JLL Asia Pacific Property Digest 3q 2014

Technology Sector Lights Up Leasing DemandAsia Pacific Property DigestThird Quarter 2014

Asia Pacific Property Digest • Third Quarter 2014 3

Feature ArticlesAsia Pacific Economy and Property Market 4 The application of smart beta investment strategies to real estate 8 Fuelling Beijing office demand: two key industries to watch 9Next generation of retail outlets in China 10The great divide in the Philippine residential condominium market 11OfficeHong Kong 12 Beijing 15 Shanghai 16 Chengdu 17 Taipei 18 Tokyo 19 Osaka 20 Seoul 21 Singapore 22 Bangkok 23 Kuala Lumpur 24 Jakarta 25 Manila 26 Ho Chi Minh City 27 Delhi 28 Mumbai 29 Bangalore 30 Sydney 31 Melbourne 32 Brisbane 33 Auckland 34RetailHong Kong 35 Beijing 36 Shanghai 37 Chengdu 38 Tokyo 39 Singapore 40

Bangkok 41 Kuala Lumpur 42 Jakarta 43 Delhi 44 Mumbai 45 Sydney 46 Melbourne 47ResidentialHong Kong 48 Beijing 51 Shanghai 52 Singapore 53 Bangkok 54 Kuala Lumpur 55 Jakarta 56 Manila 57IndustrialHong Kong 58 Beijing 59 Shanghai 60 Tokyo 61 Singapore 62 Sydney 63 Melbourne 64HotelsHong Kong 65 Beijing 66Shanghai 67 Tokyo 68 Singapore 69 Bangkok 70 Kuala Lumpur 71 Jakarta 72 Sydney 73

Dear Reader,In Q3 2014, leasing volumes continued to improve and in many of the more active markets across Asia Pacific, the tech sector was a major driver of demand for space. Regional investment volumes were stable and are on track to reach a similar level for the full year 2014 as last year.You can view this report on-line at www.jll.com/thehub where you will also find our other research outputs.The AP research team hopes that you find this publication valuable.Happy reading! Best regards,

Dr Jane Murray Head of Research – Asia Pacific

0Ec

onom

y

4 Asia Pacific Property Digest • Third Quarter 2014

Mixed economic growth in the third quarterChina grew by 7.3% y-o-y in Q3, the lowest growth rate in five and a half years, with the slowing property sector weighing on domestic demand. Japan posted another contraction in Q3 and is now in a technical recession. At the end of October, the Bank of Japan unleashed another round of massive stimulus. On a more positive note, growth in India looks to have stabilised while the Philippines continues to stand out for its strong performance.

Asia Pacific EconomyChina slowing, mixed elsewhere

Dr Jane MurrayHead of Research – Asia Pacific

Figure 1: Uneven Growth Across Asia Pacific

Source: Oxford Economics, November 2014

Figure 2: Outlook for Major Economies

CountryReal GDP

Growth (%)2014F

Real GDP Growth (%)

2015F2015 Outlook

China 7.4 6.5 • Growth to slow to below 7% next year. Slightly stronger exports and public infrastructure spending, but weaker consumption and investment.

• Policymakers are committed to reforming and rebalancing the economy away from credit-fuelled growth. Only targeted stimulus measures likely in specific sectors.

Japan 0.7 1.0 • Exports should strengthen on further yen declines. An announcement is due imminently regarding the 2nd sales tax hike slated for Oct 2015.

• The BoJ’s surprise move to expand QE should help raise confidence in the short term. However, it remains uncertain whether the 3rd arrow of ‘Abenomics’ will succeed in raising medium-term growth.

India 5.3 5.7 • GDP growth to slowly pick up as a result of stronger external demand and fixed investment. Recent fall in inflation provides scope for interest rate cuts.

• The new government is making some progress on reforms, but weak infrastructure and tight fiscal/monetary policies to date remain hindrances to growth.

Australia 3.1 2.7 • Growth to slow on subdued consumption (soft labour market, high household debt) and weaker investment (end of mining boom) coupled with fiscal austerity.

• The AUD has fallen in recent months, which should aid export growth.South Korea 3.4 3.5 • Stronger exports (account for around 50% of GDP) as growth in the US gathers momentum,

although demand from China will likely remain weak.• Low interest rates and more public spending (health, welfare) but subdued consumer

spending as a result of high household debt.Indonesia 5.1 5.8 • Growth to pick up on strong consumer and public spending, but limited scope for a recovery

in exports and manufacturing output.• Inflation should ease but interest rates to remain high due to concerns about the current account

deficit. The reform-minded new government faces strong opposition in passing legislation.Singapore 3.0 3.1 • Growth similar to this year, supported by improving exports, stronger consumer spending

(fuelled by wage growth) and business investment.• On the other hand, weaker inbound tourism (less Chinese tourists) and subdued real

estate-related activity (ongoing housing market correction). Hong Kong 1.9 2.6 • Stronger exports but lacklustre consumption (slower growth in inbound tourism) and real

estate-related activity (property curbs).• Rising political risks associated with ‘Occupy Central’. However China should maintain

policy support to the city (as evidenced by the HK-Shanghai stock exchange link finally commencing in Nov).


2014F 2015F

y-o-y

(%)

0

2

4

6

10

8

China

Japa

n

Philip

pines

Vietn

am

Indon

esia

India

Malay

sia

Thail

and

South

Kor

ea

Taiw

an

New

Zeala

nd

Sing

apor

e

Austr

alia

Hong

Kon

g

Econ

omy a

nd P

rope

rty M

arke

t


Varied retail sales performanceIn China, retail sales growth continues to moderate, while fourth quarter sales in Hong Kong are likely to be dented by the disruptions caused by the ‘Occupy Central’ protests. Meanwhile, sales in Japan are slowly recovering after the April sales tax hike and record visitor arrivals from China are providing support to the retail sector. Latest monthly figures also show some improvement in Singapore and Australia.

Positive signs for exports but manufacturing yet to gain speedExport growth has been positive in most countries. September figures showed an improvement in China (although over-invoicing may have been a factor) and exports rose at the fastest pace in seven months in Japan. However, Australian exports have slowed in recent months. The latest PMI readings across the region indicate that the manufacturing recovery is yet to gain momentum, and new orders remain lacklustre in most markets.

Significantinterestraterisesunlikelyin2015With the ending of QE by the US Fed in October, focus has now turned to the timing of the first interest rate rise, with many commentators thinking that this will happen around the middle of 2015. In AP, some countries should start tightening monetary policy next year in line with the US (notably Hong Kong and Singapore), while others may be forced to raise rates to slow property price increases and credit growth. However, no significant interest rate hikes are expected until 2016. Japan is likely to buck the regional trend and maintain loose monetary policy for an extended period.

Aggregate office leasing volumes continued to improve in Q3, and this supported an acceleration in rental growth. At the same time, the commercial real estate investment market remained active and full year volumes are on track to be similar to the record level achieved in 2013.

Officeleasingactivitystrengthens,butstillpatchyAcross Asia Pacific, leasing activity continues to strengthen, but it is still patchy and significantly below the levels of 2011. During Q3, new leasing activity grew by 10% y-o-y, with India and Mainland China accounting for two-thirds of the regional total. In many of the more active markets, the technology sector and associated IT-enabled services are driving demand for space. The tech sector is currently a major driver of take up of space in cities such as Bangalore and Sydney, while outsourcing activity is strong in markets such as Manila and Mumbai.

During Q3, demand in China largely came from domestic financial services and legal firms requiring space to accommodate new hires. Hong Kong and Singapore continued to see limited take-up, underpinned by smaller requirements. Tokyo saw slower pre-leasing activity for Grade A space but occupier demand remained healthy

Asia Pacific Property MarketTech sector drives improvement in leasing activity

for Grade B. Leasing activity has started to improve in Australia, particularly Sydney and Melbourne, with stronger activity from technology firms but still limited growth from banks, legal firms and the public sector.

Given the modest Grade A supply additions in the Tier I markets during the quarter (down 27% y-o-y to 0.9 million sqm), vacancy rates fell in over half of the major markets. The aggregate vacancy rate across the region fell from 11.5% to 11.2%, but with a wide range across cities – from as low as 2.5% in Beijing to a high of 31% in Hanoi.

Rental growth strengthens further. Singapore and Auckland grow fastestAs leasing volumes improve, regional rental growth is also continuing to pick up. In fact, quarter three was the strongest result in two years, with average annual rental growth of 2.9% across the Tier I office markets. Singapore has been the clear outperformer with rental growth of 19% over the twelve months to end Q3. The runners-up were Taipei, Wellington and Auckland which recorded annual growth of 8 to 10%.

Figure 3: Benign Inflationary Environment


Stable regional growth next yearRegional economic growth of around 5% is expected for both this year and next. Most Asia Pacific economies are likely to see 2015 growth similar to or slightly higher than this year, helped by a stronger US economy, a benign inflationary environment and positive political changes in some countries. China and Australia are expected to slow as both countries focus on new economic drivers.

There are a number of challenges to the outlook, including the risk of another recession in Europe, credit bubbles and global geo-political risks. The expectation of interest rates rising in the US also has the potential to cause some volatility in emerging markets, but most AP countries seem well placed to weather financial market risks.

India

0

2014F 2015F

y-o-y

(%)

2

4

6

8

10

Vietn

am

Indon

esia

Philip

pines

Malay

sia

Hong

Kon

g

Austr

alia

China

Sing

apor

e

South

Kor

ea

New

Zeala

nd

Japa

n

Thail

and

Taiw

an

Prop

erty

Mar

ket


Quarterly growth remained steady in Tokyo, Beijing and most emerging Southeast Asian markets (1 to 2%), while Hong Kong saw marginal growth (0.4%) driven by the top end of the market. Net effective rents edged down in Seoul and Shanghai Puxi, and fell by up to 6% q-o-q across the Australian markets with the exception of Melbourne (up 1.6% q-o-q).

Moreinternationalretailersarrive,growthofservicesThe region saw generally healthy retailer demand in Q3, with the ongoing arrival of international brands and the growing prominence of services-based retail. However, some caution was seen in select markets.

China saw stable demand during the quarter, but with slow expansion by luxury retailers and many landlords re-orienting tenant mixes towards more F&B and mid-tier fashion brands. Demand softened in some locations in Hong Kong due to changing shopping patterns of Mainland tourists and ‘Occupy Central’ protests. International retailers continued to set up shop in Southeast Asia and were more active in Australia, while many retailers in India opted for high street locations. Rents rose slightly (1 to 2% q-o-q) in China and some Southeast Asian markets, but were generally flat elsewhere.

Subduedresidentialleasing.GenerallyflatrentsHigh-end residential leasing demand remained subdued in most markets during the quarter. Rents fell slightly in Singapore, and elsewhere were stable or increased marginally – with Hong Kong recording its first rise in three years. In general, we do not expect take-up or rents to pick up significantly in the near term.

Warehouseleasingdrivenbytheretailsector,butdemandfromexporters to strengthenAcross the region, e-commerce and logistics companies continued to underpin industrial leasing activity. Moderate rental growth was seen in Greater China (strongest quarterly growth of 3.7% in Hong Kong)

but rents remained mostly flat in Singapore and Australia. Demand from exporters should strengthen going forward, in line with the pick-up in export volumes.

Stable commercial real estate investment volumes In Q3, commercial real estate investment volumes were up 1% y-o-y to USD 30.3 billion, with the top two markets of Japan and Australia accounting for half of total activity. Year-to-date, volumes total USD 85.2 billion, down 5% on the same period of 2013.

Japan continues to lead the way, accounting for a third of total regional volumes year-to-date. Its improving rental outlook, low borrowing costs and wide yield spreads are proving attractive to investors. Australia also remains very active, with volumes up by 40% y-o-y in Q3. In the third biggest market, China, activity has softened with buyers in a wait-and-see mode, but we expect volumes to pick up when the macro environment stabilises.

A persistent trend over the last few years has been the disconnect between leasing and investment activity, reflected in capital value growth outpacing that of rents. Quarter three was no exception, with average annual price growth of 7% across the major office markets. Tokyo has seen prices surge by almost 20% over the last year, with other markets including Manila and Sydney also registering double digit growth. We expect this disconnect to continue over the next year, with some further yield compression in store. However the differential between rental and capital value growth should narrow by the end of 2015, as rental growth accelerates and CV growth softens.

Moderate improvement in leasing in 2015. Investment to strengthenAt this stage, we are cautiously optimistic that office leasing volumes will continue to improve (by around 10–15%) next year, although MNCs remain relatively inactive compared to domestic corporates. Meanwhile, with a strong pipeline of investment deals and significant levels of capital waiting to be deployed, we expect commercial real

Figure 5: Direct Commercial Real Estate Transactions 2006–YTD 2014

Figure 4: Office Rental & Capital Value Changes Yearly % Changes, 3Q14

Figures relate to the major submarket in each citySource: JLL (Real Estate Intelligence Service), 3Q14

Figures refer to transactions over USD 5 million in office, retail, hotels and industrialSource: JLL (Real Estate Intelligence Service), 3Q14

Rental Values Capital Values

y-o-y

%

0

20

10

15

5

Sing

apor

e

Bang

kok

Toky

o

Manil

a

Jaka

rta

Beijin

g

Shan

ghai

Sydn

ey

Hong

Kon

g

Melbo

urne

Seou

l

Mumb

ai

Japan AustraliaChina

Hong Kong

Singapore

South Korea Other

USD

Billio

n

0

25

75

150

125

50

100

2006 2007 2008 2009 2010 2011 2012 YTD 20142013

YTD 2014$85.2 bill5% y-o-y

Prop

erty

Mar

ket


About the AuthorDr Jane Murray joined JLL in 1998 and in 2005 was appointed as Head of Research – Asia Pacific. In this role, Jane leads a team of over 100 professional researchers in the region, which forms part of a network of around 300 researchers in 60 countries around the globe.

The Asia Pacific Research team produces a range of outputs to

assist the clients of the Firm with their decision making, including comprehensive market monitoring and analysis across major institutional-grade real estate markets in the region; forecasts of key real estate indicators; consultancy projects; thought leading research papers on topical issues as well as regular publications.

Figure6:RentalPropertyClocks,3Q14

estate investment volumes to reach USD 120 billion for the full year 2014 and increase to another record level (around USD 130 billion) in 2015.

