asia pacific property digest 3q 2015

8/17/2019 Asia Pacific Property Digest 3q 2015

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Asia Pacific Property Digest | Q3 2015

Real estate investment flying high


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F e a t u r e A r t i c l e s

O f c e

Dear Reader,

Asia Pacific investment volumes are at $88 billion year-to-date and are on track for a record level in2015. Increased space requirements from corporates have been reflected in a 33% surge in leasingactivity over the same period.

You can view this report online at http://www.jllapsites.com/research/appd-online/.

We hope you enjoy our new-look report and as always, welcome your feedback.

Best regards,

Dr Jane MurrayHead of Research – Asia Pacific

13

4Asia Pacific Economy and

Property Market

The impact of online retailing onAustralian industrial demand8Women are critical to Japan’seconomic success9 Navigating the “patent-cliff”: the role of corporate real estatein the life science industry10 Net absorption in Shanghai’sGrade A office market to hitrecord high in 201511

Hong Kong 14

Beijing 15Shanghai 16

Chengdu 17

Taipei 18

Tokyo 19

Osaka 20

Seoul 21

Singapore 22

Bangkok 23

Jakarta 24

Kuala Lumpur 25

Manila 26

Ho Chi Minh City 27Delhi 28

Mumbai 29

Bangalore 30

Sydney 31

Melbourne 32

Brisbane 33

Auckland 34


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I n d u s t r i

a l

R e t a i l

R e s i d e n t i a l

H o t e l s

49 65

57 35

Hong Kong 58

Beijing 59

Shanghai 60

Tokyo 61

Singapore 62Sydney 63

Melbourne 64

Hong Kong 66

Beijing 67

Shanghai 68

Tokyo 69

Singapore 70

Bangkok 71

Jakarta 72

Sydney 73

Hong Kong 50

Beijing 51

Shanghai 52

Singapore 53

Bangkok 54

Manila 55

Hong Kong 36

Beijing 37

Shanghai 38

Chengdu 39

Tokyo 40Singapore 41

Bangkok 42

Jakarta 43

Delhi 44

Mumbai 45

Sydney 46

Melbourne 47


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Retail sales performance remains mixed

Encouragingly, retail sales in China have been trending higher sinceApril (+11% y-o-y in October), supported by solid wages growthand providing a cushion against weakness in other parts of theeconomy. However, the performance of retail sales in other areas ofAsia Pacific has been less robust. In Hong Kong, a slowdown in

Mainland Chinese visitor arrivals has impacted sales which fellalmost 5% y-o-y in 3Q. Retail sales growth in Japan remains weakas households hold back on spending, while in Singapore, retailsales have improved but remain subdued. In Australia, a buoyanthousing sector has supported retail sales over the last year.

Ongoing weakness in regional trade

Weaker global demand for Chinese goods saw exports from Chinadecline in each month of 3Q. However, devaluation of the ChineseYuan may provide a boost going forward. Economic restructuring inChina is impacting trade throughout the region with exportsremaining weak in most AP markets.

Further rate cuts while deflation emerges in some markets

During the quarter, various governments continued to cut interestrates to shore up growth in their economies. India and New Zealandcut rates by 50 bps, China by 25 bps, while Taiwan lowered thepolicy rate for the first time in six years by 12.5 bps. Low prices foroil and other commodities are flowing through to falling inflation.

Singapore and Thailand have seen declining consumer prices, whileproducer prices have been falling for at least six months in majormarkets including China, India and Japan.

Stable growth expected for this year and next

Oxford Economics expects 2015 regional growth of 5.3% and asimilar outcome next year, with a gradual recovery in global demand

to underpin growth. Most major economies in the region areforecast to see modest improvements with the exception of China asit continues to transition to new growth drivers. Although stableperformance is anticipated for AP, there are downside risks to theoutlook including ongoing uncertainties related to the impact ofChina’s slowdown and the timing of US interest rate hikes.

4 – F E A T U R E S

A rather sluggish economic environment...By regional standards, economic growth was rather sluggish in the third quarter, prompting a number ofgovernments to implement further supportive measures.

China continues its economic transformation, moving to a greater focus on services and domesticconsumption – a profound structural change that is reverberating throughout the rest of Asia Pacific,particularly China’s major trading partners. Japan, the region’s second biggest economy, fell intorecession in the third quarter, with the government’s huge stimulus measures yet to be reflected in a

meaningful uplift in consumption or corporate capex. Meanwhile, India’s economy has held up relativelywell and growth is projected to overtake that of China this year.

Despite various challenges, the Asia Pacific economy is still expanding at a decent pace – indeed more than twice as fast as the rest of the world.

ASIA PACIFIC ECONOMY


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Office leasing demand continues to strengthen, but still not

consistentOverall leasing activity continued to improve in 3Q, with grossleasing volumes rising by a strong 27% y-o-y, following 40% growthin 2Q. However, the improvement was not consistent: activity wasstrongest in India and China, but still subdued in some other marketsincluding Singapore. The most active occupier types across theregion were domestic financial institutions and technology-relatedfirms.

The Indian markets of Delhi, Mumbai and Bangalore contributedhalf of total regional leasing volumes in 3Q, underpinned by bothdomestic expansion and offshoring by MNCs. China’s shift to aservice based economy is being seen through the growth in office

Figure 1: Outlook for Major Economies

CountryReal GDP Growth (%)

2015–16 Outlook2015F 2016F

China 6.9 6.3Slower growth as government continues with structural reforms. Services sector an area of strengthin part due to robust consumption.

Japan 0.6 1.5Modest recovery supported by gradual improvement in domestic demand. More stimulus may be on

the way.

India 7.2 7.4Domestic demand and fixed investment to underpin growth. Improved growth trajectory to dependon progress on reforms.

South Korea 2.5 3.0 Gradual improvement in trade and consumption amid loose fiscal and monetary policy.

Australia 2.4 2.8Growth supported by residential sector and lower AUD which will improve export competitiveness.Mining investment a drag.

Indonesia 4.8 5.3 Modest pick-up in growth underpinned by infrastructure investment and private consumption.

Singapore 1.8 2.8 Rise in government spending and investment, but export performance to remain patchy.

Hong Kong 2.3 2.7 Subdued growth as sluggish Mainland demand impacts exports and inbound tourism spending.

Asia Pacific 5.3 5.4 Gradual recovery in global demand and ongoing policy support to aid solid performance.

World 3.0 3.5Pick-up in global growth expected to be driven by improvements in advanced economies including the US (from 2.4% in 2015 to 2.7% in 2016) and the Eurozone (from 1.5% to 1.8%).

Note: India revised its GDP methodology (including historical growth rates) in January 2015.Source: Oxford Economics, November 2015

leasing in its Tier 1 markets. Shanghai is on track to achieve its

strongest ever year of take-up. Consistent with this, occupierdemand in Hong Kong is being bolstered by Mainland Chinese firms.In Australia, Sydney is leading the leasing recovery while the citiesmore dependent on the resources sector remain weak.

Healthy office supply additions. Occupancy levels up slightly

Asia Pacific stock additions were up 38% y-o-y to 1.2 million sqm in3Q, with more than one-third of the total in India. In spite of the largevolume of new supply, vacancy declined in many markets includingBeijing, Hong Kong and Seoul, with Hong Kong Central falling to1.2%, the lowest vacancy in over seven years. Vacancy rates heldstable in Shanghai, Tokyo and Sydney but rose in most SoutheastAsian markets.

…while leasing and investment maintain good momentumIn 3Q15, occupier demand surged for a second successive quarter and we are optimistic that regionalleasing volumes for the full year will finish up at least 20% higher than the 2014 level. On the commercialreal estate investment front, investor interest remains strong with ample liquidity and low borrowingcosts supporting demand for assets. 2015 investment volumes are expected to reach the record levelachieved in 2014.

ASIA PACIFIC PROPERTY MARKET


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Figure 3: Direct Commercial Real Estate Investment 2007–3Q15

Figures refer to transactions over USD 5 million in office, retail, hotels and industrialSource: JLL (Real Estate Intelligence Service), 3Q15

Japan AustraliaChina

Hong Kong

Singapore

South Korea Other

U S D B

i l l i o n

0

25

75

150

125

50

100

YTD 2015$88.1bill1% y-o-y

2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015

Office rental growth slows in most markets

Net effective rents declined in about one-third of major Asia Pacificmarkets in 3Q. On average, rents grew 0.5% q-o-q, slowing from0.8% in 2Q. The strongest quarterly growth was in Sydney (3.9%)and Hong Kong (3.5%). Despite the recent financial market ructionsin China, rents increased in Shanghai and Beijing on the back ofsustained demand from financials and IT firms.

