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Asia Pacific Office Market Outlook 2014

Asia Pacific Major Report | February 2014

The global economic recovery is underway but growth expectations in Asia Pacific are lower

  • The US is not expected to increase interest rates significantly this year
  • Tapering will be in sync with the economic recovery
  • Markets in Asia Pacific are currently in different interest rate cycles
  • The impact of tapering on the Asia Pacific property market will be limited this year but the risk of interest rate hikes will intensify beyond 2014

Office demand is set to rise

  • Office net absorption in Asia Pacific is expected to increase by 10% this year
  • Whilst we are positive on the growth plans, companies operations in Asia Pacific will have increased competition for CAPEX with those the US and Europe, and a need to balance cost, growth, and efficiency
  • Demand will not begin to pick up until the second half of the year
New supply pipeline is significant, mainly in emerging markets
  • The expected recovery in demand will not be strong enough to absorb new supply, particularly in emerging markets

Moderate rental growth expected

  • Office rents in Asia Pacific will grow 2.7% in 2014 – compared to flat growth over the past two years
  • Markets expected to see rental growth include Singapore, Auckland, Tokyo and Jakarta.
  • Markets expected to see a rental correction include Mumbai, Sydney, Melbourne and Shanghai
  • Turning points: Hyper growth period in Jakarta will end; Singapore and Tokyo are bottoming out; Seoul will approach the bottom of the market

Strong investment demand supported by excess liquidity

  • The diverging performance between the investment and occupier markets has mainly been due to the excess liquidity in the market.
  • However, the overflow of liquidity will gradually weaken in the medium term as the global economicrecovery continues and central banks move away from loose monetary policies.
  • Office capital values in Asia Pacific will grow in line / slower with rents and are expected to strengthen by 2.6% in 2014, slightly slower than the 2.8% growth in 2013

Yield decompression risk will increase

  • Yields are at historic lows
  • Singapore, Hong Kong and Taipei are among the highest risk markets
  • Other markets may see greater risk of yield decompression in 2015-2018

Stronger appetite for higher risk assets as investors look for better returns Investors will move up the risk curve in search of better returns. Areas of focus could include:

  • decentralised office assets, to capture the narrowing rental gap with core locations
  • offices in regional cities for higher yields
  • value-added opportunities in core areas
  • Build to core for long-term investors

Where are the investment hotspots?

  • Japan is expected to see strong activity but foreign investors will continue to encounter strong competition from domestic buyers; there will be opportunities for foreign funds to offload assets
  • New Zealand is becoming more attractive to investors (offers high yields and decent rental growth) but remains a small market
  • Singapore is expected to see strong occupier demand and rental growth but yield decompression riskwill limit value growth

Contacts


Henry Chin, Ph.D
Head of Research, Asia Pacific
+852 2820 8160
Email
  Ada Choi, CFA
Head of Capital Markets Research, Asia Pacific
+852 2820 2871
Email
  Cynthia Chan
Senior Analyst, Asia Pacific
+852 2820 2839
Email
         
Leo Chung, CFA
Senior Analyst, Asia Pacific
+852 2820 1527
Email
  John Falkiner
Managing Director
Transactions, Asia
+852 2820 2896
Email
  Phil Rowland
Managing Director
Global Corporate Services, Asia
+852 2820 8122
Email
         
Paul Hubbard Brown
Regional Director
Global Corporate Services, Hong Kong
+852 2820 2843
Email
  Greg Penn
Managing Director
Capital Markets, Asia
+852 2820 2857
Email
   
         


Infographic



Asia Pacific Office Market Outlook 2014