Moderate rental and capital value growth of less than 10% is expected across most sectors and markets over the next twelve months. Outperformers are likely to include Tokyo, Beijing, Sydney and Auckland in the office sector, and Beijing and Bangkok in retail. In some residential markets such as Hong Kong and Singapore, policy curbs are expected to remain in place for some time, resulting in downward price pressures.

Source: JLL (Real Estate Intelligence Service), 3Q14 Note: Clock positions for the office sector relate to the main submarket in each city.

GrowthSlowing

RentsFalling

RentsRising

DeclineSlowing

Guangzhou

Singapore,Hong Kong

Ho Chi Minh City, Hanoi, Sydney Seoul, Canberra

Bangkok

Taipei

Tokyo

Melbourne, Osaka

Kuala Lumpur

Shanghai

Manila

Jakarta

Beijing, BangaloreDelhi, Mumbai

Chennai

Perth

Brisbane

Adelaide

WellingtonAuckland

GrowthSlowing

RentsFalling

RentsRising

DeclineSlowing

Beijing, Kuala LumpurGuangzhou

Hong Kong

Bangkok

Singapore *

Shanghai

Manila

Jakarta

*For Luxurious Residential Properties

GrowthSlowing

RentsFalling

RentsRising

DeclineSlowing

*Business Parks (Singapore) & Conventional (Singapore)Logistics Space (Hong Kong, Shanghai, Beijing, Tokyo Bay Area)

Beijing, Sydney, Melbourne

Hong Kong

Tokyo

Singapore (Multi User)Singapore (Business Park)

Shanghai

Manila

Singapore (Logistics)

BrisbaneWellingtonAuckland

Prime Residential

Grade A Office Prime Retail

Industrial

GrowthSlowing

RentsFalling

RentsRising

DeclineSlowing

*Regional

Beijing

Kuala Lumpur, Guangzhou

Hong Kong

BangkokTokyo

Singapore

Manila

Jakarta

MumbaiDelhi

BangaloreChennai

ShanghaiSE Queensland*

Auckland, Sydney*, Melbourne* Wellington

Aust

ralia


The concept of smart beta is gaining traction amongst investors as a viable investment strategy. At the moment, it is more prevalent in equity markets, but is increasingly pushing into fixed income and alternative assets. The Economist magazine ran an article on the topic in July 2013 titled: The Rise of Smart Beta – Terrible Name, Interesting Trend. The Economist’s assessment of the name is rather harsh, but they are correct – the concept is interesting.

As an investment strategy, smart beta sits between market capitalisation and an active strategy (alpha). The growing interest in smart beta is partly to offset the undesirable characteristics of the market capitalisation investment strategy. For example, when an equity market investor maintains a market capitalisation weighted portfolio, they have to invest into strong performing stocks and reduce their position in under-performing stocks. Potentially, this strategy leads to higher allocations to over-valued stocks and an under-weight position on stocks which may have attractive valuations. While the process of mean reversion is neither deterministic nor smooth, there is sufficient empirical evidence to suggest stocks mean revert over the long term.

A further limitation of the market capitalisation strategy is that sectoral weights are determined by the composition of an individual equity market. As an illustration of this limitation, Financials (excluding property), Materials and Property Trusts account for almost two-thirds of the market capitalisation of the S&P/ASX 200 index. A market capitalisation strategy is, therefore, heavily weighted to these sectors with very low allocations to Education and Health Care, which are among the growth sectors of the Australian economy.

Andrew BallantyneHead of Capital Markets Research, Australia

The application of smart beta investment strategies to real estate

Smart beta is an evolution of the traditional market capitalisation strategy. Three of the widely promoted smart beta investment strategies are:

• Equal weighted portfolio.• Economically weighted portfolio.• Minimum volatility portfolio.

What are the implications of smart beta investment strategies for real estate? The first part of any analysis is to estimate the market value of the six CBD office markets (Sydney, Melbourne, Brisbane, Perth, Adelaide and Canberra). This provides a numerator and a denominator for the calculation of the market capitalisation asset allocation strategy. Our modeling estimates a market value figure of AUD 120 billion for the Australian CBD office markets. A market capitalisation asset allocation strategy would imply that Sydney CBD, with a 43% allocation, is the cornerstone of a diversified office portfolio.

A CBD office portfolio constructed using the market weights of 2013 would have generated a return of 10.54% per annum over the past 10 years. An equal-weighted portfolio, however, would have generated a return almost 100 basis points higher at 11.40%.

At first glance, there appears to be some merit in further exploring the application of smart beta investment strategies to commercial real estate. However, we remain cognisant that smart beta strategies can reduce liquidity and with real assets – the idiosyncratic risk factors need to be carefully reviewed and managed.

About the AuthorAndrew Ballantyne is the Head of Capital Markets Research – Australia at JLL. He is responsible for the production of thought leadership papers, the office market research portfolio and management of the overall Strategic Research team. Andrew holds a Master of Arts Degree and a Bachelor of Business Economics.

Chin

a


Christopher ClausenManager, Research, Beijing

Fuelling Beijing office demand: two key industries to watch

About the AuthorChristopher Clausen is a Manager on the JLL Research team in Beijing. He specialises in the office and industrial commercial property sectors. He is responsible for tracking, analysing and forecasting key real estate indicators as well as providing consultancy services to JLL clients. Christopher also regularly contributes to thought leadership publications.

During client meetings I’m frequently asked “Which industries drive demand for Beijing Grade A office space?” Most of our clients are familiar with the usual suspects: banking, investment, insurance, legal and professional services. However, not as many are familiar with the automotive and hi-tech industries – two industries which have shown very strong demand momentum in recent quarters.

China has been the largest new car market in the world for several years, having surpassed the USA in 2010 according to McKinsey. Some international carmakers have partnered with local companies to manufacture cars in Beijing. However, what drives demand for Grade A office space are the sales and finance operations of these firms which have expanded along with the growth in new car sales in China.

The central government’s recent antitrust probes, which have targeted some international carmakers, have left many pondering the effects on foreign carmakers. While any fines imposed would surely dampen profitability, we do not expect to see a drop off in demand for office space from foreign carmakers. New car sales continue to grow and many of these firms are likely to expand their Grade A office footprint to efficiently tap the growing demand.

Zhongguancun: Beijing’s IT hub

Beijing is also known as the Silicon Valley of China. Strong policy support for the hi-tech industry and a deep pool of highly-educated talent have resulted in several large domestic and foreign hi-tech firms leasing Grade A office space in Beijing, and this is not limited to Zhongguancun, a tech hub in Haidian District of Beijing. Large foreign hi-tech companies, such as Microsoft and Apple, have driven demand for Grade A office space but domestic firms are on a quick ascent. The policy environment has also fostered the growth of domestic internet giants such as Tencent, Sohu, and Baidu, who occupy huge spaces in Beijing. Furthermore, some domestic hi-tech companies are competing strongly in the China market with leading global brands. Xiaomi became the top selling smartphone brand in China, surpassing Samsung, in the second quarter of 2014. While the pace of expansion demand from foreign hi-tech firms may be curtailed, domestic companies are likely to pick up the slack.

The flourishing automotive and hi-tech industries set Beijing apart from other Tier-1 cities in China. And although they are not the largest occupiers in Beijing, they are showing rapid, sustainable growth. Firms from these industries will be substantial contributors to take-up not only in decentralised but in core areas.

Chin

a


On a recent trip, I had the chance to visit Gotemba Premium Outlets, one of the most famous outlet malls in Japan. Sitting at the foot of Mount Fuji, and only a two-hour drive from Tokyo, Gotemba attracts millions of shoppers and tourists each year. Opened 14 years ago, with a mix of high-end and mass market brands, the property is frequently studied as a successful example of outlet mall execution. At 48,000 sqm NLA, this project is an average size by Japanese standards and was a JV between the then-largest outlet developer in the world, Chelsea Property Group (now part of Simon Property Group after a 2004 merger) and Mitsubishi Estate of Japan.

What makes Gotemba successful? Although the architecture is that of a typical American-style outlet, i.e. outdoor, one-storey and with a large land footprint, the view of Mount Fuji gives the property strong tourist appeal. Second, the outlet can be accessed by multiple modes of transportation, including free shuttle buses from the nearest train station and various buses directly from Tokyo. The outlet also appears prominently on free tourist maps. Finally, the outlet operator pays great attention to detail in marketing and customer service, including the following strategies:

• The centre’s website can be viewed in six different languages,• All areas are handicapped-accessible,• There are strollers and wheelchairs available for rent; and• The directory not only lists shops, but also points out a Ferris

wheel and the best spot to see Mount Fuji.During my visit, besides loads of shoppers being dropped off by bus, I also saw local residents walking their dogs and children having a great time in the playground. It seems the centre is not simply an outlet, but also a friendly community gathering point.

Chen LouManager, Research, Shanghai

Next generation of retail outlets in China

About the AuthorChen Lou is a Manager in the JLL Research team in Shanghai. Chen specialises in retail research for the Shanghai and East China region. She is responsible for providing market commentary and analysis for publications and consulting projects, and also has an active role in the Real Estate Intelligence Service (REIS).

Is there a Gotemba in China?

I think the answer is “coming soon”. In my view, China has experienced two generations of outlets. The first generation is represented by projects such as Yansha Outlet in Beijing: big box, simple construction, indoor format, and locally developed and operated. As China’s top outlet by sales, its success lies in its price advantage. Projects such as Tianjin Florentia Village represent the second generation: foreign developer, international style, outdoor and suburban location.

The third generation, in my opinion, will be projects similar to Gotemba Premium Outlets that offer more than just shopping. The outlet landscape is becoming more and more competitive. Suzhou Village, a recently opened outlet developed by Value Retail Group, has many of the advantages of the Gotemba outlet. It combines a relaxing environment with a view of Yangcheng Lake, lakeside dining, art galleries, and a playground. If Suzhou Village succeeds, other new Chinese outlets will follow suit and offer a more sophisticated shopping environment.

Today’s consumer is increasingly price-savvy as a result of rising international travel and extensive online shopping exposure. Also, as rents in full-price malls continue to rise, many retailers find outlet locations appealing. Specially-produced “made for outlet” product lines can be offered for the price-conscious consumer. With rising car ownership rates, the idea of a “day trip” outside the city is catching on.

Philip

pine

s


The subject of the “asset bubble waiting to explode” in the Philippine residential condominium market remains contentious among industry stakeholders. While developers and brokers agree that the market remains healthy, there are many others who remain sceptical about the true health of the residential property market.

The argument for those who believe that the residential sector is heading for a crash is mainly founded on the volume of new supply that is expected to complete in the market over the next couple of years. For the past five years in Metro Manila alone, the average number of residential condominium units completed in a quarter was approximately 6,000 units, while there are over 8,000 units that are expected to be ready per quarter over the next five years. This quarterly supply of new residential condominium units far exceeds the ten-year (2003-13) historical average of 600 units per quarter. To the naysayers, the future stream of completions is a product of the excessively hyped demand over the past few years.

For those who believe that demand for residential condominiums remains healthy, their argument is anchored on the condition of the demand drivers – the improving spending power of urbanites, fuelled by remittances from overseas Filipinos (OFs) and the proliferation of the offshoring & outsourcing (O&O) industry employing a growing number of professional and skilled workers.

In the 3Q14 Consumer Expectations Survey conducted by the Bangko Sentral ng Pilipinas, the allocation of OF remittances for the purchase of residential developments remained strong. The consumer outlook has also improved because household income has risen on the back of higher salaries and an increase in the number of employed persons within each household.

ClarodG.Cordero,Jr.Head of Research, Consulting & Valuation Advisory, Philippines

The great divide in the Philippine residential condominium market

About the AuthorClaro dG. Cordero, Jr. leads the Research, Consulting & Valuation team in Manila. Claro has 13 years’ experience which has helped the team establish a reputation for providing incisive local market commentaries. Claro holds a Master of Science in Industrial Economics and is currently completing a Master of Science in Financial Engineering.

Moreover, in the first eight months of 2014, OF remittances grew by 6.5% y-o-y to USD 17.2 billion. Revenue from the O&O industry is expected to grow to USD18.0 billion with more than a million full-time employees (FTEs) by end-2014 from the USD15.5 billion and approximately 900,00 FTEs in 2013.

With OF remittances and the O&O industry on an upward trajectory, demand for residential developments, particularly in the residential condominium sector, is expected to grow. As the demand for skilled Filipino labour, both within and outside the Philippines, consistently increases, we can expect the need for housing and accommodation, particularly those upgrading in the major urban cities, to remain strong.

Nonetheless, it is no surprise to expect also a growing buzz among those who are waiting for a crisis to unfold.

Evolving Metro Manila landscape with increasing number of residential condominium developments

Hong

Kon

g: O

ffice


Hong Kong: Office

• Net take-up in 3Q14 reaches two-year high• Kowloon East the only submarket to record rental contraction• Capital values stabilise on back of improved investor sentiment

DemandNet take-up in the overall market reached a two-year high of 480,500 sq ft on the back of robust leasing demand and a slightly more active investment market. In Central, several large tracts of returning stock arising from tenant relocations and consolidations reduced net take-up to 112,400 sq ft.

The planned redevelopment of Swire Properties’ techno centres in Quarry Bay continued to serve as a catalyst for demand in Hong Kong East and Kowloon East. The relocation of government offices from Cornwall House to Cityplaza Three resulted in some tenants having to seek alternative offices. For example, Fuji Xerox will move to nearby Cityplaza Four while Leo Burnett leased two floors in AIA Kowloon Tower at Landmark East in Kwun Tong.

SupplyNo new supply was completed in 3Q14 though two of Billion Development’s Grade A office developments—10 Shing Yip Street and 52–56 Tsun Yip Street in Kwun Tong—remained on schedule for completion in 4Q14.

In an attempt to increase the total commercial GFA at Kai Tak Development, the government proposed to relax the maximum plot ratios and building height restriction of several commercial sites as well as convert the land use zoning of six “Government, Institution or Community” sites to commercial use.

Asset PerformanceThe occupier market saw rents edge higher across all submarkets with the exception of Kowloon East, where they remained under pressure due to competition from new supply. Rental growth in Central was supported by growth at the top-end of the market (i.e. Grade A1 office buildings) where the vacancy rate remained below 2%.

Capital values across all submarkets held firm in 3Q14 on the back of a low interest rate environment and an up-tick in investment activity. The number of office properties over HKD 20 million sold reached their highest level since the introduction of the Double Stamp Duty in early 2013. In Kowloon East, Citigroup’s en bloc purchase of the East Tower at One Bay East in 2Q14 reignited investor interest in the submarket with several transactions at One Harbour Square in Kwun Tong achieving record highs, in terms of unit rate.