Rents fell furthest in Singapore (–5.2% q-o-q) as landlords continued

to take pre-emptive steps to retain and attract occupiers ahead ofa large wave of supply due to be completed in 2016. Declines werealso seen in Kuala Lumpur, Ho Chi Minh City and some Australiancities.

Over the 12 months ending 3Q15, average rents in aggregate wereup 2.1%. Already with the highest rents in the region, Hong Kongwas the market leader with 11.1% y-o-y growth, followed byShanghai and Sydney which both recorded growth of 8.2%.Bangalore, Bangkok and Tokyo also recorded strong growth. At theopposite end of the spectrum, Singapore and most Australian citieshave seen rents fall over the past year.

Mid-tier brands are the most active retailers

During the quarter, retailer demand in China continued to be

supported by fast fashion retailers and F&B. However, new supplyand ongoing caution by the luxury segment have created a morechallenging operating environment. Market conditions in Hong Konghave continued to weaken and some retailers have reduced theirstore footprint and/or secured rental reductions. Retailer demand inSingapore continued to be subdued as consumer caution prevailed,while the economic backdrop in Australia remained largelysupportive of trend growth in retail spending.

During 3Q, there was limited rental growth in most markets andaverage growth edged down. Over the short term, we see limitedscope for significant rental gains in most markets, while inHong Kong, high street rents are likely to fall further.

Generally healthy leasing activity for logistics facilities

Across the region, 3PL and e-commerce firms continued to underpinleasing activity. Rents were generally flat, with the highest quarterlygrowth seen in Hong Kong (1.4%) amid a tight vacancy environment.However, leasing demand in Hong Kong was impacted by falling

exports and airfreight cargo. Strong tenant expansion demandcontinued to be evident in Tokyo, supporting a modest rise in rents.

Strong residential sales momentum in China while somemarkets see lacklustre sales

Policy restrictions remained in place in various markets acrossAsia. In China, high-end sales activity strengthened on the back ofa more accommodative policy stance, including a cut in interestrates. However the high-end markets in Hong Kong and Singapore

remained sluggish. Leasing activity in these two cities was stronger– the third quarter being the traditional peak season in Hong Kong,while Singapore leasing volumes were supported by tenantsmoving to newly completed units. Most markets across the regionsaw stable or small increases in rents and prices, a trend that isexpected to continue over the short term.

Buoyant commercial real estate investment market

Investment volumes for 3Q15 came in at USD 32 billion, relativelystable y-o-y but with growth partly impacted by a stronger USD, thereporting currency. Year-to-date, investment volumes totalUSD 88 billion, up 1% on the same period last year. During thequarter, cross-border Asian investors and global funds wereactive. There were also more portfolio and platform transactions,as investors sought to acquire assets that are difficult to acquire

directly.

Japan (+11% y-o-y), Australia (+13%) and China (+81%) performedstrongly in 3Q as investors continued to focus on large and liquidmarkets. Japan remained the largest market in AP with investmentvolumes totalling USD 8.9 billion. Other markets saw a mixedperformance with Hong Kong up 25% y-o-y, buoyed by a major hoteldeal, while volumes in South Korea were down 24%, in part due to alack of tradeable assets.

Capital value growth slows

Capital value growth moderated across all sectors and mostmarkets in the region. In the office sector, average capital valuegrowth slowed to 1.5% q-o-q but continued to outpace rentalgrowth. Quarterly growth was strongest in Osaka (+6.4%) and

Sydney (+6.3%), with Melbourne, Brisbane and Auckland allrecording growth of between 3–5%. Capital values in Jakarta andSingapore declined.


Figure 2: Office Rental & Capital Value ChangesYearly % Changes, 3Q15

Figures relate to the major submarket in each citySource: JLL (Real Estate Intelligence Service), 3Q15

Rental Values Capital Values

y - o - y %

–5

–10

20

15

5

10

0

H o n g

K o n g

S y d n

e y

S h a n

g h a i

J a k a

r t a

B a n g k o k

T o k y

o

M a n i l a

B e i j i n

g

M e l b

o u r n e

S e o u l

M u m

b a i

S i n g a

p o r e


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ABOUT THE AUTHOR

Dr Jane Murray joined JLL in 1998 and in 2005was appointed as Head of Research – AsiaPacific. In this role, Jane leads a team of140 professional researchers in the region,which forms part of a network of over 400researchers in 65 countries around the globe.

Continued optimism on leasing and investment activity

Office leasing volumes should continue to improve in 4Q15 and into2016, with India and Tier I cities in China (particularly Shanghai)expected to see the strongest activity. Moderate rental growth isgenerally expected over the next year, with Sydney, Tokyo andBangalore leading the way in the office sector. Singapore, Jakartaand Brisbane may see further declines due to lacklustre tenantdemand and/or upcoming supply.

Meanwhile, 2016 should be another strong year for investmentactivity. At this stage, volumes are expected to be similar to thisyear’s estimate of USD 130 billion, on par with the record in 2014.

Figure 4: Rental Property Clocks, 3Q15

Source: JLL (Real Estate Intelligence Service), 3Q15Note: Clock positions for the office sector relate to the main submarket in each city.

Grade A Office Prime Retail

Prime Residential Industrial

Growth

Slowing

RentsRising

Rents

Falling

DeclineSlowing

*Logistics space (Hong Kong, Shanghai, Beijing, Greater Tokyo)

Beijing

Hong Kong

Tokyo

Singapore (Business Park)Singapore (Logistics),

Shanghai

Auckland, Manila

Melbourne

SydneyBrisbane

Wellington

Growth

Slowing

Rents

Rising

Rents

Falling

Decline

Slowing

Tokyo, Beijing

Guangzhou

Hong Kong

Jakarta, Singapore

Seoul, Ho Chi Minh CityHanoi

Taipei,Bangkok

Osaka

Kuala Lumpur

Shanghai, Melbourne

Manila

Mumbai, Adelaide

Auckland,Bangalore

Delhi

Chennai, Sydney

Perth

Brisbane

Canberra

Wellington

Growth

Slowing

RentsRising

Rents

Falling

DeclineSlowing

*For Luxurious Residential Properties

Beijing

Guangzhou, Kuala Lumpur

Hong Kong

Bangkok

Shanghai

Manila

Singapore*

Jakarta

Growth

Slowing

Rents

Rising

Rents

Falling

Decline

Slowing

*Regional

^High Street Shops

Beijing

GuangzhouHong Kong^

Jakarta

Bangkok

Tokyo

Singapore

Shanghai

Kuala Lumpur

Manila

Auckland, Bangalore

Delhi

Mumbai

Chennai

Sydney*, Melbourne*, Brisbane* Wellington


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ABOUT THE AUTHOR

Alison Spiteri is a Senior Analyst in the JLLResearch team in Australia. She specialisesin industrial research for the Sydney andMelbourne markets and office research for

the Sydney Metro markets.

Online retailing has grown rapidly over the last decade. Traditionalretail operators are being challenged by technological advances,however many have adapted and now offer a multichannel sales

approach. Here, we look at how online retailing is impacting theAustralian industrial sector.

According to National Australia Bank’s latest online retail salesindex, Australian online retail spending increased to AUD 17.5 billionin the year to August 2015, a year-on-year increase of 7%. Onlineretailing now represents around 7.1% of traditional retail spendingexcluding cafes, restaurants and takeaway food, up from 4.9% in2011.

Over the past two years, there has been a strong correlation (0.7)between online retail turnover growth and gross take-up ofindustrial space by the retail and wholesale trade sectors. Thissupports the need for industrial expansion from retailers moving toor expanding their online presence.

Traditionally, warehouse space utilised by the retail trade sectorwas stocked with products for sale at store-based retailers.However, with the ongoing advances in technology and theincreasing number of retailers with an online presence, there is agrowing trend to deliver goods direct from warehouses to theconsumer. As the retail market becomes more competitive,

especially given the recent weakening of the Australian dollar,domestic retailers incorporating online platforms are likely torequire more flexible industrial property solutions that incorporate

non-traditional stock picking (selection of stock as per orders) anddelivery methods. These may include higher staff ratios, smallerdelivery vehicle access, returns areas and direct customer access.

