Increasing Business Momentum will Help Improve Office Demand in Hong Kong; Absorption Expected from Chinese Financial Institutions on Premium Space
CBRE expects domestic and Asia-regional firms will drive leasing markets in APAC, expanding rapidly in core central business districts and outside home markets. Hong Kong will be a hub for Chinese companies to grow further into Asia whilst Japanese and South Korean firms will continue to expand in emerging Southeast Asian markets. In APAC, rising occupancy costs will be top of the agenda for companies, whilst tenant retention will be a priority for landlords.
Key themes in Hong Kong and APAC Office market for 2015:
GDP and employment will grow steadily in Hong Kong. Improving business momentum will be supported by more letting demand from Chinese financial corporations, in part from wealth management and brokerage firms looking to set up new offices to capitalize on the Shanghai-Hong Kong Stock Connect. Chinese companies will use Hong Kong as hub for Asia growth.
Occupancy costs in Hong Kong will continue to be top of the agenda for most companies, with larger occupiers focusing on workplace improvement and reviewing their long-term occupancy strategy. Some larger tenants in Hong Kong and Beijing will continue to adopt multi-base operations by moving and consolidating back office business lines to cost-effective decentralized areas whilst retaining a small scale front office in the CBD.
Hong Kong will see an increase in decentralized activity, with 90% of new buildings in decentralized locations, mainly in Kowloon East. Most markets in APAC will see a vacancy increase above the long-term average, offering occupiers plenty of options to lease prime office space. However in tightly-held markets such as Beijing, Hong Kong, Auckland, Bangkok, Tokyo, Manila and Singapore, landlords will retain the upper hand but some will need to be more flexible towards lease structuring.
Multinationals in the banking and insurance sectors in Hong Kong and Singapore will continue to evaluate options to buy office buildings or floors instead of leasing. Capital value growth is expected to weaken from 3.7% in 2014 to 3.2% in 2015. Tokyo, Singapore, Auckland, Bangalore and Manila are the only markets expected to see capital value growth in excess of 5%.
Tech companies—particularly internet-based firms and e-commerce industries—will continue to play a leading role in driving office demand, especially in markets such as China, Taipei, Tokyo, India, Singapore, Sydney and Melbourne. Demand from the financial sector will remain mixed, as some global banks may continue to downsize, whereas Asia-based corporates in this sector remain upbeat.
Over 75% of new office supply—73 million sq. ft. NFA, in APAC, a figure double that of 2014—will be concentrated in emerging markets such as New Delhi, Mumbai, Bangalore, Shenzhen, Shanghai and Jakarta. In these markets, new supply will continue to outstrip demand but market imbalance will be narrower than the initial numbers suggest.
Driven by Tokyo, Bangalore and Singapore, office rents in the region will continue to record steady growth. The rate of growth will slow to 3.2%. Meanwhile, laggards in 2015 will be led by Seoul, where rents are expected to decline by 3.5%, with negative rental growth expected in Brisbane, Guangzhou and Shanghai.
“Hong Kong will see improving business momentum favorable to office demand mainly supported by demand from Chinese corporates. Despite an expected rebound in new completions of 3 million sq. ft. during the course of the year, only 15% will be available on Hong Kong Island, and not much will be used for portfolio leasing. Secondary space will continue to be scarce and total leasable stock will remain limited. Demand for Grade A prime office will outperform other sub-sectors, resulting in an uptick in rents in 2015. An average rental growth of 5% is expected, mainly led by Central.”
*This CBRE Market Flash is a preview of the forthcoming CBRE 2015 APAC Real Estate Markets Outlook report*
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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