The FINANCIAL -- Asia Pacific’s office property markets are expected to stay strong in 2018, driven by healthy levels in office occupancy and rent growth as new supply peaks during the year, according to Cushman & Wakefield’s 2018 Asia Pacific Forecast.
The synchronized global recovery is likely to favour the region’s most connected financial and business gateway cities. Banks today remain better-positioned than they have been in a long time, with higher profitability and earnings growth amid better economies, more constructive regulatory environments, and further rate hikes on the horizon. Rallying stock prices on the region’s exchanges are also boosting sentiment.
Office rents in the region’s gateway cities of Singapore and Hong Kong will continue to live up to their pricey reputation. Occupier demand accelerated in many markets, with office absorption levels across the region posting their highest levels in 2017, as a solid economic backdrop generates broad-based employment annual gains of nearly one million. While central banks will begin normalizing monetary policy, the low inflation environment will continue to sustain the strength of the property markets in the region.
Sigrid Zialcita, Managing Director, Research, Asia Pacific said, “The best is yet to come for the office leasing market. Conditions have not looked this good since the spurt in the aftermath of the financial crisis and we are seeing occupier markets stage their own synchronized recovery. The region will continue to benefit from the global rebound in terms of increased demand and reform agendas. As such, take-up levels across the major cities that we track in Asia Pacific is set to surge to their highest levels in 2018, at 120 million square feet (msf).”
In Singapore, rent recovery is set to gain traction as its supply pipeline begins to moderate in 2018. Coupled with the strengthening of the Singapore economy and business confidence, the pace of rental growth will accelerate the fastest in the region at approximately 10%.
“With rents in Singapore playing catch-up after more than two years in a downtrend, this will erode some of the cost competitiveness created between itself and Hong Kong. Still, the average premium commanded by Hong Kong’s core Greater Central market over the Singapore’s CBD areas remains hefty at an estimated 164% in 2018. This differential is expected to be sustained in the short term as rental trends in both these markets are unlikely to diverge in the next two years,” said Miss Zialcita.
Hong Kong’s Greater Central office property prices and rents continued to climb in 2017, and such upward momentum is expected to extend into 2018. Demand from Chinese corporates will remain the growth engine. Many of the Mainland Chinese firms are less sensitive to the high office rents, especially with their desire for a prestigious Central location.
“Hong Kong’s transactions market has been surging with record amounts paid for a commercial land plot and an office tower in 2017, setting benchmarks for future leases. Hong Kong will continue to retain its position as a premium office location for some time. However, in view of the rising decentralization trend, we believe landlords in Greater Central are more open to commence early rental renewal/restructure discussions with anchor tenants ahead of their lease expiries,” noted Miss Zialcita.
Australia’s major markets, Sydney and Melbourne, will also report record rents in 2018 with vacancies among the lowest in the region. Their fundamentals will remain solid due to high occupier demand and limited supply completions in 2018.
Even in Tokyo, where incoming new supply is expected to upend the rental-growth story over the last five years, any rent decline, however, is expected to be modest.
The region’s emerging markets are also looking up, with major markets in Vietnam continuing to command the highest rents. The office sector in Ho Chi Minh City will see its vacancy rate fall to ultra-low levels, pushing rents to heights not seen since 2009, and we estimate that this could spell an increase of up to 20% for some Grade A properties in 2018.