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News Release

Shanghai

Jones Lang LaSalle’s Asia Pacific Property Digest highlights continuing improvements in market fundamentals across Asia Pacific

The take up of office space is strengthening, with rents on the upswing


Property market fundamentals in Asia Pacific improved further in 3Q10, buoyed by solid economic growth and high confidence levels, according to the recent Asia Pacific Property Digest released by Jones Lang LaSalle. Take up of space continues to strengthen and more markets have moved to the upturn phase of the rental cycle. Likewise, investment volumes are picking up and capital values are increasing in most markets.

With the regional economy performing solidly, it is rapidly outpacing world growth. Consumer spending remains strong in most countries, underpinned by improving consumer confidence and employment growth. According to the Nielsen Global Consumer Confidence survey released in October, nine of the top 10 most optimistic nations globally in 3Q10 came from Asia Pacific.

Jane Murray, Head of Asia Pacific Research says, “property market fundamentals continue to improve across Asia Pacific, underpinned by stronger economic conditions and business confidence. Take up of space is strengthening and in some markets corporate occupiers are finding that space is in short supply. As a consequence, the leasing market is turning more in favour of landlords and more markets have moved to the upturn phase of the rental cycle. Capital values started to recover earlier than rentals and have now bottomed in most markets. Investment activity strengthened in the third quarter, and we expect volumes to pick up further going forward.”

As more markets enter a cyclical rental upswing, the aggregate net absorption of office space across Asia Pacific’s Tier I cities increased by 27% q-o-q to 1.5 million sqm in 3Q10. New supply additions amounted to 1.3 million sqm, a 12% increase on the previous quarter. In the major financial centres, Hong Kong and Singapore both recorded strong net take-up of office space, while contraction in space came to an end in Tokyo. Relocation and upgrading demand continue to underpin the bulk of the take-up, though there are more instances of expansion in markets such as Hong Kong, Singapore and the Tier I cities of China and India.

Rents are now increasing across many office markets in the region, with residual declines in a few centres including Seoul, Taipei and some South East Asian locations. In 3Q10, net effective rentals in Tokyo increased for the first time since 1Q08 (+3.7% q-o-q), due to shorter rent-free periods. Net effective rents strengthened the most during the quarter in Singapore (+10.9% q-o-q in Raffles Place) and Beijing (+10.9% in the CBD), closely followed by Hong Kong (+8.6% in Central). Rents were flat or fell moderately in most major Australian cities during 3Q10, though rents in Melbourne have been rising for three successive quarters.

Looking forward, rents are likely to rise the fastest in Hong Kong and Singapore during 2011, with increases of between 15 and 25%. Rental growth is expected to pick up in Tokyo, while growth momentum in China’s Tier I cities is likely to slow from the hectic pace of recent quarters.

Leasing In demand strengthened in the luxury and high-end residential markets in Q3, especially in Greater China and Singapore, but remained subdued in most South East Asian markets. Luxury rents in Hong Kong saw the biggest increase (+4.0% q-o-q), while rents in Singapore and Chinese Tier I cities generally rose by about 2% q-o-q. With corporate expansion resuming and an increasing number of expatriates in markets such as Greater China and Singapore, luxury rentals have entered a cyclical upswing with single digit growth expected for most markets over the next 12 months. Hong Kong and Singapore are likely to see even stronger growth.

Capital values and investment activity both move upward as the investment market continues to strengthen, underpinned by more buoyant investor confidence. Direct commercial property transaction volumes for Asia Pacific amounted to USD 18.2 billion in 3Q10, an increase of 14% q-o-q. Japan, the region’s largest investment market, accounted for close to 30% of total volumes, followed by Australia, Singapore and Hong Kong. The standout performer during the quarter was Singapore which recorded a 360% quarterly increase in investment volumes, largely due to several large office transactions.

Intra-Asian and domestic investors continue to fuel transactions across the region, though inter-regional investors have started to become more active. With further improvements in market fundamentals, we expect aggregate investment volumes for 2010 as a whole to increase by around 15% for the full year compared with 2009.
The market is expected to improve further, with property market fundamentals in Asia Pacific gaining speed. Looking forward, capital values are expected to grow largely in line with rentals in 2011 as investors have already priced in strong future rental growth. With further strengthening in leasing demand, we expect rental growth to pick up in many markets in 2011, with growth in laggard markets accelerating from 2012 onwards.