28 August 2012

Amidst challenging macroeconomic conditions in Asia Pacific - which saw reducing growth rates and price inflation in most countries - 2Q 2012 saw a slowdown in the region’s office rent growth brought about by the negative spillover effect, according to Colliers International’s Asia Pacific Office Market Overview 2Q 2012.

Commenting on the decline, Mark Lampard, Managing Director of Corporate Solutions, Asia Pacific at Colliers International said that although office leasing enquiries remained steady in 2Q 2012, occupation cost continued to be a lingering concern in tenant decision subsequently causing pressure on office rents in the region.

“There is no doubt that the rental market has been affected by the various gloomy external factors, however despite this unsettled backdrop, the Asia Pacific office leasing market was still active especially with enquiries from firms in the finance and IT industries,” added Lampard.

The average office rent in the region edged down by 0.1% quarter-on-quarter (QoQ) during 2Q 2012, representing the first dip since 1Q 2010. The marginal drop could be attributed to the rental correction of 2% to 3% in individual markets such as Hong Kong and Singapore while most cities in China and Australia still saw positive office rental growth during the quarter.

Despite the slight downward adjustment in rents, office prices in Asia Pacific resisted the downtrend and registered a mild growth of 0.4% QoQ in 2Q 2012. This led to slight compression of the overall investment yields during the quarter.

Lampard noted that although interest rates continued to stay low, access to real estate financing remained the common challenge for many prospective buyers in Asia Pacific. “Two notable exceptions are China - where owner/occupiers remained active - and Sydney, which saw an increase in investment activity.”

Looking forward, as firms press forward in their consolidation and cost reduction strategies, leasing activities in Asia Pacific are expected to hold its fort. Office rent, while expected to also hold firm, will come under downward pressure if the economic environment in the Eurozone deteriorates further.