The Asia Pacific economy continues to boom and shows no signs of slowing down. As companies flock to the ‘it’ region, Asia’s property industry, or more specifically the office space sector, flourishes. Office rental rates have been climbing up steadily, and are set to remain on the rise for a while.
However, according to data from CB Richard Ellis, Singapore’s growth for the first quarter of 2011 was 3.0% – a slight slowdown when compared to the fourth quarter of 2010, which recorded a 3.6% growth. The rate of rental growth, while positive, declined from 12.2% to 3.6% this quarter.
Could Asia be losing its steam?
It seems unlikely, as the slowdown of rental growth can be pegged to a couple of factors.
First, the previous quarter’s higher growth could be attributed to occupants snatching up spaces in 2010’s office market revival. This double-edged sword means occupants are now ‘digesting’ the space they have taken up, filling up the office spaces and putting a pause on extra renting. Further pressure comes from cost-cutting mindsets that firms have developed in the aftermath of the Global Financial Crisis.
The second factor in the relatively recent downward trend of commercial real estate rental was the earthquake and tsunami that hit East Japan. Relocation plans have been put on hold as the Land of the Rising Sun sees a quarterly drop of 1.6% in office rents. It is safe to say that residual impacts will continue emerging in months to come.
Despite the overall slump of the Asian office market, three countries seem to be maintaining popularity: China, India and Singapore. China, for instance, single-handedly spearheaded Asia’s growth for the first quarter of 2011. It was responsible for more than half the new demand in the Asia Pacific region. Limited office space in the cities of Beijing, Taipei and Hong Kong mean that office rents will continue to increase.
Such is also the case in Singapore, where limited supply faces increasing demand for offices from the likes of United Overseas Bank, RHB Islamic Bank, CIMB, BNP Paribas and other companies seeking to expand their operations here. Other highly sought-after destinations in Asia include China, Hong Kong, Australia and India.
With the twin drivers of a growing demand from companies to penetrate and capture new markets in Asia, and a limited land supply due to space constraints of Asian metropolises, the slow growth is a small bump on Asia’s road to economic development and growth, as office rents are poised to pick up speed in the near future.