Online retailers need to locate in areas that will provide an efficientmovement of goods to their consumers, as well as close proximity tomajor postal centres. In Sydney, the Outer West (OW) precinctscentred on major transport routes (M2, M4, M5 and M7) haveproven to be key areas for retail occupiers. The OW precincts haveaccounted for 76% of total retail and wholesale trade gross take-upannually between 2010 and 2014. These precincts are highly soughtafter due to the relative simplicity of receiving and distributing stock.

Between 2006 and 2010, retail and wholesale trade accounted for26% of gross industrial take-up nationally. Since then (2011 to YTD

2015), the retail and wholesale trade sectors recorded an additional750,000 sqm of activity, and represented 32% of total take-up.Logistics has also benefitted from the increase in online retailingand retailer demand as distribution operations get outsourced to

third-party logistics (3PL) providers. The transport and storagesector’s percentage of total gross take-up increased from 25% to34% over the same period.

Despite the rapid growth in online retailing in Australia, it stillcomprises a small percentage of total retail sales (the majority ofwhich is through domestic retailers), indicating that there is furtherroom for expansion. It is likely that more traditional retailers willexpand into and increase their exposure to the online retailingmarket and subsequently increase their requirements directly orindirectly through 3PLs for distribution space that can accommodate

the special needs of online retailers.


Te impact of online retailing on Australianindustrial demand

Online retail turnover growth vs retail and wholesale trade gross take-up

Source: ABS, JLL Research

Online retail turnover growth

Multi-channel online retail trade Pure-play online retail trade

Gross take-up (sqm): Retail & Wholesale Trade

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

–30.0%

–20.0%

–10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

J u n 1

3 S e

p 1 3

D e c 1

3

M a r 1 4

J u n 1

4 S e

p 1 4

D e c 1

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M a r 1 5

J u n 1 5


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Japan has regained some of its lost momentum under “Abenomics”,a three-pronged set of policies aimed at rejuvenating and reforming

the Japanese economy. While consumer sentiment has remainedfragile over the past few years, corporate profits have continued

to rise and the unemployment rate has declined to 3.4%, the lowestlevel in 18 years. Should private consumption recover along with

rising real wages, the stagnation that has characterised Japan’seconomy since the “Lost Decade” might at last be giving way.

There is a blip on this bright horizon, however. Japan’s decliningbirth rate and rapidly ageing population threatens the workingcapacity of its labour force, and therefore the long-term viability of

the nation’s growth. Fertility rates are below replacement level, andover one-fourth of Japan’s current population is over the age of 65.Current demographic predictions by Japan’s Health Ministry put theJapanese labour force at 55 million by 2050, down 10 million from

this year. Without a consistent supply of labour, Abenomics cannotsucceed, and so to forestall this damaging shortfall, Abe has turned

to a chronically underutilised demographic – Japan’s women.

Japanese women are among the most highly educated in the world,but female participation in the Japanese workforce ranks among

the lowest in OECD countries, especially in the late 20s to early 30s

age bracket, when most women have their first child. The reasonfor this lies in the entrenched corporate mind-set, which penalisesmaternity leave, prioritises long hours and ultimately clashes withsociocultural expectations for Japanese motherhood. In addition,

ABOUT THE AUTHOR

Takeshi Akagi is the Head of Research inJapan. His responsibilities include primaryreal estate research, economic andinvestment analysis, and forecasting. Heregularly contributes to JLL’s publicationsas well as provides commentary on issuesrelated to Japan.

Emma Saraff was an intern for JLL’s research team in Tokyo.

restrictive Japanese labour laws, low numbers of women inmanagerial positions, a lack of childcare facilities, and the spousal

tax deduction, which incentivises a sole-breadwinner household, allstand in the way of women’s participation in the labour force.

The Abenomics structural reform strategy aims to encourage a

radical change in this paradigm and establish woman-positivecorporate environments and policies. The most recent results areencouraging; already female employment has increased by 930,000workers since Abe took office in 2012. Given Japan’s traditionof “lifetime employment”, which limits re-entry of workers intowell-paid, permanent positions, much of the new female workforcehas been relegated to low-benefit, low-wage, temporary positionswith little to no chance of advancement. Furthermore, there isstill a wealth of untapped potential; according to a 2013 survey by

the Ministry of Internal Affairs, as many as 3.15 million currentlyunemployed women could return to work if given the opportunity.The economic effect of such a change is nothing to sneeze at;closing the workforce gender gap could boost Japan’s GDP by asmuch as 12.5%, according to a report by Goldman Sachs.

For Japan to truly see returns from an influx of women in theworkforce, it’s critical that initiatives are put in place to incentivise

women to return to work and furthermore, remain employed throughout their childbearing years. Revising antiquated legislation,building day care facilities, and promoting a culture that promotes,rather than demeans, women’s empowerment, will be instrumentalin deciding the future of both the gender gap and the country as awhole. The extraordinary growth potential of Japanese women isalready there – it is just a question of providing the right environmentfor them to flourish. This is also an important driver of demand withinJapan’s real estate markets which should reap the benefits of arevitalised labour force along with other structural reforms.

Women are critical to Japan’s economic success

Female labour force participation rates, top 25 countries 2014

Source: OECD Employment Outlook 2015

Source: OECD Employment Outlook 2015

Japan female labour force participation rates

2000 2007 2014

Japan 59.6% 61.9% 66.0%

OECD aveage: 62.8

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ABOUT THE AUTHOR

Clarence Goh is a Senior Manager of APACCorporate Research for JLL in Singapore. Heis involved in global and regional researchprojects for JLL’s Corporate Solutionsbusiness.

The life science industry is standing on the edge of a “patent cliff.”In 2015, the world’s biggest pharmaceutical firms stand to lose up

to USD 47.5 billion in revenues from the expiry of the patents of

some of their biggest blockbuster drugs. For example, Celebrex –an arthritis drug which contributed almost USD 3 billion to Pfizer’srevenues in 2014 – is set to see its patent expire later this year,opening it up to competition from “generic” alternatives which areoften sold at much cheaper prices.

This has triggered a wave of consolidation activity within theindustry as firms look to replace best-selling drugs whose patentsare expiring with newer drugs that have the potential to growrevenues. According to the Thomson Reuters Full Year Mergers &Acquisitions Review, the life science industry saw more thanUSD 390 billion in transactions in 2014, and transactions areexpected to remain at similarly high levels throughout 2015.

With revenue streams becoming more uncertain, many firms arealso focusing on reining in costs to maintain overall profitability.While these cost pressures impact all aspects of a firm’s operations,

they are being felt more keenly in corporate real estate (CRE). In the2015 Global Corporate Real Estate Survey conducted by JLL, 92% ofCRE executives from the life science industry felt that the demandfrom their senior leadership for them to reduce operating expenseshad increased. This represents a marked increase from the alreadysubstantial 85% of executives from the industry who felt the sameway in the last survey conducted in 2013.

At the same time, a substantial proportion of CRE executives alsoreported rising demand from their senior leadership for them todeliver across the following areas that could help to further managecosts:

• Increasing portfolio flexibility (71%)

• Challenging the business about presumed space needs (71%)

•

Reducing portfolio size (71%)Correspondingly, CRE teams in the life science industry now say that

they feel more empowered within their organisations, with 88% oflife science industry respondents reporting that they have strongeror much stronger mandates now compared to three years ago.

Life science firms are also making plans to aggressively outsource the delivery of many CRE services over the coming years. According to the survey, significant outsourcing activity is expected to takeplace from now to 2018 (see figure). In particular, CRE serviceslike lease administration, facilities and property management, and

transaction management, which are more transactional in nature,are expected to be outsourced at the quickest pace.

Navigating the “patent-cliff”: the role of corporatereal estate in the life science industry

Notably, the increased demands being placed on CRE teams in the industry appears to have significantly stretched their currentcapabilities: three out of four CRE executives indicated that theywere not confident of meeting all the demands that were beingplaced on them.

To learn more, click here to download the Global Corporate RealEstate Trends 2015, and also look out for upcoming industry specificcontent!

