Comment by Jones Lang LaSalle: What are the China office rental trends?
The “Real Estate Office Rental Weather Map” from leading property consultancy Jones Lang LaSalle shows a bright outlook for investors in a number of office markets in Asia Pacific. Underpinned by the rising and stronger economic fundamentals, activity levels have been improving across some of Asia Pacific’s property markets in recent quarters. Tenants are taking up space, some markets are past the trough, and rents are rising. Over the short term, leasing continues to be driven by relocation and upgrading demand.
Dr Megan Walters, Head of Research for Asia Pacific Capital Markets at Jones Lang LaSalle, said, “Foreign and domestic investors looking to buy based on rising rental income have a choice of markets to consider, including Hong Kong, Singapore, Beijing, Shanghai, and Melbourne. Rents are likely to move upwards in these cities with capital values following in line over the next 12 months.” Over in South East Asia, Kuala Lumpur and Jakarta also have a sunny outlook on the map. Rental values in Beijing and Shanghai have rebounded strongly. The strong leasing momentum in the Pudong office market, for example, means that 60% of the future supply coming on stream for 2010 is already committed; meanwhile, Beijing absorbed about 530,000 sqm in 1Q10 alone, which is actually higher than the total absorption achieved for the whole of 2009 (415,000sqm ). In light of strong demand, landlords in Pudong are lifting their rental expectations and rents in Pudong are expected to rise 20% in 2010, hence the sunshine on the map. However, in Puxi, rents are not expected to go up significantly providing a relief for occupiers, and a slightly cloudy edge to the sunshine for Shanghai.
Meanwhile, Beijing’s Grade A office rents turned upwards this quarter driven by strong demand, especially from domestic owner-occupiers. This makes it quite difficult for international investors to source quality opportunities despite the strong supply and vacancy at 23.6 %, thus adding a hint of cloud to the sunshine for investors on the weather map. Hong Kong has a bright sun on the map as the pace of recovery in the Grade A office leasing market appears to be faster than expected. Demand has been driven by consolidation and from PRC companies looking to set up in Hong Kong. As rents climb and get closer to their pre-crisis levels, we might see companies become more cautious and the rental growth momentum slow down a little, moving the map back from bright sunshine to a sunny/cloudy combination. However, low vacancies and reduced pressure from expiring leases will tilt the balance toward the landlords and leave the market with limited rental downward pressure. David Hand, Head of China Investment at Jones Lang LaSalle, noted, “China’s key office markets, while not left unscathed in the aftermath of the global financial crisis, certainly demonstrated resilience and have returned to the path of strong rental growth remarkably quickly. Continued growth in demand from domestic companies as owner-occupiers and increasingly as tenants of Grade A office space represents a new twist to the long-established thinking on occupier and investor demand profiles. We expect sustained high-levels of activity among commercial occupiers and office investors Jones Lang LaSalle’s Real Estate Office Investors Weather Map as the global economy recovers, especially once the blanket negative sentiment overshadowing the residential sector, and indirectly the wider real estate market, abates.”