JLL: Asia rental levels, letting activity declines

Rents and letting activity was flat or declining across Asia’s major cities in the first quarter of 2013, according to a recent study by Jones Lang LaSalle.

Rents and letting activity declined in the commercial real estate markets of Asia’s major cities during the first quarter of 2013, according to a study released by Jones Lang LaSalle (JLL). The global property services firm said oversupply had suppressed markets in the larger financial centers of the region and that those of the developing markets saw just a modest increase during the period.
Rents in the office market of Hong Kong fell 1.3 percent. In Beijing, they fell by 3.7 percent. In Australia’s cities, rents fell by between 1 percent and 3 percent. JLL partly blamed these falls on new office supply, which was up 40 percent year-on-year during the first quarter.

As a result, aggregate net absorption in the region was generally flat. Hong Kong and Singapore both actually saw a “slight contraction,” while Beijing and Australia saw a marked slowdown in new lettings. The firm also pointed to the caution of corporations looking to rent out space as the cause of the decline, as many corporates remained focused on cost savings.
However, letting activity was slightly more promising in Southeast Asian cities such as Manila and Jakarta, which saw “steady take-up” last quarter. These markets were constrained by a lack of new space, JLL said. Jakarta, for example, saw a 7.4 percent increase in rental levels.
The overall dip in rental levels flies in the face of the multiple development splurges to have happened across Asia as its growth story intensified. Nonetheless, JLL said investors remained bullish on the region. According to the firm, investment in Asian commercial real estate during the first quarter increased 26 percent year-on-year to $27 billion. The vast majority of that investment actually was in the developed markets of Japan, Australia, Singapore and Hong Kong, all of which showed very strong growth in year-on-year investment activity.
Part of the reason for this growth, JLL noted, is the prediction of a moderate recovery in rental prices during the second half of this year. “Overall, while business sentiment among occupiers is better in 2013 compared to 2012, this has not translated into activity as yet – the ‘lag’ between business optimism and take-up means we are likely to see a pick-up toward year-end and into 2014,” said Jeremy Sheldon, managing director of markets for Asia Pacific.
The JLL study predicts that rent and capital value growth rates likely will be less than 10 percent, with the major cities seeing only single-digit rental growth for the full calendar year. However, investment activity is expected to increase by 10 percent to 15 percent by volume this year.