How would you best describe the current delivery of the following CREservices?

*Percentages represent proportion of respondents who selected 4 or 5, on a scalewhere 1=fully in-house and 5=fully outsourcedSource: JLL

Lease Administration 39%65%

43%57%

41%55%

42%50%

20%45%

15%40%

43%35%

14%27%

0%23%

14%23%

23%23%

22%18%

27%32%

15%31%

Facilities and Property Management

Transaction Management

Energy Management

Supply Chain Management

Project and Construction Management

Capital Budget Planning & Management

PMO

Portfolio Strategy

Change Management

Worlplace Strategy

Technology

Occupancy Planning

Transaction Execution

3 Years TimeNow

1 0 – F E A T U R E S


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Over the past few months, one of the most common questions wehear in China from clients has been what effect the gyrations inChina’s stock market might have on the performance of the office

market in Shanghai. Some investors have assumed – perhapsdrawing a connection between Shanghai’s status as a financialcentre and the stock market crash’s disproportionate impact onfinancial services – that the stock market’s post-June slump willnegatively impact the office leasing market. The numbers do notbear this out, however: net absorption for the year through 3Q15 hasalready exceeded 1 million sqm , and we believe Shanghai’s GradeA take-up is on track to reach a record high in 2015.

Three factors are driving the record high absorption. First, domesticfinancial service firms have increased leasing activity in both theCBD and decentralised markets. Encouraged by ongoing financialreform and liberalising policies in the Shanghai Free Trade Zone,both traditional domestic finance firms (like retail banks andinsurers) along with non-traditional internet finance companieshave been active in setting up new offices and expanding theiroffice space in Shanghai.

Net absorption in Shanghai’s Grade A officemarket to hit record high in 2015

ABOUT THE AUTHOR

Grace Lv is a Senior Manager in JLL’sresearch team in Shanghai, specialising in theoffice sector in Shanghai and major YangtzeRiver markets. She regularly contributes toquarterly publications and is also involved inmarket consultancy studies.

A second key driver is MNC tenants, who have demonstratedparticularly strong leasing demand in decentralised areas.Recognising that China’s middle class population is expanding thecountry’s consumer potential, MNCs in the retailing and mediasectors are actively expanding their business, and many havefound they require more office space in Shanghai. The largevolume of new supply in the decentralised market has tapped intopent-up demand from MNCs that seek large contiguous spaces forconsolidation and expansion. In addition, many MNC professionalservices firms such as consulting companies have retained apositive outlook toward their China business, and have shownstrong interest in office expansion.

The third main driver of take-up this year has been firms self-usingspace that they build or acquire. In the decentralised market,several companies – notably domestic financial institutions – haveacquired or developed buildings, and have reserved large shares ofspace for their own use.

Aside from the three main demand types discussed above, other tenant types have also contributed to this year’s robust demand,including domestic retailers and professional services firms.

We expect leasing momentum to remain strong through theremainder of the year. As a result, Shanghai’s overall net take-up isexpected to reach a record high of above 1.4 million sqm in 2015.

The Shanghai stock index may have taken a dive, but the take-up in the city’s Grade A office market is heading skyward.


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Office


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HONG KONG“Demand recovery pushes monthly rents in

Central back up to HKD 100 per sq f or the firsttime since 4Q11.”

Denis Ma, Head of Research, Hong Kong

9 0 –

O F F I C E

Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.Physical Indicators are for the Overall market.

Physical Indicators

Financial Indices

Note: Hong Kong Office refers to Hong Kong’s Overall Grade A office market.

STOCK MARKET ROUT HAS LIMITED IMPACT ON PRC DEMAND

• The recent volatility in the local and Mainland Chinese stock markets had a

limited impact on PRC demand, with a number of PRC securities trading firms

and mid-tier banks actively securing office space in 3Q15. PRC demand

accounted for about 60% of all new lettings (in terms of floor area leased), up

from 25% in 2Q15.

• A tight vacancy environment entering the quarter saw headline net absorption

moderating in most of the city’s five major office submarkets. Leasing demand,

nonetheless, remained intact with a handful of shadow space being

backfilled, including AIA’s lease on three floors at 633 King’s Road in North

Point.

TOWER 535 IN CAUSEWAY BAY RECEIVES OCCUPATION PERMIT

• Phoenix Property Investors’ office/retail development, Tower 535, in

Causeway Bay was issued its Occupation Permit in 3Q15, adding 128,300 sq ft

to the market. About 20% of the building has already been leased to a fitness

centre and a club house operator.

• In Central, robust leasing demand drove the vacancy rate down to 1.2%—its

lowest level since March 2008 just prior to the Global Financial Crisis.

CENTRAL RENTALS BACK AT HKD 100 PER SQ FT PER MONTH

• Rents in Central grew by 3.5% q-o-q in 3Q15 to reach HKD 100 per sq ft per

month for the first time since the Eurozone Crisis in 4Q11, as the vacancy rate

further tightened. All of the city’s major office submarkets recorded rental

growth.

• With rents in Central experiencing a broad-based recovery, investors showed

renewed interest in the submarket despite strong pricing levels, as evidenced

by several non-Grade A en bloc office buildings changing hands in 3Q15. The

interest in office properties prompted more developers and owners to

consider selling properties in their portfolio.

OUTLOOK: CENTRAL RECOVERY HAS YET TO RUN ITS COURSE

• Despite an uncertain economic outlook, leasing activity should remain intactwith most companies still looking to increase headcount over the near term.

Strong policy support from China should translate into ongoing demand from

PRC firms. Central rentals are likely to continue to edge higher, supported by

an ultra-tight vacancy environment.

• Steady rental growth should enhance the investment appeal of office

properties over the near term, enabling pricing across the market to hold firm.

However, capital values are likely to face increasing downside risks amid a

moderating rental market and rising interest rates.

HKD 100.0

SQ FT PER MONTH,

NET EFFECTIVE ON NLA

11.1%

RENTAL

GROWTH Y-O-Y

RentsRising

STAGE IN CYCLE

Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for Central.

Rental Value Index Capital Value Index

I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

80

110

85

105

100

95

90

Take-Up (net) Completions

Future Supply Vacancy Rate

–50

11 12 13 14 15F

–1

2

4

5

1

3

6

0

300

T h o u s a n d s q m

P e r c e n t

16F

0

50

100

150

200

250


15/76

BEIJING“Despite slow economic growth and volatility in

the stock market, finance firms remainhighly active.”

Steven McCord, Head of Research, North China

Physical Indicators

Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for the CBD.


Physical Indicators

Financial Indices

Note: Beijing Office refers to Beijing’s Overall Grade A office market.

DOMESTIC FINANCE AND IT FIRMS CONTINUE TO DRIVE DEMAND

• Due to the supply-constrained market, net absorption in the first nine months

of 2015 reached just 104,500 sqm, down 34% y-o-y. IT remained one of the

most active sectors in Zhongguancun and Wangjing, accounting for more

than 30% of the overall net absorption in 3Q15.

• A handful of projects in Finance Street achieved 100% occupancy in the

quarter due to strong demand from domestic finance companies such as

state-owned banks, and private equity and securities firms. Expansion plans

from existing tenants in the CBD and Finance Street were put on hold due to

limited availability of space in these areas.

MARKET VACANCY DECLINES TO 3.8% DUE TO STEADY LEASING PROGRESS

• Raycom Infotech Park Tower B obtained a 60% commitment rate at end-3Q15

a quarter after opening; most new tenants came from IT or IT-related sectors.

• Dreamsfounts 35th, another new completion in Finance Street from 2Q15,

achieved a 70% commitment rate in the quarter, with state-owned banks and

private investment companies making up a large presence at the project.

RENTS RISE ACROSS MOST SUBMARKETS AMID LOW VACANCY

• Landlords at buildings with very low vacancy were able to focus more on

tenant profile and exert greater power during rental negotiations. Landlords at

recently completed projects charged higher rents as occupancy stabilised.

• Singaporean-listed GuocoLand sold its Dongzhimen mixed-use project for

RMB 10.5 billion to China Cinda Asset Management Co. after the property was

kept vacant for years. Slated for completion by end-2015 in Wangjing, Kuntai

Garry Center, owned by Beijing developer Kuntai, sold to Alibaba for

2.84 billion RMB.

