Hong Kong, 8 February 2021 – Colliers International (NASDAQ: CIGI; TSX: CIGI), leading diversified professional services and investment management firm, today released its Asia Pacific Property Markets: Themes for 2021 report. This report details prospects for the office and logistics & industrial sectors across the region in the light of likely recovery. In addition, it outlines four of the key themes that Colliers expects to drive APAC property markets over 2021 – China Plus One strategy, technology occupiers, flexible workspace, and sustainability – and assesses their implications for property occupiers and owners.
Andrew Haskins, Executive Director, Research, Asia, commented: “In aggregate, APAC office markets should see a strong pick-up in demand in 2021, but high supply and rising vacancy will pressure rents and limit price growth except in popular occupier locations like Singapore, Sydney, and Melbourne. Demand drivers for the logistics & industrial sector remain very firm, with most markets favouring landlords and rents steadily rising. The sector’s popularity with investors should rise further, with cap rates for logistics assets trending down over time, notably in China.”
APAC office markets to remain popular with investors
For 2021, Colliers expects aggregate net office leasing demand to rise 96% from last year’s weak level but sees new supply at 1.6x demand. This should depress rents by 6.1%. Rising vacancy is forecast to peak at about 15% at year-end 2023. High vacancy will be concentrated in China and India while vacancy will be lower in popular occupier locations like Singapore, Sydney, and Melbourne. Most APAC office markets should favour tenants over the next year, though some are showing signs of recovery. Offices remain popular with investors, who have ample unused capital to deploy. However, with demand and supply out of balance in many cities, office prices are unlikely to rise in the near term.
Most APAC logistics & industrial markets to favour landlords
The shift from physical to online retail has driven demand for logistics space, and COVID-19 has boosted e-commerce volumes. Expansion in cold chain, new warehouse designs and new infrastructure projects should fuel demand further. Most APAC markets now favour landlords and rents should pick up in the big Chinese cities in 2021, with 3.0% growth in Shanghai. Higher incentives had made Sydney and Melbourne favour tenants, but with firm demand effective rents should rise 1.0-2.5% this year. The sector’s popularity with investors should also rise further while cap rates for Chinese logistics assets could fall below office cap rates within a few years.
“China Plus One” strategy will be adopted to mitigate risk
China’s huge domestic market and high long-term growth prospects provide sufficient enticement for large multinational companies (MNCs) to operate and expand within the country. Nevertheless, as a consequence of the trade war and the COVID-19 recession, many MNCs in APAC have realised that they cannot base their operations solely in China and some big industrial groups have “reshored” some production or adopted a supplementary presence in another country – a “China Plus One” strategy. Colliers expects the “China Plus One” trend to boost demand for logistics & industrial and to a lesser extent office space in markets like Japan (especially greater Tokyo), Taiwan, Vietnam and India. Moreover, various governments are encouraging occupiers to adopt “China Plus One” strategies by new legislation, tax and production-based incentives. Finally, Chinese technology groups are also expanding by outward investment and M&A and will start to compete with MNCs for labour and space.
Asian technology companies led by Chinese groups will dominate office leasing demand
Colliers expects Asian technology occupiers, led by expanding large Chinese groups, to dominate office leasing markets in 2021 and coming years, helping determine rents, incentives and deal structures. Chinese technology companies such as Alibaba, Tencent, Meituan, JD.com, Baidu, and Xiaomi are some of APAC’s fastest expanding groups, currently occupying 2.0mn sq metres of office space for company HQ purposes, and representing 10% of prime office stock in key Chinese urban markets. Using the growth of these companies as a yardstick, Colliers estimates regional technology occupiers will account for 20-25% of office leasing demand across APAC over 2020-2025, creating new benchmarks for space, talent and the workplace across the region. Colliers also sees a preference among investors for key technology locations such as Sydney, Melbourne, Singapore, Bengaluru and Hyderabad, and expects landlords to focus on technology occupiers.
Flexible workspace shift outside CBDs likely to continue
Colliers expects occupiers to use flexible workspace for short-term leases and expansion opportunities in 2021 as they seek to avoid capital expenditure; it also anticipates partnerships between occupiers and operators as the former begin to reduce excess space from their portfolios. Especially in Asia, it is expected that occupiers will look outside traditional business districts and implement hub-and-spoke models with space closer to residential areas. Flexible workspace can help meet this need, and so it is likely that flexible workspace operators will seek off-CBD opportunities. Many APAC centres, e.g. Beijing, Shanghai, Seoul, Sydney, Auckland and all Indian major cities, have office districts on the fringes, which are increasingly viable as business locations. For owners, this implies that prices of decentralised and business park office assets may stay firmer than prices of CBD office assets.
Sustainability set to be a key consideration for occupiers and owners in the future
Sustainability will start to drive property leasing and investment decisions, as most APAC nations adopt ambitious long-term carbon neutrality goals, together with the US. National governments in the APAC region are increasingly setting sustainability guidelines for the property and construction sectors; moreover, of the global Fortune 500 companies, 23% target carbon neutrality by 2030, although the proportion is lower in APAC. Looking ahead, Colliers expects large occupiers to conduct portfolio reviews to understand which buildings do not match carbon neutrality targets and to determine an action plan, and Colliers believes all new sites for expansion will require sustainability certifications. While property owners may incur retrofitting costs in meeting sustainability guidelines, green buildings offer measurable benefits to both occupiers and investors. It is likely that environmental, social and governance (ESG) criteria will start spreading in property markets, and that new developments will focus on sustainability credentials.
Download the Asia Pacific Property Markets: Themes for 2021 report.