Decentralization continues to gather momentum in China
21 May 2012, Beijing– Office vacancy in Asia Pacific continued a slow decline in Q1 2012, however, this trend is likely to end in Q2, given slowing occupier demand and new supply coming online across the region, according to the latest Asia Pacific Office MarketView report published by CBRE, the world’s leading commercial real estate services firm.
The minor dip in overall office vacancy in Asia Pacific resulted from diverging performance in markets across the region. Nearly half the countries in Asia Pacific recorded a drop in vacancy, slightly offsetting those regions that experienced an increase in vacancy. In Asia, overall vacancy in Hong Kong, Shanghai and Beijing continued to decline, while Tokyo, Singapore, Kuala Lumpur and New Delhi all saw vacancy rise.
Demand for office space weakened further in Q1 2012, as corporates continued to seek opportunities to reduce real estate costs via consolidation and/or relocation. This trend is spurring the release of secondary space in a number of key markets, which will continue to exert pressure on vacancy. Demand for large floor plates also fell during the quarter, with most leasing deals completed over the period for smaller spaces. In terms of industry sector, financial institutions—particularly major international banks—remained generally inactive. Professional services including IT and consumption-related sectors accounted for the bulk of office leasing demand.
New supply anticipated to come online in 2012 will also put pressure on the overall vacancy rate. In Q1 2012, new office stock of 8.3 million sq. ft. was completed across Asia Pacific, 33% above the 10-year quarterly average. Completions are expected to exceed 45 million sq. ft. in 2012, a 30% rise year-on-year. It should be noted that the development pipeline for 2012-2013 as a proportion of current stock varies significantly per market, ranging from as high as 44% in New Delhi to virtually zero in Wellington and Bangkok. Tokyo, Seoul, Mumbai, Kuala Lumpur and Ho Chi Minh City will witness an increase in completions over 2012.
In China, a large volume of new supply is scheduled to be completed in Shanghai and Guangzhou in 2012, much of which will be located in decentralized areas, which may negatively impact rents for prime buildings in the respective CBDs.
With rents moderating amidst weaker demand and an abundance of new supply in select markets, two distinct trends are emerging: some occupiers are focusing on cost reduction/rationalization and moving to decentralized locations, while others are focusing on upgrading to higher quality/better located buildings in prime CBD areas.
Mark Latham, Executive Director of Office Services China, CBRE said: ―Beijing continued to see strong rental growth in Q1 2012, whilst lower than in 2011, resulting in rentals being significantly more expensive year on year in Beijing. The CBD and Finance Street in Beijing have become significantly more expensive than comparable areas in Shanghai due to strong demand and limited supply in Beijing. Rental growth in Shanghai was flat in Q1 2012, with Pudong showing the strongest rental growth in the city year on year. Premium grade buildings such as the new Jing’An Kerry Centre in Shanghai, continue to be in demand amidst generally slower market conditions. We expect rental growth to continue to slow in Q2, as result of weaker demand. Decentralization continues to gather momentum due to rising occupancy costs.‖
John Falkiner, Managing Director of Transaction Services, Asia for CBRE, commented: ―Looking at occupier demand, it is important to emphasize that while decision making is protracted it has not stalled. Balancing growth with cost and efficiency has always been, and will remain, a key consideration for multinational companies. Asia corporations remain aggressive in acquiring space in many Asia Pacific markets.‖
A combination of weakening demand and limited availability of development finance is slowing the pace of construction activity. Nevertheless, considerable new supply will still hit the market in 2012, which means newer and often better quality product for those occupiers looking to secure alternative space this year, ―said Dr. Nick Axford, Executive Director and Head of CBRE Research, Asia Pacific.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2011 revenue). The Company has approximately 34,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.