OUTLOOK: FUTURE SUPPLY PROJECTED TO RELIEVE PENT-UP MARKET DEMAND

• Net take-up is expected to climb as Grade A office space becomes available

in the CBD and Finance Street, where absorption and company expansion

have been muted due to a lack of leasable space. Rents are likely to rise as

tenants compete for space at quality buildings.

• Investors remain interested in Beijing, but there continues to be a disconnect

with sellers on pricing. Wangjing’s popularity is climbing; one property sold

here in the quarter, making it the third of five Beijing office buildings to be

transacted in the submarket this year. Due to strong government support,

Tongzhou is set to become a hot spot for investment opportunity.

RentsRising

RMB 382.6

STAGE IN CYCLESQM PER MONTH,

NET EFFECTIVE ON GFA

2.6%

RENTAL

GROWTH Y-O-Y


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

80

140

90

130

120

110

100



0

200

400

11 12 13 14 15F 16F

0

4

6

8

12

2

10

14

100

300

700

600

500


P e r c e n t


16/76

SHANGHAI“Net take-up to hit record high in 2015.”

Daniel Yao, Local Director - Research, Shanghai

9 2 –

O F F I C E

Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.Physical Indicators are for the CBD.

Physical Indicators

Note: Shanghai Office refers to Shanghai’s Overall Grade A office market consisting of Pudong, Puxi and the decentralised areas.

NEW SET-UP DEMAND FROM DOMESTIC FINANCIAL SERVICES ON THE RISE

• Domestic retail banks and wealth management companies were active in

setting up branch offices in Pudong in 3Q15. Changchun Rural Commercial

Bank set up its Shanghai branch office in Jin Mao Tower (500 sqm), while a

domestic wealth management firm set up a new branch office in Hong Jia

Tower (1,800 sqm).

• Domestic financial services companies were seeking space in Puxi as well.

Meanwhile, multi-national companies (MNC) in retailing and professional

services were also active in Puxi.

LETTABLE SPACE REMAINS TIGHT IN PUDONG

• For the fourth consecutive quarter, no new supply was delivered in the

Pudong CBD. In the Puxi CBD, Soho Bund (87,248 sqm) in Huangpu District

was the only project reaching completion in the quarter.

• In the Decentralised market, three Grade A projects with a total GFA of

151,220 sqm were completed, including Oriental One Tower 3 (30,831 sqm) in

Pudong, as well as Hongqiao Vanke Center Phase 1 (58,385 sqm) and Soho

Hongkou Plaza (62,004 sqm) in Puxi.

SEVERAL MAJOR INVESTMENT DEALS CLOSE; RENTS RISE

• Underpinned by strong leasing momentum, Pudong Grade A rents increased

by 2.2% q-o-q to RMB 11.0 per sqm per day, and Puxi Grade A rents rose by

2.3% q-o-q to RMB 9.4 per sqm per day.

• Positive sentiment about rental growth prospects in the CBD market led

domestic and foreign institutional investors to become increasingly active in

seeking en bloc investment opportunities. Notable investment deals closed in

the quarter included Corporate Avenue 1 & 2 (RMB 6.6 Billion), Hongjia Tower

(RMB 2.6 Billion) and GC Tower (RMB 2.2 Billion).

OUTLOOK: STRONG LEASING DEMAND EXPECTED TO CONTINUE THROUGH 2016

• It is expected that financial and professional services enterprises –

particularly domestic firms – should remain active in the CBD market.

Meanwhile, many MNC manufacturers are likely to continue to show interestin relocating operations to decentralised areas.

• The strong demand and rental outlook should further boost institutional

investors’ confidence. We expect more core investors, who tend to have

longer investment horizons, to become active in the market.

Financial Indices

7.3%

RENTAL

GROWTH Y-O-Y

RMB 10.1

SQM PER DAY,


RentsRising

STAGE IN CYCLE



I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

80

130

90

120

110

100



0

11 12 13 14 15F

0

6

10

4

8

12

2

600


P e r c e n t

16F

100

200

300

400

500


17/76

CHENGDU“Robust leasing activity as landlords employ

various measures to boost occupancy.”

Frank Ma, Head of Research, West China

Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year end annual. For 2015, take-up, completions and vacancy rate are YTD,while future supply is for 4Q15.

Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLL

Note: Chengdu Office refers to Chengdu’s Overall Grade A office market.

LARGE LEASING DEALS PUSH UP QUARTERLY NET TAKE-UP

• Net absorption significantly improved q-o-q in 3Q15, underpinned by several

large lease deals. The most notable transaction was Tianfu International

Funds Business Park committing to about 14,000 sqm in Taifeng International

Plaza in the City Centre submarket. The tenant was introduced to the landlord

by the district government.

• Leasing activity was concentrated in the City Centre and New South Area

submarkets. The City Centre mainly appeals to MNCs and financial services/

professional services companies due to the maturity of its business

environment and quality office buildings. New South Area is attractive to

small- to medium-sized local tenants because of its lower rents.

ONE PROJECT RECEIVES OCCUPANCY PERMIT

• International Financial Square (Tower 3, IFS) in the City Centre was the only

Grade A completion in 3Q15. After being fully fitted out, the office portion of

this mixed-used development was subleased to MFG, a serviced office

operator, by developer Wharf Group. MFG had 20% of the space committed by

end-3Q15.

• In 3Q15, overall vacancy edged down by 1.8 percentage points to 38.5%.

However, vacancy marginally increased in the South Renmin Road submarketas tenants of older buildings relocated out of the submarket.

HIGH VACANCY PROMPTS LANDLORDS TO LOWER RENTS

• A high vacancy environment led many landlords to lower rents in a bid to

improve occupancy and as such, net effective rents declined 1.4% q-o-q to

RMB 94.7 per sqm per month.

• Chinese Estates Center was acquired by Evergrande Real Estate Group when

it purchased all of Chinese Estates Group’s projects (two residential, one

mixed-use) in Chengdu for a total consideration of HKD 6.5 billion

(CNY 5.3 billion).

OUTLOOK: NEW LEASING STRATEGIES EXPECTED TO SPUR ACTIVITY

• In addition to lowering rents, various measures are being undertaken bylandlords to spur leasing activity, including offering higher commissions to

leasing agents and co-operating with government agencies to encourage

more company setups. As vacancy is forecast to remain high in the near term,

more landlords are expected to adopt the aforementioned methods to fill

vacant space.

• A low interest rate environment and business diversification strategies are

expected to see more domestic real estate funds/companies explore the

purchase of quality commercial property assets in core locations.

–4.7% RMB 94.7

STAGE IN CYCLESQM PER MONTH,


RENTAL

GROWTH Y-O-Y

RentsFalling

Financial Indices

Physical Indicators


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

80

120

90

110

100



0

200

400

11 12 13 14 15F

0

20

40

10

30

100

300

700 70

50500

60600


P e r c e n t

16F


18/76

TAIPEI“Record third quarter net take-up but largely due

to pre-commitments to new completions.”

Jamie Chang, Head of Research, Taiwan

9 4 –

O F F I C E


Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for Xinyi.

Physical Indicators

Financial Indices

Note: Taipei Office refers to Taipei’s Overall Grade A office market.

ACTIVITY STRONGEST AMONG MID-TO-LARGE SIZED UNITS

• In the past three years, net take-up in 3Q averaged around 3,000 ping

(9,915 sqm). However, net take-up in 3Q15 reached 10,800 ping, a notable

improvement and largely driven by strong pre-commitments to supply

completed in the quarter.

• Demand mainly came from firms in the technology, IT and financial services

industries.

TWO BUILDINGS COMPLETE

• Cathay Landmark Square and Hung Shen International Financial Centre

reached completion in the quarter and added 31,575 ping to stock. As result of

the new supply, the vacancy rate increased by 2.8 percentage points q-o-q to

10.6%.

• Cathay Landmark Square (27,333 ping) is located in the Xinyi submarket and

features direct access to public transport, a shopping arcade and premium

building characteristics. Hung Shen International Financial Centre which is

located in the Non-core submarket, added 4,242 ping to market stock and has

direct access to the Metro system.

RENTALS GENERALLY STABLE DESPITE STRONG TAKE-UP

• In spite of healthy demand, overall rents edged down slightly by 0.2% q-o-q to

NTD 2,582 per ping per month. It was observed that many leasing deals signed

in the quarter had lengthy negotiation periods and in some circumstances,

with rentals agreed upon in prior quarters – as early as 4Q14.