12-Month OutlookWe forecast mild rental growth across all submarkets over the near-term, with the exception of Kowloon East where competition from new supply is likely to continue to weigh on rentals. The vacancy rate in Central is set to rise owing to some notable lease expiries in 4Q14, although only a handful of buildings will be affected. The Occupy Central movement has not had a significant impact on office leasing so far though we may see increasing demand for contingency office space in decentralised locations should the situation persist.

Developers are likely to launch more properties for sale over the near term on the back of improved investment sentiment. Capital values are expected to hold steady despite growing concerns of rising interest rates. We believe that the higher expectations on market yields arising from higher rates will initially be met through rental growth.

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

12-Month Outlook

Rental Value Capital Value

For 2010 to 2013, take-up, completions and vacancy rates are year end annual. For 2014, take-up, completions and vacancy rates are YTD, while future supply is for 4Q14.

Physical Indicators are for the Overall market.

Financial Indices

Arrows indicate 12-month outlookIndex base: 4Q10 = 100Source: JLL

Physical Indicators

Source: JLL

Rental InformationRental Value^ HKD 90.0 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

6

^ net effective, on NFA

Financial Indicators are for Central.

Index

Rental Value Index Capital Value Index4Q10 4Q11 4Q12 4Q13 4Q14 4Q150

50

150

100

200

Take-Up (net) CompletionsFuture Supply Vacancy Rate

10 11 12 13 14F–2

2

4

6

8

Percent

–100

100

200

300

400

Thou

sand

sqm

00

15F

Data, charting and instant access to all the leading market insights online.

Subscribe to JLL’s Real Estate Intelligence Service today.

Contact: Roddy Allan, [email protected]

Stay ahead of the curve

Jones Lang LaSalle© 2014 Jones Lang LaSalle IP, Inc. All rights reserved.

www.jll.com/asiapacific

Download JLL’s DataTouch today and access Office, Retail, Residential, Hotels and Industrial market data from your smartphone or tablet. Wherever you are.

Need Asia Pacific rents and capital values on the move?


www.jll.com/datatouch

Beijin

g: O

ffice


Beijing: Office

• Overall vacancy rate tightens to 2.5% due to steady CBD take-up• Overall rents rise, driven by increases in several submarkets• Capital values grow in line with rents, market yield unchanged

DemandThe Beijing Grade A office market registered strong net take-up in 3Q14, with the majority of take-up concentrated in the CBD. However, total take-up volumes continued to be held back by tight market conditions. Tenants from a broad range of industries drove demand for CBD office space, consistent with the submarket’s historical demand profile. For example, Guo Tai Investment took 2,500 sqm in Yintai Centre, while a second local investment company took a similar sized space at Fortune Financial Center (FFC). There was a sizeable increase in demand from the legal services industry. For example, Cleary Gottlieb leased 1,000 sqm in FFC. Sustained demand and a lack of new supply caused the overall market vacancy rate to decline 1.1 percentage points q-o-q to 2.5%.

SupplyFor the third consecutive quarter, there were no new completions, exacerbating the supply constrained status of the Beijing Grade A office market. The most recent completion, FFC, continues to make leasing progress, albeit at a slower pace as only higher priced spaces on high floors remain available.

Asset PerformanceCBD rents trended upward for the second consecutive quarter, increasing 2.1% q-o-q on a chain-linked basis. Landlords again expressed confidence in the CBD and pointed to enquires from several different tenant types as evidence that market conditions remained favourable. While CBD vacancy is higher than in other submarkets, most available space is under negotiation. East Chang’an, East Second Ring Road and Zhongguancun all registered rental growth of between 2.6% and 3.3% q-o-q, while Finance Street and Third Embassy were flat, limiting the overall market increase to 1.6% q-o-q.

12-Month OutlookStrong enquiries observed from the banking and professional services industries will likely result in a large number of transactions from these tenant types. We expect supply to remain quite limited over the next 12 months, especially in core submarkets. There is a growing interest in emerging submarkets due to the run up in rents over the past several years. However, infrastructure and amenities in these areas are often still catching up to tenants’ requirements. While expansion momentum may vary widely across occupier segments, net absorption should remain strong. Due to sustained demand and limited supply, we expect to see the low vacancy environment characteristic of core submarkets persist. CBD landlords are likely to retain bargaining power and we expect to see continued rental growth in the CBD.

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

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ RMB 373 psm pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

3

^net effective, on GFA

Financial Indicators are for the CBD.

4Q10 4Q11 4Q012 4Q13 4Q14 4Q1560

100

200

160

180

140

80

120

Rental Value Index Capital Value Index

Index

Thou

sand

sqm Percent

10 11 12 13 14F 15F


0

900

1,500

0

6

12

15

3

9

600

300

1,200

Shan

ghai:

Offi

ce


Shanghai: Office

• Domestic companies increasingly active in CBD leasing market• Rental performance continues to diverge in Pudong and Puxi• Decentralised office International Capital Plaza sells for RMB 1.5 billion

DemandDomestic companies in the financial and professional service sectors became increasingly active in the CBD leasing market in 3Q14. In Pudong, domestic companies in the financial service sector continued to demonstrate strong demand in the leasing market. For example, one state-owned insurance company leased around 5,000 sqm in SWFC during the quarter. Demand also strengthened among companies engaged in less traditional types of financial services. For example, one domestic internet finance company leased 640 sqm in Hong Jia Tower to establish their Shanghai office. In Puxi, domestic financial services firms and domestic professional services firms both were active in expanding. Grandall Law firm, a domestic law firm, leased two floors in Garden Square.

SupplyIn the Pudong CBD, the 87,170 sqm Oriental Financial Center reached completion in 3Q14. Half of the space in this building will be for lease, with the other half of space to be self-used by Bank of Communications, the building’s owner. SOHO Fuxing Plaza (39,000 sqm) in Huangpu District was the only new Grade A office building completed in the Puxi CBD in the quarter. In the decentralised market, two new projects with a combined total of 43,756 sqm of office space were completed in Minhang District: Xizi International Center (27,126 sqm) and The Hub Tower 1 (16,630 sqm).

Asset PerformancePudong Grade A rents rose by 1.7% q-o-q to RMB 10 per sqm per day. Pudong Premium Grade A rents grew by 1.2% q-o-q to RMB 11.4 per sqm per day. Meanwhile, Grade A rents in Puxi dropped slightly by 0.9% q-o-q to RMB 8.8 per sqm per day. The landlords of Puxi Premium Grade A buildings were more willing to offer discounted rates to keep good profile tenants in their buildings. As a result, rents in the Puxi Premium Grade A market continued to decline in 3Q14, reaching RMB 10.1 per sqm per day, down by 1.4% q-o-q.

Foreign funds continue to seek out opportunities in the Shanghai office market, although high asking prices for core properties have led some funds to seek out more affordable decentralised or Grade B opportunities. For example, Alpha Investment Partners made an en bloc purchase of International Capital Plaza, a decentralised Grade A project in Hongkou District, for RMB 1.5 billion in 3Q14.

12-Month OutlookLooking forward, we expect rental growth to moderate in Pudong due to a large volume of new supply in 2015, while rents are expected to remain flat in Puxi over the next 12 months. Lettable supply in Puxi will be substantial in 2015, but rising activity among domestic tenants is expected to stabilise rents. Domestic companies are expected to become increasingly active in both the Pudong and Puxi markets over the next several years.

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

12-Month Outlook



Physical Indicators are for the CBD.

Financial Indices

Arrows indicate 12-month outlook Index base: 4Q10 = 100Source: JLL

Physical Indicators

Source: JLL

Rental InformationRental Value^ RMB 9.3 psm per dayStage in Cycle Growth slowingNo. of Quarters Since Last Trough

6




60

80

120

100

180

Index

160

140

Thou

sand

sqm Percent


10 11 12 13 14F0

3

9

15

12

0

120

240

360

600

480

15F

6

Chen

gdu:

Offi

ce


Chengdu: Office

• Vacancy edges down as new demand outpaces new supply• Rents decline despite pick up in demand• No en bloc sales owing to diverging price expectations

DemandIn 3Q14, net absorption registered 91,400 sqm, up 20.6% q-o-q and 28.1% y-o-y. Most take-up was attributable to new letting activities at International Financial Square (IFS, Tower 1) in City Centre and self-occupied space at Tongwei International Center, a newly completed office building in New South Area. As the best quality office building in Chengdu, quarterly leasing transactions at IFS was again top amongst Grade A office buildings.

Leasing demand from financial companies remained robust. Notable examples included a local company leasing 4,500 sqm in IFS (Tower 1), the largest leasing transaction in this building thus far; and a local newly established asset management company committing to a whole floor (2,300 sqm) in China Resources Building in the Dongda Street submarket. As new demand surpassed new supply in the quarter, the vacancy rate declined to 38.4% at end-3Q14.

SupplyTongwei International Center is the only project to receive an occupation permit in the quarter. The high-zone of the 68,000 sqm Grade A office building is the new headquarters of the owner, Tongwei Group, and accounts for over 30% of the total GFA. The remaining space has been put up for lease. As a result of the new supply, total stock of Chengdu’s Grade A office market reached 2.2 million sqm.

Asset PerformanceEffective rents on a spot basis continued to decline as achievable rents in the newly completed Tongwei International Center were significantly lower than the market average. Meanwhile, older office buildings in mature areas saw rents decrease as a result of tenant outflows. As such, net effective rents stood at RMB 98.8 per sqm per month at end-3Q14, down 1.1% q-o-q.

The investment market saw no en bloc sales transactions in the quarter owing to the diverging price expectation between vendors and investors. However, with more quality office buildings due to come on to the market, it is expected that the current situation in the investment market will change and the bargaining power of vendors will be weakened.

12-Month OutlookA large supply pipeline of Grade A buildings in 2015 is expected to push vacancy higher and tilt bargaining power in the leasing market in favour of tenants.

Newly completed premium Grade A office buildings are likely to continue to outperform with enquires levels remaining high. At the same time, landlords of lower quality Grade A office buildings are likely to lower rents to retain existing tenants and attract new ones.

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

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ RMB 98.8 psm pmStage in Cycle Decline slowingNo. of Quarters Since Last Peak

10

^ net effective, on GFA


60

100

120

140

Index

80


10 11 12 13 14F0

500

300

400

200

Thou

sand

sqm

0

30

20

40

50

Percent

15F

100 10

Taip

ei: O

ffice


Taipei: Office

• Small space occupiers support demand• Landlords of several buildings increase rents• End-user acquisitions push transaction volumes higher

DemandOffice demand remained stable in the quarter as strengthening tourism and trade relations with China and improvements in the telecommunications sector encouraged tenants in finance, IT and telecommunications industries to commit to new leases or space expansions. Overall net take-up in the quarter increased to 3,900 pings and coupled with no new supply, vacancy moved lower by 0.2 percentage points q-o-q to 8%. Limited availability within existing grade A office buildings has pushed many potential tenants and existing tenants to enquire about space availabilities at buildings under construction, with several pre-lease contracts signed in the quarter.

SupplyThere were no new construction completions in the quarter, but a major renovation and upgrade project was completed.

Four developments totalling around 65,000 pings were scheduled to complete in 2H14. However, it seems as if only one project will be ready for lessees by year-end, Union Enterprise Building. Hua Nan Bank and Taiwan Cooperative Bank headquarters buildings are still performing interior constructions. Both projects are likely to be completed in 1Q15. The Hungtai Nanjing project that was previously scheduled to be released in 3Q14 also experienced a delay and the owner has put the property up for sale.

Asset PerformanceSeveral landlords adjusted rents and incentives higher in the quarter. Overall net rents edged up 0.2% q-o-q to NTD 2,546 per ping per month, the second highest level in the past six years.

Total investment volumes for all property types in 3Q14 reached NTD 32.9 billion, an increase of 14.5% q-o-q or 53% y-o-y. As at YTD September 2014, total investment volumes have reached NTD 72.4 billion, a 15.3% increase compared to the same period last year. Most office property acquisitions were by corporations to consolidate operations or establish headquarters.

12-Month OutlookDue to limited available space, tenants with large space requirements have turned their attention to buildings currently under constructions. Most upcoming buildings are located in the city fringes – namely Dazhi, Nankong, and Neihu areas. Potential tenants have been attracted by the relatively cheaper rents being offered at these newer buildings. However, tenants with high affordability are still enquiring about space in the Xinyi submarket.

The Taiwanese government has recently tabled property tax reforms and amendments to residential cooling measures which are likely to increase holding costs for investors. With uncertainty surrounding the implementations of these policies, some investors have remained on the side-lines waiting for prices to adjust to the new market conditions. Moreover, institutional investors have begun to explore overseas markets for property acquisitions, in particular insurance companies following the relaxation of investment restrictions. In 3Q14, two notable overseas investments involved domestic insurers acquiring commercial properties in London and Frankfurt.

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

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ NTD 2,971 per ping pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

10

^ net, on GFA

Financial Indicators are for Xinyi.


80

90

100

110

150

Index

140

130

120

10 11 12 13 14F

Percent


0

40

80

200

Thou

sand

sqm

0

4

12

8

20

160

120

16

15F

Toky

o: O

ffice


Tokyo: Office

• Vacancy edges up due to consolidation activity in manufacturing sector• Rents continue modest growth trend• Mori Trust Sogo Reit acquires Kioicho Building for JPY 34.3 billion

DemandThe vacancy rate at end-3Q14 stood at 3.9%, an increase of 20 bps q-o-q and 50 bps y-o-y, rising for the second consecutive quarter. By submarket, the vacancy rates in Otemachi/Marunouchi and Akasaka/Roppongi remained low, at around 3%, while Shiodome and Shinagawa saw an increase in vacant space.

A traditional low season for leasing and consolidation activity from the manufacturing sector resulted in net take-up contracting by 19,000 sqm, the first decline in five quarters. However, expansion demand was witnessed in some sectors such as professional services and information and communication.

Major leasing deals in 3Q14 included Simplex and Japan Business Systems relocating to Toranomon Hills, Akamai Technologies moving to Kyobashi Trust Tower and Termo taking up space at Tokyo Opera City. Moreover, Nishimura & Asahi announced plans to relocate in January 2016 to Otemachi 1-1 Project Tower A, which is due for completion in November 2015.

SupplyNo new supply entered the market in 3Q14.

