Colliers International, Asia Pacific

Further Weakening in Fundamentals & Little Prospect of Recovery until Early 2010 

Hong Kong again took the top spot in the ranking of highest occupancy costs within both the region and the world, according to the latest Global Office Real Estate Mid-Year Review published by Colliers International.  Its average occupancy cost stood at USD138 per sq ft per year, which represented a 35% year-on-year (YoY) drop in rentals.

Class A Office Gross Rent (USD per sq ft per year) – Top 5 Cities

The global report, featuring 170 office markets across the globe, states that all regions of the world are now experiencing recession or recessionary like conditions and as a result demand for office space is substantially reduced.  A year ago, only major financial centers were reporting slug¬gish leasing activity.  However, such weakness has spread to all continents and almost all countries over the past twelve months. All regions reported higher vacancies and most reported falling rents. The outlook for 2009 is for a further weakening in fundamentals, with little prospect of recovery until early next year.

Hong Kong
Despite seeing a double-digit rental fall similar to the other office markets in the global top 5 ranking, Hong Kong’s Grade A office rentals sustained its top position worldwide. The rentals were 10% higher than that of London –West End, which took the 2nd spot in the list. 

"Signs of stabilization are noticed in mid-2009," said Simon Lo, Director of Research & Advisory, Hong Kong.  "Individual hedge funds and legal companies start to look for office spaces in prime quality buildings in CBD, serving as a positive support in the local market."

Asia Pacific
Following Hong Kong, Tokyo – Central Wards, with a YoY fall of 21% to stand at USD101.57 per sq ft per year, ranked second in Asia Pacific, third in the world.  Mumbai took the third spot in the region (12th spot worldwide) with rentals at USD67.84 per sq ft per year.   Singapore, which ranked third in the region, 7th worldwide in June 2008, had a YoY rental fall of 56% to stand at US$55.53 per sq ft per year, taking the 26th spot in the world.

"The region's vacancy rate increased by 278 basis points to 11.4%, back to the level experienced in 2005," said Piers Brunner, Chief Operating Officer, Asia.  "Meanwhile, office rentals declined broadly, registering a fall of 11.8% on average in the region over the past year.  Sizeable declines were witnessed in all the Indian markets as well as Singapore, Hong Kong, Beijing, Taipei, Tokyo and most Australian cities."

"On the demand side, the region is split with China, India and Indonesia in particular continuing to register positive growth rates, while Hong Kong, Japan, New Zealand, Malaysia, South Korea, Singapore and Taiwan are all expected to see their respective economies contract in 2009," added Piers.

Meanwhile, the region was characterized with high levels of office construction.  For example, office construction currently underway in Beijing, Guangzhou, Shanghai and Singapore totals 86.3 million sq ft.

North America
The US office markets were bearish in the first half of 2009 as companies gave back space and economic conditions worsened.  The overall vacancy rate increased 1.5 percentage points to average 15.5%, while office rentals in downtown dropped 10.3%.  Midtown Manhattan continued to hold the top spot for North American office occupancy costs with average Class A rents at USD70 per sq ft per year.  Looking forward, office space fundamentals continue weakening as new construction comes online.  However, with a few signs of recovery in a number of areas including finance, the office market may show signs of stabiliz¬ing by early/mid 2010 but considerable risks still exist.

In Canada, office markets continue to demonstrate surprising strength in the first half of 2009, against a very weak global economy.   However, like the U.S., job losses are still prevalent but there are increasing signs the domestic economy may be past the worst.  Over the past year, office vacancies rose, while rental changes were mixed with office rentals in Calgary dropped 17.9% YoY but that in Ottawa increased 8.0% YoY.

Europe, Middle East, Africa (EMEA)
The EMEA average vacancy rate rose to 11.4% in mid-2009, which was the highest level since 2004.  The rise in vacancy was felt across the region, and eight EMEA cities registered vacancy rates of 20% or higher. 

Meanwhile, Grade A rents decreased by a further 4.5% in the first half of 2009, following a 6% drop in the second half of 2008.  With a few exceptions, markets in Western Europe fared somewhat better in the first half of 2009, as rents in Belgium, France, Germany, The Netherlands, Switzerland, the United Kingdom and the Nordic countries decreased only marginally. 

Latin America
After a declining trend over the past five years, the regional office vacancy rate increased 292 basis points since mid-2008.  However, it averaged at a very low 4.5% with both Rio de Janeiro and Lima boasting vacancies below 3.0%. 

On the office rental front, the figures were mixed with both Santiago and Bogotá recording increases while the rest were flat or down. 

Global Investment Sales
Office investment sales continued to trend down in the first six months of 2009 with global sales totaling USD36.2 billion, 69% below year ago levels.  The Americas led the decline with sales volume off 83% followed by EMEA down 64% and Asia Pacific 59%.  Prices moved lower as capitalization rates/yields shifted higher in all regions of the world.  EMEA cap rates in particular moved up 114 basis points followed by the Americas with a 47 basis point increase and Asia Pacific at just 28 basis points.

At the same time, cross-border investment in par¬ticular dropped with most investors refocusing on domestic markets. This trend is not expected to continue, however, as a rising number of global investment funds are preparing to launch global distressed real estate funds in the coming months.

About Colliers International

Colliers Macaulay Nicolls Inc. (CMN) operating as Colliers International is a leading global real estate services company that provides a full range of services to real estate users, owners and investors worldwide. Colliers operates in 294 offices in 61 countries.  In Asia Pacific, Colliers has 64 offices in 15 countries.  Services include brokerage, property management, hotel investment sales and consulting, corporate services, valuation, consulting and appraisal services, mortgage banking and research.  Colliers International is a worldwide affiliation of independently owned and operated companies. 

Contact Information

May Chow        
Regional Manager
Communications and PR, Hong Kong Marketing
Colliers International (Hong Kong) Ltd
Tel    852 2822 0736
Fax   852 2868 5275
Email: May.Chow@colliers.com

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