• Overall market yields remained flat at 3.3% due to sluggish investment activity

and slow rental growth. Investment volumes for all real estate asset classes

totalled NTD 9.7 billion in 3Q, a decrease of 9.0% q-o-q or 71% y-o-y.

OUTLOOK: MODERATE RENTAL GROWTH EXPECTED

• Taiwanese businesses have reduced their intentions to increase staffing

levels and as a result, office demand may be impacted. Finance, professional

services and transport & utility sectors are expected to be the primary drivers

of demand.

• A further 32,000 ping of new Grade A office space is planned to be completed

by year end, with around 85% planned for owner occupancy. As such,

vacancy is likely to increase moderately in 4Q15.

NTD 3,039

PING PER MONTH,

NET ON GFA

2.3%

RENTAL

GROWTH Y-O-Y

STAGE IN CYCLE

GrowthSlowing


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

80

150

140

90

130

120

110

100



0

11 12 13 14 15F

0

9

15

6

12

18

3

180


P e r c e n t

16F

30

60

90

120

150


19/76

TOKYO“Rent growth moderates despite low vacancy, as

corporates are cautious about a globaleconomic slowdown.”

Takeshi Akagi, Head of Research, Japan

Physical Indicators

Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.

Physical Indicators


Financial Indices

Note: Tokyo Office refers to Tokyo’s 5 Kus Grade A office market.

IT AND MANUFACTURING FIRMS MAIN DRIVERS OF DEMAND

• According to the Financial Statements Statistics of Corporations by Industry,

corporate profits reached a record high in the April-June period (+21.6%

y-o-y). However, global economic uncertainty weighed on corporate

sentiment. Net absorption tipped slightly into negative territory in 3Q15.

• In 3Q15, demand was largely driven by tenants in the information &

communication and manufacturing industries. A notable leasing deal

announced in the quarter was mobile app developer Line’s expansion to JR

Shinjuku Miraina in January 2016.

VACANCY REMAINS STABLE

• The vacancy rate at end-3Q15 was 3.3%, remaining stable q-o-q but down 60

bps from a year earlier. Vacancy in mature buildings continued to be below

the market average, while commitment rates for recently completed buildings

was only around 60%. By submarket, Shibuya saw a decrease in vacant

space while Toranomon recorded an increase.

• The Tokiwabashi District Redevelopment Project was announced in 3Q15.

Located on a 3.1 hectare site adjacent to Tokyo Station, the complex will

comprise four buildings offering a total floor area of 680,000 sqm (GFA). Office

space will be offered in Building A (140,000 sqm, GFA) which is due forcompletion in 2021 and Building B (490,000 sqm, GFA) which is scheduled to

be finished in 2027.

RENT AND CAPITAL VALUE GROWTH SLOWS

• Rents at end-3Q15 averaged JPY 34,688 per tsubo per month, increasing 0.7%

q-o-q. Rents have grown for 14 consecutive quarters, although the rate of

increase moderated in 3Q15. Growth was driven by Otemachi/Marunouchi,

Akasaka/Roppongi and Hibiya submarkets.

• Capital value growth slowed to 0.2% q-o-q (15.2% y-o-y), in part reflecting

weaker rental growth. However, the investment market remained active. Mori

Hills Reit acquired a stake (1.4%) in Roppongi Hills Mori Tower for

JPY 12 billion (NOI cap rate of 3.8%).

OUTLOOK: MODEST RISE IN RENTS AND CAPITAL VALUES EXPECTED

• The Japanese economy is expected to see a modest recovery in 2016, with

Oxford Economics forecasting real GDP growth of 1.5%. However, increased

uncertainty surrounding the global economy is a downside risk.

• Vacancy is expected to remain stable amid steady demand and healthy take

up of new supply. The low vacancy environment should support moderate

growth of rents. Persisting investor interest is expected to see cap rates

compress further, and this, in combination with rent growth, should support a

rise in capital values.

4.3% JPY 34,688RentsRising

STAGE IN CYCLETSUBO PER MONTH,

GROSS ON NLA

RENTAL

GROWTH Y-O-Y


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

90

150

120

130

140

110

100



0

200

500

0

2

4

5

1

3

6

400

100

300

600


P e r c e n t

11 12 13 14 15F 16F


20/76

OSAKA“Rents continue to edge up as vacancy declines and

corporate sentiment improves.”

Takeshi Akagi, Head of Research, Japan

9 6 –

O F F I C E

Physical Indicators


Financial Indices


Note: Osaka Office refers to Osaka’s 2 Kus Grade A office market.

DEMAND STEADY AMID RECOVERING ECONOMY

• According to September’s Greater Osaka Tankan Survey, business conditions

for large manufacturers and non-manufacturers continued to improve.

• Leasing demand in 3Q15 was driven by sectors such as professional services,

finance and insurance. Net absorption slowed q-o-q to 7,500 sqm; however,

total net take-up for the first nine months of the year recorded a strong

increase from the same period last year. Notable tenant movements in the

quarter included Asatsu-DK and Daicel’s relocation to Grand Front Osaka

Tower B.

VACANCY CONTINUES TO DECLINE AND REACHES 5.5%

• There were no completions in the quarter and the Shin Daibiru Building which

completed in 1Q is expected to be the only addition to market stock in 2015.

• With no new supply entering the market and steady demand, vacancy in the

overall market declined by 40 bps q-o-q (310 bps y-o-y) to 5.5%. This was the

fourth consecutive quarter of decline. By submarket, decreases were

recorded in Umeda and Midosuji. Grand Front Osaka continued to see an

improvement in occupancy, reaching 80% in the quarter.

RENT GROWTH PICKS UP SLIGHTLY

• Rents at end-3Q15 averaged JPY 16,125 per tsubo per month, increasing

0.6% q-o-q. The rate of growth accelerated slightly and rents maintained an

uptrend for the fifth consecutive quarter. Growth was driven by Dojima and

Midosuji submarkets.

• Capital values in 3Q15 increased 6.4% q-o-q (25.4% y-o-y) and this marked

the eighth straight quarter of growth. Strong growth was sustained as yields

continued to compress, reflecting strong investor interest in regional office

assets. Mori Trust Reit sold Osaka Marubeni Building for JPY 11 billion.

OUTLOOK: RENT GROWTH AND YIELD COMPRESSION PUSH UP CAPITAL VALUES

• Japan’s economy is expected to continue a slow recovery, but the slowdown

in the global economy and volatility in financial markets is a concern.

According to the latest Greater Osaka Tankan Survey, business conditionsare expected to improve for large manufacturers, while those for large non-

manufacturers are likely to soften in 4Q15.

• Leasing demand is expected to remain resilient and this coupled with no new

supply over the next 12 months should place continued downward pressure

on vacancy and support moderate rent growth. In the investment market,

capital values are expected to grow while cap rates compress.

RentsRising

STAGE IN CYCLE

JPY 16,125

TSUBO PER MONTH,

GROSS ON NLA

3.2%

RENTAL

GROWTH Y-O-Y


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

80

140

110

120

130

100

90



0

60

150

11 12 13 14 15F

0

4

8

10

2

6

12

120

30

90

180


P e r c e n t

16F


21/76

SEOUL“Absorption reaches the highest level since 1Q14amid a modest pick-up in demand, in particular

in the CBD.”

Yongmin Lee, Head of Research, Korea

Physical Indicators



Physical Indicators

Financial Indices

Note: Seoul Office refers to Seoul’s Grade A office market.

CBD LEADS REBOUND IN ABSORPTION

• 101 Pine Avenue reached full occupancy on move-ins by Hana Tour (3,860

pyung, gross), ABC Mart Korea (2,300 pyung) and Hanwha S&C (2,200 pyung),

while Hanwha Finance Center Taepyungro and D-Tower witnessed the

arrivals of Hanwha Total (2,200 pyung) and a local taskforce team (1,300

pyung), respectively.

• In Yeouido, Yello Finance Group (2,000 pyung, gross) commenced business at

IFC Three. Gangnam activity was bouyed by the relocation of Amway (2,200

pyung) and Daehan Real Estate (930 pyung) to Asem Tower from Textile

Building due to the increased occupancy requirements of Yulchon, Textile

Building’s anchor tenant.