Asset PerformanceRents at end-3Q14 averaged JPY 33,272 per tsubo per month, an increase of 1.5% q-o-q and 4.8% y-o-y, the tenth consecutive quarter of increase. Rent growth was witnessed in multiple submarkets including Otemachi/Marunouchi and Nihonbashi.

The investment market remained active in the quarter and capital values registered growth of 4.9% q-o-q and 19% y-o-y. This was the tenth consecutive quarter of growth. Investment yields continued to compress, trending lower for the fourth consecutive quarter.

Noteworthy sales transactions in 3Q14 included the Mori Trust Sogo Reit acquisition of Kioicho Building for JPY 34.3 billion or a net operating income (NOI) yield of 3.4%, and the Mori Hills REIT acquisition of Ark Hills South Tower (25% stake) for JPY 19.15 billion or an NOI yield of 4.0%.

12-month OutlookAccording to Oxford Economics, real GDP in Japan in 2015 is expected to grow 1% y-o-y. Positive growth should support a healthy level of demand, although it is likely to be stronger for newer, better specified buildings. New supply in 2015 is projected to be mostly in line with the average annual level recorded over the past ten years. Given these market conditions, vacancy rates are expected to decline and rents should continue to grow modestly over the next 12 months.

The investment market is expected to be supported by a favourable investment environment, including low interest rates, which will place downward pressure on investment yields and underpin the growth of capital values

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

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ JPY 33,272 per tsubo

pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

10

^ gross, on NLA


Index

90

100

110

120

130

Thou

sand

sqm Percent

0

150

300

450

600

10 11 12 13 14F 15F0

2

4

8

6


Osak

a: O

ffice


Osaka: Office

• Vacancy decreases driven by improving occupancy in the Umeda submarket• Rents grow for first time in over three years • Investment yields compress, while capital value growth accelerates

DemandThe vacancy rate at end-3Q14 stood at 8.6%, decreasing 180 bps q-o-q and 390 bps y-o-y. By submarket, vacant space decreased significantly in Umeda, driven by improving occupancy at Grand Front Osaka Towers and Umeda Sky Tower West.

Amid strengthening capital expenditure and an improving labour market, demand in the quarter was supported by industries such as information and communication, professional services and manufacturing. Many firms have taken up space for a variety of reasons, including business expansion, better accessibility and increase of personnel. Net absorption in the quarter totalled 29,000 sqm.

Relocations in the quarter included GMO Group companies relocating to Grand Front Osaka Tower B and The Sumitomo Warehouse relocating to Sumitomo Nakanoshima Building. In addition, Mitsubishi Electrics announced plans to consolidate at Grand Front Osaka Tower A in November.

SupplyNo new supply entered the market in 3Q14.

Asset PerformanceRents at end-3Q14 averaged JPY 15,621 per tsubo per month, increasing 0.8% q-o-q and 0.1% y-o-y. Rents registered growth for the first time in 13 quarters, reflecting improved market conditions amid strengthening capital expenditure and gradually increasing exports. Rents have turned around and started to exhibit growth in various submarkets, including Umeda and Dojima. Meanwhile, the rent-free period offered by some landlords was lowered over the quarter.

As economic fundamentals have improved and investor interest expands beyond Tokyo to regional cities, capital values in 3Q14 continued to accelerate and registered growth of 4.9% q-o-q and 9.9% y-o-y, the fourth consecutive quarter of increase. Meanwhile, investment yields compressed for the fourth consecutive quarter.

12-month OutlookAccording to the Greater Osaka Tankan October 2014 survey by the Bank of Japan, large manufacturers remain optimistic about the current market environment with the diffusion index rising from July’s survey to register 13 and expectations are for further gains in the short term.

Improving economic conditions are expected to underpin continued leasing demand from enterprises. New supply should be limited in 4Q14 with only the Ujiden Building expected to come online while new supply in 2015 will amount to about 80% of the past ten-year annual average. As such, the vacancy rate is expected to decline, supporting a moderate recovery of rents.

A low interest rate environment and high investor interest should support a rise in capital values. However, there is likely to be a scarcity of assets for sale in the market.

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

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL



1

^ gross, on NLA


Index

80

90

100

110

120

Thou

sand

sqm Percent

0

40

80

120

200

10 11 12 13 14F 15F0

2

6

14

10


160

4

12

8

Seou

l: Of

fice


Seoul: Office

• Subdued leasing activity although several large relocations expected by year-end• Incentives rise for some buildings with upcoming vacancies• Investor sentiment remains buoyant with several deals transacting

DemandIn 3Q14, overall net absorption slowed q-o-q to 14,330 sqm but remained positive for the seventh consecutive quarter.

In the CBD, noteworthy move-ins included Koswire (1,800 sqm) at KCCI and Oracle University (1,170 sqm) at Seoul Square.

In Yeouido, positive demand was witnessed at Two IFC, FKI Tower and HP Building. Occupancy at Two IFC increased by 4,500 sqm while KEB Futures leased 2,000 sqm at FKI Tower and Pantech C&I (5,700 sqm) relocated to HP Building from the CBD.

In Gangnam, Korea South-East Power departed Glass Tower (7,000 sqm) for the regional city of Jinju and vacancy rose at ASEM Tower due to several tenants departing including EA Korea (7,700 sqm).

SupplyNo new buildings completed during the quarter and D Tower (GFA 105,800 sqm) in the CBD is expected to be the only completion in the remainder of the year and is due in October. Hanhwa Janggyo Building in the CBD is expected to begin an extensive refurbishment in 4Q14.

Asset PerformanceOverall net effective rent in Seoul declined 0.6% q-o-q as several buildings with upcoming vacancies motivated landlords to increase incentives.

In 3Q14, investment deals were dominated by sale-and-leaseback transactions. Hankook Cosmetics offloaded their CBD headquarters (GFA 15,790 sqm) to Kwanjeong Educational Foundation for KRW 83.7 billion, Hyundai Securities’ Yeouido headquarters (GFA 20,426 sqm) was purchased by Hana Asset Management for KRW 81 billion and Hanjin Heavy Industries sold their Yongsan headquarters (GFA 30,772 sqm) and Busan R&D centre (GFA 24,216 sqm) to Vestas Investment Management for KRW 113.7 billion and KRW 36 billion respectively.

The overall market yield continued to tighten during the quarter to 5% (–7bps q-o-q).

12-Month OutlookA slowdown in net absorption is forecast for 4Q14 due to relocations from the Hanhwa Janggyo Building in the CBD, with several tenants reported to be heading to Grade B or owner-occupied stock. Take-up in 4Q14 is likely to be strongest in Yeouido, where Hanwha E&C (30,700 sqm) will move from the CBD to FKI Tower and KTCU (15,200 sqm) will relocate within the district to Hanwha Life 63 Building.

Overall vacancy may rise slightly before the end of the year due to the completion of D Tower (GFA 105,800 sqm). Daelim’s relocation to this new building is expected to create a large backfill vacancy at the nearby Twin Trees.

Further yield compression is expected over the coming 12 months, reflecting strong foreign and domestic investor interest improving market fundamentals.

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

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ KRW 95,001 per

pyung pmStage in Cycle Decline slowingNo. of Quarters Since Last Peak

1

^ net effective on GFA


Index

4Q10 4Q11 4Q12 4Q13 4Q154Q14Rental Value Index Capital Value Index

90

100

120

110

140

130


10 11 12 13 14F

Thou

sand

sqm Percent

0

5

15

10

0

200

100

300

20400

15F

Sing

apor

e: O

ffice


Singapore: Office

• Headquarter setups prop up demand for office space• Rents trend higher as office vacancy tightens• Capital values stay flat amid expanding yield environment

DemandOverall CBD net take-up remained positive (10,804 sqm) and vacancy declined by 50 bps q-o-q to 6%. The Raffles submarket registered the largest improvement across all submarkets, with the vacancy rate declining 190 bps to 2.5%.

Demand from financial institutions was mixed as expansion and consolidation activity was observed. While European financial institutions continued with their consolidation or decentralisation activity, Mizuho, a Japanese bank, announced its decision to ramp up overseas expansion, with Singapore highlighted as a pivotal platform to expand its market share in Asia. This will see Mizuho relocate to a much bigger 100,000 sq ft office premise at Asia Square Tower 2, which will cater to a projected headcount of 900 within the next three to five years.

On a positive note, multi-national companies continue to view Singapore as an ideal springboard into Southeast Asia given its established intellectual property laws and strong local talent pool. In 3Q14, this was evidenced by General Motors’ move into OUE Bayfront which will house its Asia Pacific headquarters and AON, an insurance firm, which recently inked an agreement to occupy 75,000 sq ft of office space in SGX Centre 1.

SupplyNo new completions were recorded in 3Q14.

Asset PerformanceAverage CBD rents rose by 3.1% q-o-q to SGD 10.3 per sq ft per month in 3Q14, a marginal slowdown in the quarterly growth pace seen in the previous quarter. The growth in rents has been further supported by tenants’ demand for good quality space, which remains in limited supply on the back of the tightening vacancy rate in the market.

Indicative en bloc capital values stayed flat in 3Q14 on the back of an expansionary yield environment. Meanwhile, more opportunistic acquisition activity was observed as SEB Asset Management acquired Anson House for SGD 172 million (SGD 2,285 per sq ft), with a consideration to eventually strata subdivide into smaller units to appeal to individual investors. Other key deals in the quarter included Keppel Land’s divestment of its one-third stake in MBFC Tower 3 to K-REIT for SGD 1.25 billion (SGD 2,794 per sq ft) and Straits Trading Building acquisition by Sun Ventures for SGD 450 million (SGD 2,830 per sq ft).

12-Month OutlookWith CapitaGreen and South Beach Towers in the CBD expected to complete in 4Q14, vacancy rates are likely to rise on the back of the modest pre-commitment expected at both developments. This, alongside an influx of supply in 2016 is expected to see rental growth moderate over the course of the next year.

Growth in capital values is expected to lag that of rentals, as investors increasingly seek higher office yields. The growing expectation for higher yields follows the ongoing US Federal Reserve tapering of its bond buying programme and is bringing closer the possibility of an interest rate rise. As such, the office market is expected to see a continued expansion in yields over the next 12 months.

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

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ SGD 10.3 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

7

^ gross effective, on NLA

Financial Indicators are the CBD.


80

100

130

Index

120

110

90


0

100

250

10 11 12 13 14F0

4

8

10

2

6

12

200

50

150

300

Thou

sand

sqm Percent

15F

Bang

kok:

Offi

ce


Bangkok: Office

• Active leasing and no new supply pushes vacancy down• Limited supply continues to support rental growth• WHA Plc buys Equinox Office Tower

DemandNet absorption totalled 7,900 sqm in 3Q14 as business sentiment continues to improve with a relatively stable and calm environment following the 22 May military coup.

Leasing demand remained active and consisted mostly of lease renewals in existing prime grade office buildings. All large renewals were in Central East, with the largest being Lazada Limited’s renewal of its lease at One Pacific Place Building. Apart from that, Vibulthani Tower had one large renewal by Nippon Express (Thailand) Co Ltd.

As a result of leasing demand and no new supply in the quarter, the overall vacancy rate declined slightly from 8.2% in 2Q14 to 7.8% in 3Q14. In Central Bangkok vacancy decreased to 9.1%, while in Central East it increased to 4.3%.

SupplyGrade A office stock remained unchanged in 3Q14 at 1,738,000 sqm, with no new supply in the Central Bangkok and Central East submarkets.

Bhiraj Tower (47,442 sqm), which was previously expected to complete in 4Q14 has been delayed until 1Q15. This mixed-used building is located near Phrom Pong BTS station in Central East.

The mixed-used Magnolia Ratchadamri Boulevard on Ratchadamri Road, which comprises 6,000 sqm of office space as well as luxury residences and the Waldorf-Astoria Hotel is scheduled for completion in 1Q15. AIA Sathorn Tower (38,500 sqm) on Sathorn Road is expected to come online in 2Q15 and the Noble Ploenchit development, which comprises 3,000 sqm of office space and high-quality residences, is under construction with completion expected in 1Q17.

Asset PerformanceAverage gross rents increased 1.9% q-o-q to THB 746 per sqm per month in 3Q14. Capital values increased at a higher rate than average gross rents, up 3.1% q-o-q to THB 98,069 per sqm in 3Q14, while market yields compressed by 10 basis points to 7%.

One freehold office building sales transaction was completed at end-June 2014 when Major Development sold Equinox Office Tower to WHA Plc for THB 2.05 billion. The building’s name was then changed to SJ Infinite 1.

12-Month OutlookThe Bank of Thailand maintained its policy rate at 2% in September in order to stimulate the economy which is expected to improve by end-2014. With an improvement in the political climate and economic direction, a continued recovery in investment and business sentiment is expected to lead to GDP growth of 4.5% in 2015. These positive fundamentals should support a continued growth of the Bangkok office market.

Vacancy is expected to fall gradually through end-2014 as new supply has been delayed into 2015 and should support a rise in rents. While new projects such as Bhiraj Tower and AIA Sathorn have some pre-commitments, we do not expect them to be fully let upon completion, likely causing an uptick in the vacancy rate in early 2015.

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

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ THB 746 psm pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

11

^ gross, on NLA


Index

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

90

100

110

120

140

130


0

50

200

150

Thou

sand

sqm

0

10

5

15

20

Percent

100

10 11 12 13 14F 15F

Kuala

Lum

pur:

Offic

e


Kuala Lumpur: Office

• Slowing demand for prime office space• Rental rates generally stable in most office buildings• No major investment transactions due to investor caution

DemandDespite positive net absorption of 76,000 sq ft, the average vacancy rate increased marginally from 13.8% in 2Q14 to 14.2% in 3Q14.

In 3Q14, demand was supported by relocation and expansion activity of existing local tenants. Notable take-up in the City Centre included: the expansion of Lend Lease at Menara Binjai, the relocation of BAE Systems Applied Intelligence to Menara Binjai from Wisma Selangor Dredging and the relocation of Suria KLCC Sdn Bhd from Suria KLCC shopping mall to Menara Darussalam.

SupplyTotal office stock in the City Centre was 22.6 million sq ft as at end-3Q14.

Menara Hap Seng 2, a 320,000 sq ft prime office building located on Jalan Tengah (in the Golden Triangle), is the only office building expected to be completed with a Certificate of Completion and Compliance in 4Q14.

Asset PerformanceGenerally, rental rates for the majority of office buildings remained stable in the quarter. Landlords were hestitant to reduce asking rents due to increasing operation and maintenance costs. However, landlords of buildings with relatively high vacancy rates were more willing to offer incentives i.e. rent free periods.

