 11.0% year-end,
seasonally adjusted, to February 2012. Deloitte Access Economics forecast private
sector housing investment in Victoria to decline by 5.7% in 2012. Weaker housing
investment will flow through to slower household goods spending growth and will offset
some of the gains made in the growth of container throughput.
There were four major deals in 1Q12 totalling 51,000 sqm. There remains a shortage
of quality space within existing stock. Of the space currently under construction, 81%
has been pre-leased.
Supply
Total new supply in 2011 reached 360,800 sqm. By comparison, there is only
272,500 sqm of stock expected to complete in 2012. Of this space, four projects
totalling 45,300 sqm reached completion in 1Q12.
Major projects expected to complete in 2012 include the Coles Distribution Facility
(70,000 sqm) at 485 Dohertys Road, Truganina and the Melbourne Fruit & Vegetable
Wholesale Market (60,000 sqm) in Epping.
There have been some noticeable pressure points in the market with a lack of large
quality options within industrial space. Speculative development was wound back in
late 2011 with large tenant requirements now driving most of the development. More
recently, signs have started to emerge that some of the larger developers are preparing
speculative developments following leasing success achieved last year.
Asset Performance
Rents were mostly unchanged in 1Q12 with only 1% growth in the South East to
AUD 81 per sqm per annum. Prime net existing rents for other markets remained at
AUD 69 per sqm per annum (West), AUD 66 per sqm per annum (North), and
AUD 121 per sqm per annum (City Fringe). Land values for an average standard
services allotment (2,000 sqm) during the quarter were also mostly unchanged. Tight
market conditions and steady expansions are placing upward pressure on rents. Prime
investment yields were unchanged in 1Q12 and range from 7.75% to 8.75% (West),
8.25% to 9.25% (North), 7.75% to 8.50% (South East) and 7.50% to 8.50% in the City
Fringe.
Index
100
95
90
4Q07
4Q08
4Q09
4Q10
4Q11
Financial Indicators are for South East Precinct.
Physical Indicators
1,000
800
600
400
200
0
07
08
09
10
Take Up (gross)
Future Supply
11
12F
Completions
end annual. For 2012, take up and completions are as
Rental Information
Rental Value^
AUD 69 psm pa
12-Month Outlook
Stage in Cycle
Rents stable
Whilst the macro environment remains patchy, the outlook in the industrial sector
remains sound. Occupancy rates as reported by A-REITs remain very high and
container trade continues to grow off the back of a high AUD. The lack of spare
capacity within existing stock is placing a growing requirement for new development.
Speculative projects are now being planned after a short period of inactivity. The bulk
of new development however, will remain pre-lease led over the next 12 months.
Last Trough
7
Note: Melbourne Industrial refers to all grades of the Melbourne industrial market.
4Q12
Rental Value Index
Thousand sqm
The lead indicators for the industrial sector remain mixed. Traffic through the Port of
Melbourne continues to perform well recording y-o-y growth in container throughput
of 6.6% to December 2011. Strong trade growth is supporting demand for industrial
space, which is being offset by continued weakness in the manufacturing sector as
well as weaker discretionary retail trade.
105
^ net, on GFA
12-Month Outlook
Rental Value
Capital Value
NA
Melbourne: Industrial
• Ten major projects are under construction totalling 241,500 sqm
• Rents are unchanged in all precincts except the South East
• There are four major transactions in 1Q12 totalling AUD 97.9 million
Perth: Industrial
• Strong demand continues from the transport and logistics sector
• Rents increase 6.7% in the last year
• Capital value growth outpaces rental growth
Financial Indices
Index
120
110
Demand
100
Gross take-up in 1Q12 was 60,900 sqm, contributing to a total for the last 12 months
of 299,500 sqm. The average level of take-up over the last ten years was 163,200 sqm,
which has been exceeded by 83%.
90
80
4Q07
4Q08
4Q09
4Q10
4Q11
4Q12
Rental Value Index
This demand coupled with a limited number of vacant facilities has seen an increasing
number of pre-leasing and design and construct leasing deals. In the past year, 19% of
the take-up has been from pre-leasing, and 23% from design and construct tenants.
Financial Indicators are for Outer Central West.
Supply
Physical Indicators
Supply has been at average levels in the past year, with 125,100 sqm of major
completions recorded. This did little to relieve pressure on a market at capacity, with
81% of the space pre-committed.
300
Thousand sqm
250
The supply pipeline is very limited, with 62,300 sqm of space under construction and
scheduled to complete in 2012. All of this supply has been pre-committed.
200
Developers are finding it difficult to fund projects without a significant level of precommitment. Tenants looking for large facilities have almost no options, and are forced
to pre-commit.
150
100
50
0
The robust level of take-up has been driven by tenants operating in the transport,
logistics and storage sectors, who have accounted for 52% of the gross take-up in the
past 12 months. The strength of these industries has been supported by the growth in
the resources sector. Manufacturing has also been a major contributor, accounting for
15% of the take-up.
Asset Performance
07
08
09
10
Take Up (gross)
Future Supply
11
12F
Completions
end annual. For 2012, take-up and completions are as
Rents were mostly stable in the March quarter. In the Eastern precinct, prime existing
rents increased by 1.6% in the quarter, and 4.6% over the last year. Yearly growth has
been led by the Southern precinct (7.9%) and the Northern precinct (7.5%).
Capital values have increased at a faster rate than rents, due to compressing yields.
In the Eastern precinct, capital values recorded 3.1% growth in the quarter and 6.1%
growth in the past year. Prime and secondary yields both compressed by 25 basis
points at the lower end. Prime yields now range from 7.75% to 8.25% and secondary
yields are now at 8.25% to 8.75%.
Sales activity has been strong in the past six months, including an AUD 61.5 million
sale recorded in 1Q12. This is the largest sale in the Perth industrial market since
November 2007.
12-Month Outlook
Perth: Industrial
Rental Information
Rental Value^
AUD 141 psm pa
Stage in Cycle
Rents rising
Last Trough
9
The market is expected to remain tight for tenants over the next 12 months. Demand
is likely to remain above average, along with gross take-up. This should see rents
increase at solid levels.
Demand for investment assets is expected to remain strong. The growth in rental
levels and lack of vacancies continue to make Perth assets attractive to investors.
^ net, on GFA
12-Month Outlook
Rental Value
Capital Value
NA
Note: Perth Industrial refers to all grades of the Perth industrial market.
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Asia Pacific

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