MODEST DECLINE IN VACANCY ACROSS ALL THREE DISTRICTS

• A lack of new supply aided a 60 bps q-o-q drop in overall vacancy, the largest

decline since 2Q14.

• The decline in vacancy was largest in the CBD and Yeouido, where tenant

demand was focussed on recently completed stock. Despite having a low

vacancy rate, Gangnam continued to struggle to attract new tenants to the

district and to stem the outflow of tenants to newer stock in other districts.

RENTS DECLINE MARGINALLY FOR THE THIRD CONSECUTIVE QUARTER

• Rents declined by 0.5% q-o-q due to increasing incentives in recently

completed stock and buildings with sizeable backfill vacancy. Rent declines

were largest in Yeouido reflecting attractive deals concluded at IFC.

• Investment deal volume was muted in the quarter; however, a strong pipeline

of deals indicates that transaction volumes should pick-up by year end. The

largest deal in 3Q was Hana Financial Group’s acquisition of Grace Tower

(GFA 7,420 pyung) in Gangnam for owner-occupation. The property was sold

by Kormaco on behalf of National Pension Service for KRW 159.5 billion.

OUTLOOK: SAMSUNG AFFILIATES MAY RELOCATE TO NEW SUBURBAN PROJECT

• The only Grade A supply expected over the coming 12 months is Parnasse

Tower (GFA 44,460 pyung) in Gangnam which is scheduled for completion in3Q16. However, the completion of Samsung Electronics Umyeondong R&D

Center (GFA 99,800 pyung) on the south fringe of Seoul in 4Q15 may lead to the

relocation of several Samsung affiliates to this project from Grade A stock.

• The investment market is forecast to remain robust with 2016 pricing levels

likely to be benchmarked off the closing prices for a large number of deals

expected to conclude in 4Q15.

RentsStable

STAGE IN CYCLE

KRW 95,245

PYUNG PER MONTH,


0.3%

RENTAL

GROWTH Y-O-Y


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

90

140

130

120

110

100



–50

11 12 13 14 15F

–2

14350


P e r c e n t

16F

0

2

4

6

8

10

12

0

50

100

150

200

250

300


22/76

SINGAPORE“Weak global economic conditions and large

impending supply put pressure on office rents.”

Dr Chua Yang Liang, Head of Research, Southeast Asia

9 8 –

O F F I C E

Source: JLLFor 2011 to 2014, take-up, completions andvacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD,while future supply is for 4Q15.Physical Indicators are for the CBD.


RentsFalling

STAGE IN CYCLE

Note: Singapore Office refers to Singapore’s CBD Grade A office market in Marina Bay, Raffles Place,Shenton Way and Marina Centre.

SUBDUED ECONOMIC ENVIRONMENT IMPACTS OFFICE DEMAND

• Demand for CBD office space remained lacklustre in 3Q15 with economic

uncertainty and expectations for further rental declines having an effect on

leasing activity.

• Despite overall demand being subdued, there were still some firms that

looked to leverage on Singapore’s position as a regional hub and set up new

offices in the city during the quarter. These tenants were from a wide range

of industries and included the South Korea National Pension Service, ZS

Associates and ECommPay.

FLIGHT-TO-QUALITY PUSHES VACANCY UP IN OLDER STOCK

• In 3Q15, tenants looking to relocate continued to show a preference for deals

which offered lower rents in higher quality buildings in Raffles Place and

Marina Centre submarkets. These deals were especially attractive to tenants

who occupied space in older buildings - usually in the Shenton Way

submarket.

• The overall CBD vacancy rate increased slightly in 3Q15 to 6.1%. Vacancy is

expected to increase gradually over the next few quarters as select

occupiers, mainly in the financial sector, give up space. With much of this

space large in size, landlords may find it difficult to re-lease vacated spacegiven that most demand is currently for smaller requirements. This may

prompt some landlords to subdivide space.

INVESTOR DEMAND REMAINS RESILIENT DESPITE DECLINING RENTS

• In 3Q15, overall CBD rents fell by 4.5% q-o-q to SGD 9.61 per sq ft per month,

declining at a similar pace as in 2Q15. Landlords continued to take pre-

emptive steps to retain and attract occupiers ahead of a large wave of supply

(3.07 million sq ft) due to be completed in 2016.

• The en bloc sales of 158 Cecil Street and Thong Sia Building for

SGD 240 million and SGD 380 million, respectively, signalled the strength of

investors’ confidence. Investors appear to be focused on the longer term

fundamentals of the office market rather than the short-term outlook and

potential impact of an interest rate hike.

OUTLOOK: OCCUPIERS MAY DELAY DECISIONS IN HOPE OF LOWER RENTS

• In the short term, rents across all submarkets are likely to continue trending

lower due to lacklustre demand and pressure from the large supply pipeline

in 2016.

• Pre-leasing activity is likely to remain challenging as existing occupiers are

hesitant to sign new leases until shortly before the expiration of their existing

contracts due to the expectation of further rental declines.

SGD 9.61

SQ FT PER MONTH,

GROSS EFFECTIVE ON NLA

–7.1%

RENTAL

GROWTH Y-O-Y

Physical Indicators

Financial Indices


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

80

130

90

120

110

100



0

100

11 12 13 14 15F

0

4

8

2

6

12

200

50

150

300

10250


P e r c e n t

16F


23/76

BANGKOK“Limited occupier movement but a number osignificant relocation deals inked that will be

reflected in upcoming quarters.”

Andrew Gulbrandson, Head of Research, Thailand

Physical Indicators


Physical Indicators


Financial Indices

Note: Bangkok office refers to Bangkok’s Central Business Areas Grade A office market.

ROBUST LEASING ACTIVITY BUT NET TAKE-UP NEGATIVE

• Net absorption moved into negative territory (–4,000 sqm) in 3Q15 amidst small

amounts of churn, consolidations and a lack of major tenant movements.

• The leasing market remained active with a large number of deals signed in the

quarter. However, most deals represent relocations to projects currently

under construction and thus, will not be reflected in demand figures until

these buildings complete in 2016.

NO NEW SUPPLY COMPLETES WHILE VACANCY RISES

• Grade A office stock remained unchanged in 3Q15 at 1,824,000 sqm, while

vacancy increased by 0.2 percentage points q-o-q to 9.2%.

• Several projects are expected to complete in the next 12 months including

The Metropolis Building in 4Q15 (13,000 sqm), located on Sukhumvit Road, and

FYI Center (48,000 sqm) on the Ratchadaphisek and Rama IV intersection,

which is scheduled to open in 1Q16.

RENTS AND CAPITAL VALUES RISE, WHILE YIELDS REMAIN STABLE

• Gross rents increased by 0.4% q-o-q to THB 783 per sqm per month in 3Q15.

• Capital values increased by 0.5% q-o-q to THB 106,507 per sqm in 3Q15. Theincrease was at the same pace as rent growth and as such, market yields

remained at 6.8%.

OUTLOOK: HEALTHY SUPPLY PIPELINE AND STRONG PRE-COMMITMENT LEVELS

• More than 65,000 sqm are in the pipeline due to complete in the next 12

months in the Central Business Areas (CBA). An estimated 50% of this space

was pre-committed at end-3Q15, suggesting strong demand for new, high

quality space. We believe these projects will be taken up quickly upon

completion and generating robust demand throughout 2016.

• Despite relatively limited available space and a fairly small supply pipeline,

new Grade A office supply outside of the CBA has provided alternative

choices for office tenants, pressuring rental growth for Grade A office

space in the CBA. We believe this trend should continue into 2016. While allsubmarkets should achieve positive rental growth over the next 12 months,

growth in the CBA will likely lag market-wide figures.

4.9% THB 783

STAGE IN CYCLE

GrowthSlowing

SQM PER MONTH,

GROSS ON NLA

RENTAL

GROWTH Y-O-Y


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

0

160

20

100

120

140

80

60

40



0

30

90

11 12 13 14 15F

0

3

9

6

18

15

12

60

180

120

150


P e r c e n t

16F


24/76

JAKARTA“Demand remains relatively thin amid slow

economic growth and continuedrupiah depreciation.”

James Taylor, Head of Research, Indonesia

1 0 0 –

O F F I C E Rents

Falling

STAGE IN CYCLE

Note: Jakarta Office refers to Jakarta’s CBD Grade A office market.