No prime office buildings in the City Centre were transacted in 3Q14 as investors adopted a cautious approach due to limited short term rental growth prospects and a lack of investment grade assets available for sale.

12-Month OutlookThe average vacancy rate in the City Centre is expected to increase marginally in the short to medium term due to incoming supply and a stable level of demand.

Supported by continuous economic growth especially in the services sector, demand is expected to remain stable in the short term owing to more tenant relocations and expansions at newer offices with good quality specification, green building certification, MSC cybercentre status and attractive rental rates.

Despite limited rental growth prospects, capital values are expected to remain stable in the short to medium term as most vendors are reluctant to reduce prices. However, some buildings are likely to see capital values appreciate due to several factors such as better rental income, higher construction costs, better quality facilities and escalating land costs, especially in the more sought after commercially established locations like the Golden Triangle.

Investment market conditions are likely to remain mixed, with some investors taking a cautious view due to limited short term rental growth prospects, a pricing mismatch between vendors and purchasers, and limited prime grade office buildings available for sale in the market.

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

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ MYR 6.5 psf pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

9

^gross, on NLA

Financial Indicators are for the City Centre.


4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

Index

90

95

105

100

120

115

110

Thou

sand

sqm Percent


10 11 12 13 14F0

300

0

24

250 20

12

100

16200

8

150

50 4

15F

Jaka

rta: O

ffice


Jakarta: Office

• Improvement in demand and no new supply pushes vacancy down • Tight supply supports rent growth, albeit at slower pace• Yields remain stable, while capital values increase in line with rentals

DemandA slowing economy and no new supply resulted in overall take-up in the CBD remaining at a relatively subdued level, with net absorption recorded at 4,500 sqm in the quarter. Take-up was supported by new setups and expansion of some existing tenants in Sudirman, which continued to be perceived as a prestigious address for corporate tenants. Professional services (e.g. banking and financial services), agriculture and manufacturing sectors mainly servicing the local economy remained the main demand drivers. Slightly improved demand and no additional supply pushed the vacancy rate down 0.3 percentage points q-o-q to 3.3% in 3Q14.

SupplyNo new projects completed during 3Q14 and the existing stock of investment grade office space in Jakarta remained at 1.29 million sqm. In spite of robust demand growth in recent years, the development of premium grade office buildings in Jakarta has been relatively limited. Furthermore, we expect no new project to enter the market this year.

Asset PerformanceRental growth continued to slow and anecdotal evidence suggests that current rents are perceived to be in the upper range of affordability for some tenants. Nonetheless, some landlords were able to raise rents as they saw a good number of tenants entering the market. Net effective rents rose to USD 337 per sqm per annum in 3Q14 on the back of high occupancy.

Foreign investors, including private equity, sovereign wealth funds and developers, are active and remain interested in the market. However, these investors appear to be more interested in residential and logistics properties and no major deals involving office space were witnessed in 3Q14. As capital value growth was in line with rent growth, the average market yield remained stable at 7.8%.

12-Month OutlookIndonesia’s economic growth and the general outlook for businesses are likely to remain positive following the swearing in of the new President in October. Political tension is not likely to impact the economy, as the President looks capable of sorting out the regional elections issue. Interest rates should remain stable through end-2015 after increasing by 175 bps during 2013.

Demand is likely to remain soft in the next couple of quarters as tenants become increasingly wary of high rents. At the same time, landlords are confident in holding rents steady due to high occupancy levels. Over the next 12 months, rents are expected to remain stable or increase marginally, buoyed by limited new supply, high occupancy and the absence of sublease space. Yields are likely to decompress slightly in the short term.

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

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ USD 337 psm paStage in Cycle Growth slowingNo. of Quarters Since Last Trough

16

^ net effective, on NLA


Index

80

120

160

320

280

240

200


10 11 12 13 14F0

50

100

150

200

300

250Th

ousa

nd sq

m

0

5

10

15

25

30

Percent

15F

20

Mani

la: O

ffice


Manila: Office

• Net absorption remains positive, while vacancy declines• Rents continue to grow on back of strong leasing demand• Investment yields further compress as capital values rise

DemandDemand continued to be healthy from offshoring and outsourcing (O&O) firms for office space in Makati CBD and Bonifacio Global City (BGC) in 3Q14. Net take-up of office space in Makati CBD and BGC was 5,600 sqm in the quarter. Other notable sources of demand included other services sector such as automotive, IT/software and marketing, as well as embassies.

Notably, many Grade ‘A’ office developments in Makati CBD and BGC continued to be fully occupied while many other buildings exhibited high occupancy levels. The continued increase in office demand is evidenced by the downward trend of vacancy from 4.1% in 2Q14 to 3.9% in 3Q14.

Key lease transactions during 3Q14 included an automotive firm and an investment firm occupying 2,100 sqm and 3,200 sqm, respectively, in Hanjin Building in BGC and V Corporate Center in Makati CBD. Numerous IT/software companies occupied relatively larger-sized office spaces in various office developments, such as a 1,800 sqm office space in Zuellig Building in Makati CBD, a 2,500 sqm office space in Panorama Tower and a 1,300 sqm office space in Net Square in BGC.

SupplyThere were no completions due to construction delays of three office developments initially scheduled for completion in 3Q14.

Upcoming office developments scheduled to complete in 4Q14 include MDI Corporate Center, Orion, Twenty-Four Seven McKinley, Frabelle Business Center, Lopez Tower, McKinley Exchange Corporate Center, Techzone and Uptown Bonifacio Tower 1. The eight buildings are expected to add a consolidated 160,000 sqm of office space.

Asset PerformanceHealthy office demand from multinational and local firms supported the continued upward trend of office rents and capital values.

Average rents grew by 1.9% q-o-q to PHP 10,374 per sqm per annum as several landlords raised their asking rental rates. Average capital values outpaced the growth of rents with growth of 3.8% q-o-q, reaching PHP 108,000 per sqm. Consequently, investment yields compressed further in the quarter, decreasing by 20 bps q-o-q to 9.6% in 3Q14.

12-Month OutlookThe large volume of upcoming office space may push vacancy upwards by end-2014, as well as during 2015. The O&O sector is forecast to remain one of the primary sources of office demand with support from other sectors, such IT/software, and other traditional sources. In addition, the recent credit upgrade to investment grade from the South Korean firm National Information and Credit Evaluation (NICE) Ratings, coupled with Standard and Poor’s raising its growth forecast for the Philippines may keep investment sentiment in the country positive, buoying the growth of rents and capital values.

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

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ PHP 10,374 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

19



Index

80

90

100

110

160

150

140

130

120

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

10 11 12 13 14F 15FTake-Up (net) CompletionsFuture Supply Vacancy Rate

0

160

320

400

Thou

sand

sqm

0

2

10

Percent

6

8

4

240

80

Ho C

hi M

inh

City

: Offi

ce


Ho Chi Minh City: Office

• Demand picks up and vacancy moves lower• Rents hold steady for seventh consecutive quarter• Valuation-based yields remain firm in the range of 8–9%

DemandNet absorption increased by more than 60% q-o-q, largely due to a large leasing deal (1,500 sqm) in Bitexco Financial Tower. Leasing activity in other established Grade A buildings was limited due to a lack of available large spaces. However, with no new supply and an improvement in net take-up, the overall Grade A vacancy rate trended lower to 8.9%. The dearth of available large Grade A office spaces has led some tenants to pursue options in the Grade B market.

SupplyThere was no new Grade A office supply completed and total stock was 155,000 sqm as at end-3Q14.

A high pace of construction was maintained throughout the quarter on Vietcombank Tower and this is likely to lead to the completion of the bare shell in 4Q14. Together with Le Meridien, which is currently in its final phase of construction, the two projects are likely to come on stream during the first half of 2015.

Asset PerformanceThe average net effective rent for Grade A office buildings remained unchanged in 3Q14 at USD 39.1 per sqm per month (USD 469 per sqm per annum), the seventh straight quarter of no change. Some landlords were observed to have offered incentives to retain large tenants on renewal in order to maintain occupancy levels.

There were no Grade A office investment deals reported in 3Q14. However, other property sectors were active with several transactions taking place in the quarter. A notable retail deal included the purchase of Metro Cash & Carry’s portfolio by Thai investor Berli Jucker Group, while in the residential sector several deals closed.

Valuation-based yields for Grade A office space held steady in the range of 8–9% as a result of stable demand and rents.

12-Month OutlookNo new supply is expected for the remainder of this year, however there is anticipated to be a sharp rise next year when three new Grade A properties enter the market. Demand is likely to hold firm for the remainder of 2014 before increasing in 2015, in view of pre-commitments to the three new projects.

Despite solid leasing demand for Grade A buildings, landlords are unlikely to increase rents significantly in the near future as a precaution against the threat of rising competition from upcoming supply.

Note: Ho Chi Minh City Office refers to Ho Chi Minh City’s CBD Grade A office market.

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ USD 39.1 psm pmStage in Cycle Rents stableNo. of Quarters Since Last Peak

24


NA

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

Index

Rental Value Index

0

40

60

80

100

120

20

10 11 12 14F13


0

20

40

60

120

100Th

ousa

nd sq

m

0

20

10

30

40

60

50

Percent

80

15F

Delh

i: Of

fice


Delhi: Office

• Quarterly net absorption highest in six years• Gurgaon rents increase, stable elsewhere• Capital values increase in both CBD and Gurgaon

DemandStrong leasing activity and healthy pre-commitments in projects which became operational during the quarter combined to push net absorption to a six-year high of 2.43 million sq ft. Occupier movement was driven by portfolio optimisation through consolidation or relocation, but fresh expansion-driven demand also picked up pace and contributed towards improving leasing volumes. Demand was led by IT/ITeS occupiers and among others, by e-commerce, construction, consulting, and financial service firms. New leasing led to the CBD recording its highest net absorption in six quarters and the second highest ever in this submarket. Net absorption in the SBD was at an eleven-quarter high, with stable rents a major attraction for occupiers. Gurgaon saw its net absorption improve by 52.7% q-o-q, the highest in fifteen quarters, while Noida saw net absorption improve by nearly 2.7 times q-o-q and the highest in five quarters.

Major leases in the CBD were Regus, Axis Bank and Aditya Birla Group leasing 28,000, 27,700 and 27,850 sq ft respectively in Redfort Parsvnath Towers. Godfrey Philips leased 77,160 sq ft in Omaxe Square in the SBD. Notable lettings in Gurgaon included Blackrock leasing 168,000 sq ft across DLF Buildings 14C and D, HSBC leasing 73,000 sq ft in Orchid Business Park and Fluor Daniel leasing 41,053 sq ft in DLF Infinity Tower C. In Noida, major transactions included TCS leasing 418,422 sq ft across DLF Sector 62, Towers C and D, and Barclays leasing 60,000 sq ft in Unitech Infospace, Sec 62, Tower B.

SupplyAn additional supply of 2.6 million sq ft became operational in 3Q14 across six projects – four in Gurgaon and two in Noida.

Asset PerformanceRents were generally stable across all submarkets, except for a marginal 1.6% quarterly increase in Gurgaon. Capital values trended similar to rents, with a slight increase in the CBD while select office corridors in Gurgaon showed some quarterly growth. Yields remained stable across all submarkets during the quarter.

12-Month OutlookWith improved occupier sentiment, positive economic signs and a better investment climate in India likely, leasing volumes and net absorption should remain healthy. Pre-commitment levels in recent quarters and ongoing space requirements point towards large-sized IT occupiers likely favouring IT SEZs in which to expand or consolidate their operations. Demand characteristics for quality non-IT and IT work space are also witnessing a similar trend as IT SEZs. Going forward, occupier interest is likely to shift towards the growth corridors, as the established office corridors may see lower vacancy rates and limited supply. Rent growth in the established office corridors should be slightly higher. Capital values are expected to rise with improving investor sentiment.

Note: Delhi Office refers to the Overall NCR Grade A office market.

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ INR 145 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

17

^ gross, on GFA

Financial Indicators are for the SBD.

Index

40

100

140

80


120

60


10 11 12 13 14F

Thou

sand

sqm Percent

0

280

420

700

0

8

16

40

32

24

140

560

15F

Mum

bai:

Offic

e


Mumbai: Office

• Positive business sentiment underpins large rise in leasing volumes• Rents appreciate marginally in select submarkets • Yields remain unchanged throughout all submarkets except CBD

DemandIn 3Q14, after the formation of the new government, positive business sentiment amongst occupiers was reflected in the gross leasing volumes of Mumbai office space, which grew significantly over the previous quarter. Net absorption in 3Q14 stood at 1.39 million sq ft, a notable improvement of 31% q-o-q. About 49% of the total gross leasing volumes were from renewals and pre-commitment leases. During the quarter, the vacancy rate in the overall market decreased marginally by 10 bps to 21.8% q-o-q, but in the contrary, the CBD witnessed a rise in vacancy as some tenants moved out and relocated to the SBD and Suburbs.

Key contributors to office absorption were from the BFSI, IT/ITeS and manufacturing sectors. The quarter saw a robust number of sales transactions totalling 600,000 sq ft and mainly in buildings that are under construction. Select developers, who faced liquidity crunches, marketed their projects at attractive prices. There is optimism among occupiers regarding expansion. This is shown by the number of requests for proposal floating around the market for both lease and purchase of office space.

SupplyAfter two quarters of limited supply, the Mumbai office market saw a healthy level of supply with eight office projects coming on stream in 3Q14 and adding a total area of 1.59 million sq ft to stock. However, the new supply came with low levels of pre-commitment. Mumbai’s total stock grew by 1.6% q-o-q to 95.3 million sq ft. Major completions included Birla Aurora in Lower Parel, Building 11 & 14 of Infinity IT Park in Dindoshi and Empire Plaza 2 in Vikhroli.

Asset PerformanceIn 3Q14, rents in the SBD North, Western Suburbs and Navi Mumbai submarkets rose by 1% q-o-q. Rents in SBD North continued to rise on the back of the recent commencement of the metro rail project. Demand for IT/IT SEZ rated office space increased, contributing to the rent appreciation in select Suburban submarkets. Nonetheless, the CBD saw rents decline on the back of negative net absorption and lease transactions being closed at rents lower than the submarket average rent.

