The office markets of Asia Pacific are currently divergent and this makes them interesting right now. However, it makes the job of forecasting them all the more difficult, and the relief on the faces of the team once we are done, all the more palpable.
On the rental front, at the moment we have office markets such as Shanghai, Hong Kong and Sydney outperforming, whilst Jakarta has just started a correction on the back of the commodities slump and a boom in new office supply. In Singapore it’s a similar story where a correction has been underway for some time.
We only provide forecasts to our paying clients, but I thought I’d give you a little peek at our outlook.
Over the next 5 years we expect supply booms in some key markets. Greater Shanghai and Jakarta will see almost 70-80% more new office stock hit the market, whilst in Hong Kong and Seoul, new supply will be restricted to no more than 10% of current stock.
Supply booms have a habit of weighing down on rents and capital values due to the cyclical nature of real estate. This is exacerbated by the lag between fundraising, planning and actual completion of projects. But, this is not a given. During the “Olympic” period, Beijing was under a period of massive supply. Despite vacancy briefly skyrocketing to close to 50%, tenants just gobbled up space. As a result, rents and capital values defied the logic of critics, and the market remained healthy.
We predict Shanghai will perform similarly well with rents and values well sustained in the main submarkets. We forecast rental growth in the CBD to perform similar to that of Sydney over the same period, up by around 30% by the end of 2020. Hong Kong will experience a cyclical correction over this period, but not deep, and by 2020 rents should be up on today’s levels. However, don’t expect double digit growth.
Due to developer’s current plans, and the more muted economic conditions from the commodities slump, expect Jakarta to see some rental correction from now until 2020. Tenants will have more favourable conditions and landlords will need to compete to lease existing and new space coming to the market.
On the investment horizon, Singapore is already experiencing a cyclical correction and we expect to see Hong Kong correct also, albeit far more mildly than we’ve seen so far in Singapore. However, by 2020, capital values should have corrected to levels just below or close to today’s. The picture is quite different in Shanghai CBD where we expect capital values up by well over 20% by 2020. Unless there are any major market shocks, we also expect Tokyo to continue to perform strongly off the back of the continued capital chasing this market. Jakarta may be challenged, but this could present a good opportunity for investors to get into, what has been to date, a very illiquid market.
For investors and occupiers, it’s not about comparing two points in time. Markets move through troughs and peaks and not in straight lines. It’s about understanding the ebbs and flows of the markets, or more importantly timing your entry and exits in those. As a result, there will undoubtedly be good opportunities in all of the markets I’ve just mentioned.
If you want to find out more, don’t hesitate to get in touch.
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