NET TAKE-UP PICKS UP DUE TO NEW SUPPLY BUT ENQUIRIES REMAIN LOW

• Relatively slow economic growth, rupiah depreciation against the US dollar,

low commodity prices and global economic headwinds continued to impact

the Jakarta office market. Demand remained relatively thin in 3Q15 and the

overriding sentiment in the market was one of cost-saving and consolidation.

• The oil and gas and mining sectors were relatively inactive in 3Q15 and

some smaller, local operations were contracting or closing down. However,

firms which feed off Jakarta’s most dependable resource – a large, growing

population - remained relatively strong with several e-commerce firms looking

for space.

AIA CENTRAL THE SECOND NEW COMPLETION IN AS MANY QUARTERS

• AIA Central (42,999 sqm), developed by Selaras Group, is located at the

Sudirman end of the main Thamrin/Sudirman thoroughfare which dissects

Jakarta’s CBD and will form the route of the future MRT line; earmarked for

completion at the end of this decade. AIA moved in during the quarter,

relocating from the Greater Jakarta area.

• Vacancy rates broke the double-digit barrier in 2Q15 on the back of the

completion of Sahid Sudirman Center and rose further in the third quarter. The

two new completions in successive quarters are the forerunners of a packedsupply schedule.

RENTS DECLINE AMID ECONOMIC HEADWINDS AND RISING VACANCY

• Historically, many landlords of Grade A buildings in Jakarta quoted rents in

US dollars. New government regulations, effective July 1st, stipulated that all

domestic business transactions must be conducted in Indonesian Rupiah.

• Rental growth turned negative (–1.6% q-o-q) as landlords offered more

attractive terms in the face of rising vacancy rates and relatively thin demand.

No en bloc sales transactions were closed in 3Q15 although some

international investors continued to show interest in developing mixed-use

projects in prime locations.

OUTLOOK: VACANCY RATES TO RISE FURTHER; MORE RENTAL DECLINES LIKELY• Although pre-commitment deals have been agreed in projects with

completion dates as far ahead as 2018, demand is likely to remain relatively

thin in the short term. We expect continued inactivity from oil and gas firms,

while e-commerce companies are likely to expand. Given the volume of

pipeline supply, we expect vacancy rates to rise further.

• With some landlords facing vacancy pressure and demand remaining

relatively thin, we expect further rental declines in IDR terms in the coming

quarters. A pick up in government spending and GDP growth as well as

currency stabilisation are vital in terms of boosting demand and sentiment.

–2.6% IDR 4,370,094

SQM PER ANNUM,


RENTAL

GROWTH Y-O-Y



Physical Indicators

Financial Indices


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

0

300

50

250

200

150

100



0

50

150

11 12 13 14 15F

0

3

9

6

18

15

12

100

300

200

250


P e r c e n t

16F


25/76

KUALA LUMPUR“Continued political and economic uncertainty

puts a dampener on office leasing activity.”

Dr Chua Yang Liang, Head of Research, Southeast Asia

Physical IndicatorsPhysical Indicators

Arrows indicate 12-month outlookIndex base: 4Q11 =100Source: JLLFinancial Indicators are for the Kuala Lumpur City.

Financial Indices

Note: Kuala Lumpur Office refers to Kuala Lumpur City’s Grade A office market consisting of the GoldenTriangle and CBD submarkets.

SUBDUED DEMAND WITH DOWNSIZING BY OIL & GAS AND FINANCIAL FIRMS

• Leasing enquiries declined on the back of the recent political issues and

difficult economic situation caused by low commodity prices and a weakened

Malaysian ringgit. Oil & gas companies and large financial institutions

continued to downsize in terms of headcount and occupied space. Despite

weak demand, net absorption was positive in 3Q15.

• Leasing demand was led by domestic business services firms’ flight-

to-quality. The decentralisation trend continued with the Decentralised

submarket gaining popularity - especially within KL Sentral, Mid Valley City

and Bangsar South - due to its access to quality public transportation and

affordable rents.

VACANCY STABLE AMID NO NEW SUPPLY

• No new supply was completed during the quarter and vacancy held firm at

13.3%.

• There are rising concerns over the large amount of supply due in the KLC

submarket from 2019 onwards. This supply is largely being driven by major

government-led projects including KL 118, Tun Razak Exchange and Bukit

Bintang Commercial Centre.

RENTS DECLINE ON THE BACK OF A SUBDUED LEASING MARKET

• Softer leasing market conditions resulted in rents declining marginally as

some landlords opted to focus on occupancy over rents. Select landlords of

older buildings within the CBD submarket increased rental incentives

including offering longer rent-free periods.

• Investment yields remained stable amid a muted investment market. While

some property owners lowered their pricing expectations, prices are still

relatively high due to the limited availability of quality assets.

OUTLOOK: RENTAL DECLINE LIKELY TO CONTINUE

• Landlords are expected to prioritise occupancy over rents and this in

combination with softening demand is expected to lead to a further decline in

rents.

• The leasing market should continue to favour tenants, with vacancy rates

lingering in double digits. Demand is expected to be more concentrated within

the Decentralised submarket due to its quality infrastructure and relatively

congestion-free roads.

0.9% MYR 6.32Rents

Falling

STAGE IN CYCLESQ FT PER MONTH,

GROSS ON NLA

RENTAL

GROWTH Y-O-Y


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

80

130

90

120

110

100



0

70

280

11 12 13 14 15F

0

4

12

16

8

20

210

140

350


P e r c e n t

16F



26/76

MANILA“Rents expected to grow at a slower pace due to

competition rom new supply.”

Claro dG. Cordero, Jr., Head of Research, Philippines

1 0 2 –

O F F I C E



GrowthSlowing

STAGE IN CYCLE

Physical Indicators

Financial Indices

Note: Manila Office refers to the Makati CBD and BGC Grade A office market.

OUTSOURCING AND TECHNOLOGY FIRMS LEAD OFFICE DEMAND

• Net absorption in Makati CBD and Bonifacio Global City (BGC) rose from

12,000 sqm in 2Q15 to 86,400 sqm in 3Q15, mainly driven by off-shoring and

outsourcing (O&O), technology-related and other services firms. The increase

in net absorption was partly due to take-up of office space in newly

completed developments.

• Notable lease transactions in 3Q15 included an O&O firm renewing its lease in

a built-to-suit development in Makati CBD, an e-services firm taking up

2,100 sqm in newly completed Net Park and a business services firm pre-

committing to 2,000 sqm in Uptown Tower 3 in BGC.

NEW SUPPLY AND EXISTING AVAILABLE SPACE PUSH UP VACANCY

• Four office developments, MDI Corporate Center, Net Park, 8 Rockwell and

Cocolight were completed in 3Q15, adding 102,800 sqm of office space. All of

these developments, except for 8 Rockwell, are located in BGC.

• The vacancy rate increased slightly to 4.8% in 3Q15 from 4.3% in 2Q15 as

newly completed developments were not fully leased out upon completion.

Despite the increase in the vacancy rate, Grade A developments in Makati

CBD and BGC continued to enjoy high occupancy.

CAPITAL VALUES INCH UP SLOWLY AFTER PREVIOUS ROBUST GROWTH

• Rents registered a modest growth of 0.2% q-o-q, supported by stable O&O

office demand. Likewise, capital values saw minimal movement, inching up by

0.1% q-o-q and consequently, investment yields remained relatively stable at

9.2%.

• Strata-title office units in existing Grade A developments in Makati CBD

continued to be traded in the secondary investment market, fuelled by

demand from investors and occupiers. Meanwhile, demand for pre-selling

strata-title office units, mostly located in BGC, was driven by retail investors

and small and medium-sized enterprises.

OUTLOOK: SLOWER RENT GROWTH EXPECTED AS SUPPLY EXPANDS FURTHER

• A total of 200,000 sqm of office space is scheduled to be completed in the next two quarters from eight office developments. Vacancy rates are likely to rise,

given the incoming supply.

• Rents are expected to maintain positive growth, albeit at a slower pace, while

capital values are expected to increase further supported by the favourable

investment outlook of the country.

3.5% PHP 895

SQM PER MONTH,


RENTAL

GROWTH Y-O-Y


I n d

e x

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

90

150

140

100

130

120

110

Take-Up (net) Completion

asia pacific property digest 3q 2015

Documents