12-Month OutlookThe recent increase in GDP growth has generated a ray of hope that the Indian economy is likely to bounce back. The anticipated growth in business activity is expected to result in expansion by established businesses and the foray of new players into the market. More than 500,000 sq ft of office space is in the final stages of construction. A surge in office space demand is anticipated for quality office space as global and domestic companies are willing to pay a rental premium for such spaces. As such, financial indicators are likely to increase gradually in select submarkets keeping yields stable.

Note: Mumbai Office refers to Mumbai’s Overall office market.

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL


17

^ gross, on GFA

Financial Indicators are for the SBD BKC.


Index

90

100

110

120

130

10 11 12 13 14F

Thou

sand

sqm Percent


0

400

200

600

0

5

10

15

1,200

1,000

800

30

25

20

15F

Bang

alore

: Offi

ce


Bangalore: Office

• Corporate expansion supports demand• Scarcity of available space putting upward pressure on rents• Rents and capital values rise in all submarkets

DemandLeasing activity in the Bangalore office market increased during 3Q14 compared with 2Q14, with a total transacted area of 3.6 million sq ft compared with 1.7 million sq ft in 2Q14. Occupier expansion continued to drive leasing activity. Net absorption increased 34% q-o-q to 2.9 million sq ft.

Due to an increase in demand, the overall vacancy rate decreased 0.3% q-o-q to 8.3% as at end-3Q14. Notable companies that leased space included Continental, Zyon, Jet Mobile, Rolls-Royce, British Telecom and TCS.

SupplySix projects totalling 2.7 million sq ft commenced operations in 3Q14. New project completions included Salarpuria Premia, RMZ Ecoworld 5A & 5B, The Adress, Prestige Excelsior and Prestige Technopolis. As a result, total stock of Grade A office space in Bangalore increased to 82 million sq ft.

Asset PerformanceIn 3Q14, average rents for office space increased in the range of 1–2% q-o-q across the city. In the CBD, the average rent increased to INR 85 per sq ft per month, while in the SBD average rent rose by 2% q-o-q to INR 51.5 per sq ft per month. Average monthly rents in the Whitefield and Electronic City submarkets slightly increased to INR 33.5 and INR 26.5 per sq ft, respectively.

Capital values moved higher across all submarkets due to improved investor demand. In the CBD, capital values rose to INR 9,950 per sq ft, while in the SBD prices increased to INR 5,350 per sq ft. Capital values in the Whitefield and Electronic City submarkets were INR 3,250 per sq ft and INR 2,550 per sq ft at end-3Q14.

12-Month OutlookAnother 1 million sq ft of new supply is expected to enter the market in the remainder of the year. However, with a healthy level of absorption anticipated, driven by primarily by the SBD and Whitefield submarkets, vacancy is likely to trend lower.

Rents and capital values are expected to rise in the range of 5–6% for the full year 2014, driven by a robust level of demand as the IT sector continues to expand.

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

12-Month Outlook


Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ INR 51.5 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

17

^ gross, on GFA



Financial Indicators are for the SBD.

Index


80

100

150

90

120

140

130

110


10 11 12 13 14F0

200

800

Thou

sand

sqm

0

16

Percent12

4

8400

15F

600

Sydn

ey: O

ffice


Note: Sydney CBD Office refers to Sydney’s CBD office market (all grades).

Sydney: Office

• 48–50 Martin Place completes in the Core precinct • Rents decline slightly amid a high vacancy environment• 52 Martin Place transacts for AUD 555 million

DemandPositive net absorption has been recorded in each of the first three quarters in 2014, as the physical market in Sydney CBD improves. In 3Q14, a total of 15,100 sqm of net absorption was recorded with centralisation of tenants from outside the CBD a recurrent theme, as it has been all year.

The largest tenant move was by Macquarie Group who relocated into a new owner-occupier building at 48–50 Martin Place. The financial group absorbed 24,000 sqm. However, the effect on overall vacancy was negligible after vacating 23,400 sqm at 1 Martin Place.

Vacancy was relatively unchanged despite the strong absorption figure. Headline vacancy increased 0.1 percentage points to 10.1% with prime vacancy tightening 0.6 percentage points to 12%, while secondary vacancy increased 1 percentage point to 7.8% over the quarter.

SupplyThere was one completion in 3Q14 with practical completion reached on Macquarie Group’s new headquarters at 48–50 Martin Place (24,000 sqm). The heritage-listed asset was completely refurbished with an addition of a glass domed roof to the existing structure. One further addition to supply is expected in 2014, with the refurbishment of 155 Clarence Street scheduled to complete in 4Q14 (11,900 sqm).

Asset PerformanceAverage prime gross effective rents decreased 1% q-o-q to AUD 616 per sqm per annum in 3Q14. Net face rents decreased marginally as landlords combat an extended period of elevated vacancy which has hovered around the double-figure mark since mid-2013.

Yields held firm in 3Q14 after tightening the previous quarter. Prime yields currently range from 5.75%–7.00% while secondary yields average 7.00%–7.75%.

Five transactions were recorded in 3Q14 totalling AUD 699.7 million. This included the largest transaction recorded this year with the sale of 52 Martin Place. REST Industry Super purchased the 37,000 sqm office tower from QIC for AUD 555 million in July on an equivalent yield of 5.52%. However, this yield was significantly skewed due to a 33-year lease to the NSW Government.

12-Month OutlookA significant volume of new stock is expected over the next 12 months. The balance of unleased space coming to market will act as counterbalance to improving tenant demand and keep vacancy steady around the 10% mark in the short term.

However, this improved tenant demand is expected to have a positive impact on rental growth in the short term, with decreasing incentive levels boosting average effective rents.

Yields are expected to compress further over the next 12 months as competition for prime grade assets supports values.

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ AUD 616 psm paStage in Cycle Rents stableNo. of Quarters SinceLast Trough

10


Take-Up (gross) CompletionsFuture Supply Vacancy Rate

10 11 12 13 14F 15F

Thou

sand

sqm Percent

–100

0

100

150

–6

–50 –3

0

6

50 3

9

200 12


Index

80

90

100

120

110

130

140

Melb

ourn

e: O

ffice


Melbourne: Office

• Attractive CBD lease terms continue to encourage centralisation• Prime rentals rise while secondary rents stable• Prime yields below 6% at tighter end of range for first time since 2008

DemandMelbourne CBD’s office demand continued to show signs of improvement in 3Q14. Positive net absorption of 27,410 sqm was recorded, taking the annual total to 31,700 sqm. The CBD value proposition continues to encourage centralisation activity. As at YTD September 2014, 28,500 sqm of centralisation activity has been recorded with tenants such as Viva Energy, Jemena, Cardno and Australia Post all moving into the CBD from non-CBD locations.

SupplyNo projects were completed in 3Q14. A further two schemes are anticipated to come online in the final quarter, adding 23,455 sqm to total stock. Overall vacancy tightened from 11.2% to 10.6% driven by prime and secondary grade vacancy both contracting, ending the quarter at 9.9% and 11.6% respectively. Sublease availability decreased for the first time since 4Q13. A total of 81,600 sqm of tenant space was available at the end of 3Q14, equating to 1.8% of total stock.

Asset PerformanceInvestment activity remains buoyant across Melbourne CBD. As at YTD September 2014, JLL has recorded 33 major office sales totalling AUD 3.3 billion. This compares to the record AUD 2.8 billion of sales for the full year in 2013. Two large office transactions that concluded in 3Q14 resulted in new pricing benchmarks for Melbourne CBD. Prime yields moved below 6.00% at the tighter end of the range for the first time since 2007, with the reported prime equivalent yield range sitting at 5.75% to 7.75%.

Rental levels were relatively stable over the quarter. Average prime gross effective rents recorded an increase of 0.9% q-o-q to AUD 389 per sqm per annum as a result of rising net face rents. Secondary gross effective rents remained stable at AUD 285 per sqm per annum.

12 Month Outlook Tenant demand and enquiry has shown signs of improvement since the start of 2014, as the domestic economy continues to gain momentum. Net absorption forecasts for the remainder of 2014 are positive and continue to be supported by the centralisation of non-CBD tenants who continue to take advantage of attractive leasing terms offered in a core location. While we are starting to see a reduction in sublease vacancy, headline vacancy will remain in double digits over the medium term as we continue to see backfill space come to the market. Investment demand for prime core product is anticipated to remain buoyant over the medium term, although a scarcity of openly marketed stock may have an impact on transaction volumes.

Note: Melbourne Office refers to Melbourne’s CBD office market (all grades).

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ AUD 389 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

9



Index

70

90

80

100

110

140

130

120

10 11 12 13 14F

Thou

sand

sqm Percent


–50

50

100

200

–3

3

12

9

6

150

0 0

15F

Brisb

ane:

Offi

ce


Brisbane: Office

• Vacancy reaches a new peak of 16.7%• Prime gross effective rents decline, driven by a rise in incentives• Three sales transactions totalling AUD 186 million

DemandBrisbane CBD office demand stabilised over the quarter with –2,700 sqm of net absorption recorded, following a figure of –21,200 in 2Q14. Contractions in the quarter were largely recorded in the finance sector, unlike the previous quarter when mining and resource sector occupiers were rationalising their office footprint. St George Bank relocated to 1 Eagle Street, downsizing by over 1,000 sqm, and Bank of Queensland relocated from the CBD to their new space in Brisbane Fringe. Although tenant demand and enquiry levels were relatively soft, pre-commitment levels were high. The largest deal recorded in the quarter was Commonwealth Bank of Australia’s pre-commitment to 12,000 sqm at Daisho’s development at 180 Ann Street.

Vacancy in Brisbane CBD increased to 16.7%. Prime stock vacancy increased by 1 percentage point to now average 12.9%. Secondary stock vacancy decreased slightly, but still remains elevated at 19.9%.

SupplyOne project was completed in the quarter, a small refurbishment of 2,140 sqm, Rowes Arcade at 235 Edward Street. This will be the only project to reach completion in 2014. There are currently three new towers under construction, which upon completion will add a total of 188,000 sqm. The first of these due to complete is 180 Ann Street (58,000 sqm) and 480 Queen Street (55,000 sqm). Both of these are due in late 2015. Also under construction is 1 William Street (75,000 sqm). The towers are currently 68% pre-committed.

Asset PerformanceAverage prime gross effective rents decreased by 2.3% over the quarter to now average AUD 419 per sqm per annum. This is largely due to an increase in incentives to 38 months’ rent free, with net face rents remaining stable. Secondary gross effective rents also decreased, despite secondary vacancy dipping to below 20% in 3Q14.

Despite weak demand, there is strong investor interest in Brisbane CBD assets with solid investment fundamentals. Exemplifying this is the sale of Central Plaza Three to Pembroke Real Estate Corporation on an equivalent yield of 6.40%. The prime and secondary yield ranges are unchanged in 3Q14, with prime yields ranging between 6.25%–8.25% and secondary yields between 8.00%–9.50%.

12-Month OutlookTenant demand is expected to remain weak through the remainder of 2014 and into 2015, with negative absorption and an increase in vacancy expected.

Rents will remain under downward pressure in the short term due to the surplus of available space and limited tenant demand. Strong investor interest in prime assets is expected to keep yields firm at the top end of the market, but weakness in the secondary space market could see a further increase in yields for secondary assets. A number of large assets are currently being marketed which should support transaction volumes over the remainder of 2014.

Note: Brisbane CBD Office refers the Brisbane CBD office market (all grades).

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ AUD 419 psm paStage in Cycle Decline slowingNo. of Quarters Since Last Peak

7



Index

80

90

100

110

120

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

Take Up (net) CompletionsFuture Supply Vacancy Rate

10 11 12 13 14F

Thou

sand

sqm Percent

–120

0

30

60

90

120

180

150

–12

–60 –6

–9–90

–30 –3

0

3

6

9

12

18

15

15F

Auck

land:

Offi

ce


Auckland: Office

• Robust occupier demand drives vacancy to below long-term average• Rents rise as Prime vacancy near the frictional rate• Capital values move higher on strengthening investor sentiment

DemandStronger business sentiment and robust economic fundamentals are driving leasing activity in the Auckland office market. In the first half of 2014, vacancy for the overall CBD declined by 160 basis points to 7.8%. Vacancy for Prime grade stock has fallen to below pre-recession lows with leasing activity remaining high, exacerbated by the limited fragmented space that is currently available. Vacancy in the secondary grade has largely remained unchanged, moving 0.2% lower to 13.3% with occupiers keen to secure the last available spaces in the higher grade stock.

SupplyNew supply will remain minimal over the short term to the detriment of occupiers. Construction of new office stock remains limited with only two office buildings, one located on Victoria Street and the other Fonterra’s new headquarters in the Wynyard Quarter, expected to complete by end-2015. Optimistic landlords looking to take advantage of improving market conditions are now starting to restore and renovate buildings, especially secondary grade assets. The lack of occupier options is likely to spur more speculative development, with several corporates having expressed interest in developing new office premises. This activity has generally been concentrated in the Fringe areas and new projects are expected to only complete in the medium term.

Asset PerformanceFalling vacancy levels and better market conditions are driving increases in rental values across the Auckland office market. Average Prime rents on a q-o-q basis have moved 1.8% higher reaching NZD 429 per sqm per annum while average Secondary rents have moved 1.5% higher to NZD 249 per sqm per annum in 3Q14. The tight office market conditions have also had an impact on Prime incentives, which have fallen to less than one month per year on a lease term, driving up net effective rents. Along with rising rental values, strong investor appetite for office assets has led to robust growth in capital values which rose 9.6% y-o-y in the quarter.

12-Month OutlookWith no new supply likely to be developed in the CBD over the short term and a continued strengthening of office market fundamentals, landlords should be in a favourable position relative to tenants. The Prime segment is projected to be the main recipient of growing demand going forward, as competition for limited space remains high. However, the secondary grade market is also likely to see an improvement as occupier demand filters down from the Prime segment. Investor sentiment and robust economic fundamentals should support a further compression in yields for both prime and secondary assets as the growth phase continues to gain pace.

Note: Auckland Office refers to Auckland’s CBD and Viaduct Harbour office markets.

12-Month Outlook


For 2009 to 2013, take-up, completions and vacancy rates are year end annual. For 2014, take-up, completions and vacancy rates are as at YTD, while future supply is for 4Q14.

Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ NZD 429 psm paStage in Cycle Rents risingNo. of Quarters SinceLast Peak

24

^ net face, on NLA


Index

80

90

100

110

120

150

140

130


10 11 12 13 14F 15F

Thou

sand

sqm Percent

0

10

20

40

0

3

6

13

30 9

60 15

Hong

Kon

g: R

etail

Perth

: Offi

ce


Hong Kong: Retail

• Retail sales record flat y-o-y growth in July–August• Rents hold firm in prime locations, however mild corrections seen in fringe areas• Investors remain interested in large premises with upgrade potential

DemandGrowth of total retail sales remained largely flat in July–August after declining 7% y-o-y in 2Q14. The Mainland Chinese government’s anti-corruption campaign and the changing shopping patterns of Mainland tourists continued to weigh on demand for luxury goods with sales of jewellery and watches down 14.7% y-o-y in July–August, albeit slightly better than the 31.6% y-o-y fall recorded in 2Q14.

Despite the pull-back in retail sales, leasing demand in prime shopping locations remained largely intact. For example, a sportswear group leased a 4-storey shop (5,360 sq ft) on Wellington Street in Central for around HKD 630,000 per month.

SupplyHenderson Land won the tender for Kowloon Inland Lot No. 11237 at 15 Middle Road in Tsimshatsui, paying a land premium of HKD 4.69 billion. The site has the potential to provide a total of 339,709 sq ft of commercial floor space. According to market sources, Henderson Land plans to develop a Ginza-type commercial building on the site.

Asset PerformanceRents on prime streets in core locations held firm in 3Q14, with retailers still willing to shoulder higher rents to secure space for their flagship stores. However, with vacant shops starting to appear along some high streets and sales slowing, retailers adopted a more measured approach towards leasing decisions. As a result, we have started to see some mild rental corrections in the market, though still largely restricted to fringe streets in core locations.

Investor sentiment remained strong with buyers targeting undervalued properties with upgrading opportunities. The investment market in the quarter was highlighted by the disposal of properties by Link REIT for a combined HKD 1.72 billion. Properties sold included the shops and car parks at Choi Fai Estate in Ngau Chi Wan and Choi Ha Estate in Ngau Tau Kok, the Siu Lun Shopping Centre in Tuen Mun, the Tin Ping Shopping Centre in Sheung Shui and the Tsui Lam Shopping Centre in Tseung Kwan O.

12-Month OutlookDespite downside risks, retail sales are still forecasted to record mild single digit growth in 2014 as the effect of the high base comparison brought about by high gold prices a year earlier starts to fade. However, headwinds remain for the sector. The anti-corruption crackdown in China and changing shopping patterns of Mainland tourists are still expected to weigh on retail sales growth. On the positive side, international retailers remain keen on opening stores in Hong Kong with fast fashion brands, cosmetics and medicine retailers leading the way. Against this backdrop, we retain our forecast for rentals of prime retail assets to grow in the range of 0–3% in 2014. Low holding costs and potential upgrading opportunities in non-core locations should continue to draw buyers into the investment market and lend support to capital values. In general, we believe the Occupy Central movement should only have a short-term impact on overall retail sales. Hence, the direct impact on retail rents is expected to be light, unless the protests last for a longer period of time.

Note: Hong Kong Retail refers to Hong Kong’s Overall Prime Shopping Centres and High Street retail markets.

For 2010 to 2013, completions are year end annual. For 2014, completions are YTD, while future supply is for 4Q14.

Financial Indices


Physical Indicators

Source: JLL

Rental Information (Overall Prime Shopping Centres)Rental Value^ HKD 172.7 psf pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

20

^ net, on LFA12-Month Outlook

Rental ValueHigh Street Shops

Capital ValueHigh Street Shops

Premium Prime Shopping CentresOverall Prime Shopping Centres

Rental Information (Premium Prime Shopping Centres)Rental Value^ HKD 302.1 psf pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

22

^ net, on LFA

Rental Information (High Street Shops)Rental Value^ HKD 744.8 psf pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

22

^ net, on GFA

80

100

200

160

120

Index

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15RV Index (High Street Shop)CV Index (High Street Shop)RV Index (Premium Prime Shopping Centres)RV Index (Overall Prime Shopping Centres)

180

140

Completions Future Supply10 11 12 13 14F 15F

Thou

sand

sqm

0

40

30

20

10

50

60

70

Beijin

g: R

etail


Beijing: Retail

• Urban market records negative net take-up for first time since 2007• Rental growth slows due to limited leasing activity • Market yields remain unchanged

DemandCasual food and beverage chains targeting the mid-market continued to expand in shopping centres. Two key examples are Jin Ding Xuan, a casual dining chain, and Sea Hood, a seafood theme restaurant. Dessert and refreshment brands were especially eager to open stores in shopping malls. Key examples included Dian Dian Yi Pin and Ice Monster, recent arrivals from Hong Kong and Taiwan, respectively. Beauty stores, in particular hair salons, opened numerous new locations, reflecting the trend towards a rising emphasis on services. Two department stores – Ito Yokado and Sunshine Store – were closed down in 3Q14, continuing the trend of previous quarters as department stores experienced poor performance. Negative net absorption was recorded for the first time in seven years due to higher vacancy arising from tenant adjustments. For example, the food court at Shin-kong Place was removed to make way for new restaurants. A high-end restaurant and two jewellery stores were closed at Macau Centre, in line with the recent decline of high-end spending in Beijing.

SupplyNo new malls were completed in the urban market in 3Q14. However, there were two completions in the suburban market. In Tongzhou, Jingtong Roosevelt (67,000 sqm, GFA), owned by the ARA Group, held a soft-opening. The property has a strong offering of kids-related clothing and accessories. BHG Lippo Mall (80,000 sqm), a JV between Beijing Hualian and Indonesia’s Lippo Group, opened in Yizhuang, in southeast Beijing. Both projects are the most advanced retail properties in their respective areas and introduced several high-profile new entrants to both communities, such as the first H&M and Starbucks in Tongzhou, and the first H&M and C&A in Yizhuang. Both properties opened with high pre-commitment rates.

Asset PerformanceUrban ground floor open-market rents increased 1.1% q-o-q on a chain-linked basis, less than the increase recorded in 2Q14. Top performing properties continued to experience strong rental growth, such as Chaoyang Joy City. Several under-performing projects with high vacancy rates experienced flat or declining market rents. No en bloc sales transactions were recorded in 3Q14.

12-Month OutlookTwo shopping centres totalling 90,000 sqm (GFA) are scheduled for completion in 4Q14. However, slow leasing progress may cause opening dates to be delayed. The overall market vacancy rate should edge up following both completions. Rental growth should remain strong in key destination projects that experience high volumes of foot traffic and high conversion rates. Of the nine projects due to complete in 2015, five are expected to be in suburban areas beyond the Fifth Ring Road, underpinning the surge in large-scale suburban shopping centres.

Note: Beijing Retail refers to Beijing’s Urban retail market.


Financial Indices


Physical Indicators

Source: JLL

12-Month Outlook


Rental InformationRental Value^ RMB 848 psm pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

19

^net effective, on NLA


Index

80

100

120

180

160

140


Thou

sand

sqm

0

150

450

600

300

Shan

ghai:

Ret

ailPe

rth: O

ffice


Shanghai: Retail

• One core project and one non-core project open • Slow rent growth in core market• No major investment transactions as investors remain cautious

DemandIn the high-end market, affordable luxury brands continued to expand as Michael Kors opened two new stores in IFC and Raffles City. In the mid-range market, several retailers closed stores in the quarter following excessive expansion over the past several years. For example, La Chapelle closed four stores, including a 1,000 sqm flagship in Agile International Plaza near People’s Square. Demand continued to be strong from F&B tenants. Coffee and tea shops with light refreshments were highly sought after by landlords, as their afternoon tea concept has grown increasingly popular. TWG Tea from Singapore, for instance, opened three branches in Grand Gateway, IFC mall and iapm.

SupplyOne core project opened in 3Q14. A 4,000 sqm Maison Hermès flagship store opened on Huaihai Road after six years of renovation. The new Maison spreads over four floors and hosts almost all of the brand’s product lines, plus a champagne bar on the third floor and event space on the top floor. Located in a highly visible position, the store is intended to further enhance the brand’s premium image among aspirational Chinese consumers. In the non-core market, Met Plaza (48,000 sqm) opened with 70% of space open and trading. The project is adjacent to South Qilianshan Road Station on Metro Line 13. This community centre supports the densely populated area between the middle and outer ring roads in Putuo district. Anchor tenants include McDonald’s, Starbucks, Hotwind and an underground supermarket that has not yet opened.

Asset PerformanceIn the core area, open-market ground floor base rents increased by 1.4% q-o-q to RMB 52.4 per sqm per day. Non-core rents stayed flat at RMB 17.3 per sqm per day. In non-core areas, a large disparity exists between mature regional centres and newer properties, which are becoming increasingly generous on rental terms in order to achieve high occupancy. Vacancy decreased to 7.2% in the core area as several properties filled vacant upper floor space with F&B tenants. Vacancy also decreased to 6.6% in the non-core market as tenants continued to fill up vacant areas in Shanghai’s largest retail property – River Mall. There were no en bloc sales transactions in the quarter.

12-Month OutlookRetailers remain active in looking for expansion opportunities in Shanghai. Due to a large supply pipeline in 2014–15 and cautious market sentiment, developers are becoming more generous on rents and rent free periods, especially in immature areas. Some projects are expected to experience longer than anticipated pre-leasing periods, which could push back completion dates. Mature retail submarkets with high occupancy, meanwhile, will continue to enjoy strong bargaining power as projects replace underperforming tenants with higher-positioned ones and more well-known brands.

Note: Shanghai Retail refers to Shanghai’s Overall Core and Non-core retail markets.

12-Month Outlook



Physical Indicators are for the Core market.

Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ RMB 52.4 psm per dayStage in Cycle Rents risingNo. of Quarters Since Last Trough

10

^ net, on NLA

Financial Indicators are for the Core market.

Index

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15Rental Value Index Capital Value Index

90

100

110

140

130

120

150

Thou

sand

sqm

10 11 12 13 14F 15FCompletions Future Supply

0

50

200

250

100

150

300

Chen

gdu:

Ret

ail


Chengdu: Retail

• International brands continue to expand in mature areas• Rents rise underpinned by solid retailer demand• No major investment transactions

DemandLeasing demand for Chengdu’s prime retail space remained intact in 3Q14, underpinned by strong expansion requirements from international retailers. Shopping malls in mature locations remained their top priority. For instance, Muji committed to around 500 sqm of space in Chengdu IFS. British fashion brand Anne Karen entered Raffles City while Dirk Bikkembergs opened a new store in Wangfujing Shopping Center.

During the quarter, several department stores targeting the mid- to high-end consumer market kicked off another round of tenant adjustments. Seizing this chance, some high-end and affordable luxury retailers actively expanded in these projects. For instance, Marc by Marc Jacobs and Calvin Klein set up one new store in Wangfujing Department Store and Chicony Square, respectively, and Taiwanese multi-brand store Tuan Tuan Boutique opened its second store in the city in Renhe Spring Department Store-Zongbei.

SupplyForte Business Center (72,000 sqm, GFA) in the New South Area submarket was the only prime retail project opened during the quarter. The mid-range mall was developed by Forte Group. It is anchored by Korean supermarket Lotte Mart and has also attracted a number of popular brands such as Starbucks Coffee, Samsung and Tissot.

Asset PerformanceSustained by solid demand, the average ground floor base rent marginally increased to RMB 374.5 per sqm per month at end-3Q14, up 0.6% q-o-q and 6.8% y-o-y.

No major retail investment transactions concluded during the quarter. However, it is observed that institutional investors have generally shown strong interest in Chengdu retail properties.

12-Month OutlookLooking ahead, demand from new-to-market entrants and existing retailers for expansion is expected to remain robust. Casual dining establishments are likely to be active in the leasing market and sought after by landlords as they can generate strong foot traffic. A number of international fashion brands are known to be actively looking for space in prime locations to make their debut in the city.

A large supply pipeline in the next 12 months may see some upcoming malls face difficulties in attracting retailers. The likelihood of project delays will remain high, especially among projects located in emerging submarkets such as New South Area. There will also be an increasing possibility that new malls in secondary locations will open with lower occupancy. As such, Chengdu is likely to see a more tenant favourable market in coming quarters, with modest rental growth expected for most submarkets.

Note: Chengdu Retail refers to Chengdu’s Urban Prime retail market.

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ RMB 374.5 psm pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

15

^ net, on GFA

Index


80

100

130

140

120

90

110

Completions Future Supply10 11 12 13 14F

0

200

800

Thou

sand

sqm

600

400

15F

Toky

o: R

etail

Perth

: Offi

ce


Tokyo: Retail

• Demand for prime retail space remains strong• Rents grow for eighth straight quarter amid limited vacant space• Yields compress amid favourable investment environment

DemandA recovery from the sales tax hike in April has been patchy. Consumer confidence for Japan declined 0.3 points m-o-m in August to 41.2 as employment confidence weakened, while sales of luxury goods in department stores in Tokyo for the same month decreased 5.3% y-o-y. However, retail sales on a broader level improved with large-scale retail stores sales in Tokyo increasing 3.1% y-o-y and 0.6% y-o-y in August and July, surpassing the growth rates witnessed for the same period in the previous year. Furthermore, the retail market has been getting support from a rising number of international tourists which increased 22.4% y-o-y in August to reach a record high for the month.

Despite mixed market conditions, demand from luxury, fashion and food and beverage categories continued to be robust. Given limited vacant space in the prime retail market, a number of retailers have been in search of space to meet future requirements.

Notable new store openings in the quarter included Rimowa at Omotesando Hills and Victorinox which relocated within the Ginza submarket. Familiar, a children’s clothing brand, announced that it will open a store on Ginza Chuo-dori, while Cos will open a shop in the Minamiaoyama submarket. Both stores are expected to open in 4Q14.

Demand for duty free stores is on the rise following the implementation of the Revised Consumption Tax Exemption Program for Foreign Visitors in October, which increased the number of consumer goods exempt from sales tax. In the prime market, Isetan-Mitsukoshi, Japan Airport Terminal, Narita International Airport and NAA Retailing have set up a JV to open Japan Duty Free Ginza within the Ginza Mitsukoshi Store in 2015.

SupplyNo new supply completions in 3Q14.

Asset PerformanceRents in 3Q14 averaged JPY 69,128 per tsubo per month, increasing 1.2% q-o-q and 4.8% y-o-y in the eighth consecutive quarter of increase. Rents for ground floor space in Ginza, which is extremely limited, rose for the fourth consecutive quarter and drove growth in the prime market, while upper floor rents remained stable during the quarter.

In 3Q14, capital values increased 3.3% q-o-q and 13% y-o-y in the fourth consecutive quarter of increase, while investment yields compressed for the second straight quarter. Interest from investors continued to be strong amid favourable investment conditions.

A notable investment transaction in the quarter included the Japan Retail Fund acquisition of G Building Omotesando 02 (15% stake) for JPY 5.31 billion or a net operating income yield of 3.6%.

12-Month OutlookAccording to Oxford Economics, private consumption in 2015 is expected to increase 0.7% y-o-y, while disposable income should grow 2.5% y-o-y. Given positive economic conditions, demand for prime retail space is anticipated to hold up. Coupled with limited supply, rents should grow moderately.

On the investment front, market conditions are expected to remain favourable for investors with historically low interest rates persisting. As such, capital values are expected to grow while investment yields compress.

Note: Tokyo Retail refers to the Ginza and Omotesando Prime retail market.



8

^ gross on NLA

Financial Indices


Tokyo Retail Sales

Source: Ministry of Economy, Trade and Industry

12-Month Outlook


Index


90

110

130

120

100

2Q14Sales Growth of Large-Scale Retail Stores in Tokyo

2Q10 2Q112Q09 2Q12 2Q13

y-o-y

(%)

–10

–6

0

108642

–2–4

–8

Sing

apor

e: R

etail


Singapore: Retail

• Sustained interest for prime spaces from domestic and new-to-market retailers• Primary rents show muted growth alongside fall in visitor numbers • Capital values remain stable amid declining strata-titled sales

DemandOccupancy rates held steady in the Primary submarket in 3Q14 due to sustained interest for prime space from domestic and new-to-market retailers. Under Armour and Pudu, an American sports-clothing retailer and a travel-inspired fashion boutique respectively, both opened their first Singapore stores in orchardgateway in the quarter. Despite weak retail sales and slowing visitor arrivals, leasing demand was sustained amid tight supply. 268 Orchard is the only upcoming mall in the Orchard submarket slated for completion by 2018.

In the tourism sector, visitor arrivals decreased 2.8% y-o-y in 1H14 and 8.3% y-o-y in August. Weakness in August was mostly due to a drop in visitors from China, Indonesia and Malaysia. This declining y-o-y trend in visitor arrivals translated into a continued 1.6% y-o-y (excluding vehicle sales) decrease in August’s retail sales, as the retail figures in both domestic and tourist segments saw a decline. Nevertheless, the Singapore tourism board anticipates a rise in tourist numbers in subsequent months, aided by the Formula One race, a three-day event held annually, that typically grosses more than SGD 100 million in tourism receipts.

SupplyNo new supply was added in 3Q14, as anticipated Suburban projects, such as Paya Lebar Square and the refurbished East Point Mall, postponed their openings to 4Q14 due to construction delays. A total supply of 1.5 million sq ft is slated to come on stream in 4Q14.

Asset PerformanceOrchard and Marina rents grew marginally in 3Q14, supported by healthy leasing activity in prime locations. The Suburban submarket faced downward pressure on rents due to weaker demand in secondary locations amid a possibly oversupplied market.

Capital values remained flat in the Orchard and Marina submarkets, due to a price mismatch between buyers and sellers’ expectations. While more than 1,000 strata-titled retail shops are estimated to be completed in the next twelve months, the challenging market conditions in secondary locations has kept buyers cautious. The key highlight during 3Q14 was the acquisition of PoMo’s retail premises by Celestine Management Private Ltd from Enviro-Hub Holdings Ltd for SGD 150 million.

12-Month OutlookThe lowering of the foreign dependency ratio is expected to continue affecting retail and F&B businesses and may potentially have a negative impact in the longer term. The Total Debt Servicing Ratio framework may continue to discourage investors, as potential buyers remain cautious due to sluggish retail sales and the growing e-commerce market. However, low unemployment, moderating inflation and increased awareness by landlords and developers of the necessity for mall differentiation and redefining the shopping experience, should support the demand and rent environment in 4Q14. However, challenges are likely to be evident. Capital values are likely to remain stable as tighter financing requirements put a damper on investor sentiment, allowing the overall yield to expand.

Note: Singapore Retail refers to Singapore’s Primary, Marina and Suburban retail markets.

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ SGD 38 psf pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

19

^ gross, on NLA


90

110

120

Index 105

100

95

115

Future SupplyCompletions10 11 12 12 14F 15F

0

50

100

150

200

300

Thou

sand

sqm

250

Financial Indicators are for Orchard Road.

Bang

kok:

Ret

ailPe

rth: O

ffice


Bangkok: Retail

• Central Plaza Salaya completes, adding 54,400 sqm of leasable space• Political stability underpins a continued recovery of rents• Both capital values and market yields rise

DemandPrime grade retail space remained in demand in 3Q14 driven by strong pre-commitments at the newly opened Central Plaza Salaya. International retailers continue to open their first stores in Thailand with nine new fashion brands, four F&B stores and a jewellery shop opening their first branches at Central Embassy. However, vacancy increased to 4.8% as tenants continue to move into newly opened retail centres such as Central Embassy and Central Salaya, coupled with the continued poor performance of Gateway Ekkamai.

SupplyCentral Plaza Salaya was the only prime grade centre to open in 3Q14. This regional shopping centre provided 54,400 sqm of leasable retail space to the market. Total prime retail stock was 2,622,000 sqm as at end-3Q14.

Asset PerformanceAs political turmoil came to an end and a government was established, both business sentiment and consumer confidence became more positive. As a result, landlords adjusted rents higher and this resulted in average rents rising 1.7% q-o-q. With capital values rising slightly less than rents at 1.5% q-o-q, market yields expanded marginally over the previous quarter.

12-Month OutlookAs the political situation has calmed and a new government has been established, both consumer confidence and business sentiment have improved. However, martial law is holding back international tourism to a certain extent. If the political situation remains stable and martial law is lifted, the number of international tourists visiting Bangkok should soon recover. As a result, demand for prime retail space should rise and support a continued increase in rents, capital values and market yields.

One prime grade project, HaHa Market, is scheduled to be completed in 4Q14 and add 18,000 sqm (NLA) to stock. Moreover, two prime grade shopping centres, The EmQuartier (100,000 sqm) and Central Westgate (100,000 sqm) are expected to open in 1Q15 and 2Q15, respectively. The overall vacancy rate should rise in the short term upon completion of the new projects, but given the high level of pre-commitments, it should then decline relatively quickly as tenants move in and begin operations. The aggressive expansion plans of Central Pattana PCL, which will open two new shopping centres in 2014 and two more in 2015, have created a more competitive environment in the prime grade retail market. Central Pattana’s biggest rival, The Mall Group, has countered by launching “The Em District”, which includes The EmQuartier, a luxury centre scheduled to open in 1Q15, and the renovation of its long established shopping mall, The Emporium, which is scheduled to be completed by end-2014. These expansion plans by the big two players should attract the entry of more international retailers of luxury goods and cause rents to increase.

Note: Bangkok Retail refers to Bangkok’s Prime retail market.

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ THB 2,294 psm pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

2

^ gross, on NLA


Index

80

90

100

110

120

Completions Future Supply10 11 12 13

Thou

sand

sqm

0

200

300

500

14F 15F

100

400

Kuala

Lum

pur:

Reta

il


• Vacancy rises largely due to the newly completed DPulze • Some landlords increase rents for renewals• Parkson sells KL Festival City Mall for MYR 349 million

DemandDemand was fairly healthy in 3Q14, however the average vacancy rate increased to 7.2% as a newly completed mall remained physically unoccupied.

In the City Centre, the average vacancy rate increased 0.3 percentage points q-o-q to 7.3% as retailers undertook renovation and upgrading works. Notable retailers opening stores in the City Centre included Swiss luxury tobacco goods brand Davidoff (flagship store), Spanish luxury fashion brand Loewe, American women’s apparel and accessories designer store Tory Burch, German-founded leather goods brand MCM, and M Pavilion (concept store), all at Pavilion KL. Swedish fashion retailer H&M opened a new store at Nu Sentral and French cosmetics retailer Sephora opened at Avenue K.

In the Suburbs, the average vacancy rate increased from 6.2% to 7.2% q-o-q, mainly due to the vacancy of the newly completed mall DPulze in Cyberjaya. However, DPulze was 85% committed as at end-3Q14 by brands such as TGV cinemas, Jaya Grocer, Celebrity Fitness, ACE Hardware, MPH bookstores, F&B outlets Plan B, Coffee Bean & Tea Leaf, Rakuzen and Ole-Ole Bali.

SupplyDPulze in Cyberjaya (240,000 sq ft, NLA) was completed in 3Q14, bringing the total stock to 29.8 million sq ft. DPulze is the first purpose-built retail centre in Cyberjaya and is part of an integrated mixed-use development comprising a budget hotel, serviced apartments, serviced offices and retail podium.

Asset PerformanceIn 3Q14, some landlords took the opportunity to marginally increase rents at renewal time and pushed average monthly gross rents higher to MYR 33 per sq ft in the City Centre and MYR 24.5 per sq ft in the Suburbs. Capital values also increased in the City Centre and Suburbs by 0.7% q-o-q and 1.4%, respectively.

Parkson Holdings Berhad, through its subsidiary Festival City Sdn Bhd signed a conditional Sale and Purchase Agreement to dispose of its KL Festival City Mall (487,342 sq ft, NLA) to Festival Mall Sdn Bhd and AsiaMalls Sdn Bhd for MYR 349 million in cash.

12-Month OutlookThe retail sector’s performance is expected to be relatively stable over the next 12 months, as cautious consumer sentiment is anticipated to prevail underpinned by further increases in the cost of living. Rising finance costs and the implementation of a Goods & Services Tax in April 2015 is expected to result in a temporary lull in spending.

Vacancy is expected to rise as tenants slowly occupy upcoming new malls.

Rents and capital values are expected to continue to gradually increase over the next 12 months and investors are also likely to still find Kuala Lumpur a relatively appealing investment market and continue to seek opportunities to invest in prime retail assets.

Kuala Lumpur: Retail

Note: Kuala Lumpur Retail refers to Kuala Lumpur’s Overall shopping centre market.


Physical Indicators are for the City Centre and Suburbs.

Financial Indices


Physical Indicators

Source: JLL

12-Month Outlook


Rental InformationRental Value^ MYR 33 psf pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

21

^ gross, on NLA

Financial Indicators are for the City Centre.

90

100

120

Index


110

Thou

sand

sqm

10 11 12 13 14F 15FCompletions Future Supply

0

100

200

500

400

300

Jaka

rta: R

etail

Perth

: Offi

ce


Jakarta: Retail

• Retailers cautious about expansion after strong growth in recent years • Landlords focus on maintaining occupancy levels with most holding rents stable • Slight increase in capital values, while yields unchanged

DemandDemand continued to recover in 3Q14 despite a challenging economic and political environment. However, retailers remain cautiously optimistic about expansion. In 3Q14, net take-up increased to 26,600 sqm primarily due to the opening of the first phase of a new prime shopping mall in West Jakarta, St. Moritz. Based on retailer categories, fashion brands generated the most demand among specialty retailers. This category, particularly the fast fashion sub-category, has dominated leasing activity over the past two years as it is a “crowd-puller” component for prime shopping centres. Major new leases in the quarter included H&M and Bakerzin in Kota Kasablanka and Coach and Caron in Plaza Indonesia. Meanwhile, anchor retailers remained active with Parkson Department Store opening in St. Moritz in the quarter. In spite of positive net take-up, vacancy increased to 4.4% amid new supply. As at end-3Q14, there was around 61,700 sqm of retail space available for lease in the prime retail market.

SupplyWith the completion of St. Moritz Stage 1 and the closing of EX Mall, the total stock of prime retail space was 1.41 million sqm as at end-3Q14. The completion of St. Moritz Stage 2 in 2015 and Central Park Stage 2 in 2016 (both located in West Jakarta) are expected to add around 124,000 sqm of new stock to the prime retail market in Jakarta. Supply growth in the market has been limited over the past few years due to a moratorium on new mall development by the Jakarta provincial government.

Asset PerformanceDespite relatively stable occupancy, tight competition among landlords and a challenging business environment continued to exert downward pressure on rents. As such, rentals generally remained stable at IDR 5,398,545 per sqm per annum, with only a select few landlords increasing rents. Modest rental growth in the last few years was partly attributed to low space productivity due to the growing number of malls competing to reach customers. While tenants focused their efforts on meeting revenue targets and keeping costs low, landlords focused on maintaining occupancy and achieving a desirable tenant mix.

Capital value growth in the quarter was relatively in line with rental growth and as such, yields were stable at around 10.9%. On the investment front, there were no major sales transactions in the quarter.

12-Month OutlookThe continuation of the moratorium on mall construction is likely to limit supply in upcoming years and help landlords maintain high occupancy levels at existing malls. As landlords are likely to continue to adjust tenant mixes, this may present opportunities for some to adjust rents higher. However, any rental escalation maybe limited due to rising operating costs for retailers. With mall development in central Jakarta constrained, new projects are likely to take place in decentralised locations outside of Jakarta. Within Jakarta, the moratorium may present opportunities for expansion of existing malls or the incorporation of a retail component in mixed-use developments.

Note: Jakarta Retail refers to Jakarta’s Overall Prime retail market.


Financial Indices

Arrows indicate 12-month outlook Index base: 4Q07 = 100Source: Jones Lang LaSalle

Financial Indices


Physical Indicators

Source: Jones Lang LaSalle

Physical Indicators

Source: JLL

12-Month Outlook


12-Month Outlook


Rental InformationRental Value^ IDR 4,804,018 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

5


Rental InformationRental Value^ IDR 5,398,258 psm paStage in Cycle Growth slowingNo. of Quarters Since Last Trough

14



Index

90

100

110

130

120


Thou

sand

sqm

0

50

150

450

400

350

300

250

200

100

Delh

i: Re

tail


Delhi: Retail

• Net absorption highest in seven quarters • Rents remain stable across all submarkets• Capital values rise in Prime South and Prime Others

DemandIn 3Q14, net absorption increased significantly on the back of improved leasing activity and healthy pre-commitments at a new completion. Net absorption was recorded at 267,000 sq ft in the quarter, with over 74% contributed by the Suburbs submarket. Retailers showed positive intent in opening new stores, but were focused on quality mall developments. Owing to high occupancies in such projects, retailers were willing to reduce store size or consider alternative space in high streets. Retailers were also looking at emerging retail clusters for expansion, especially where quality mall projects were available. Net absorption was the highest in seven quarters in Prime South and Suburbs and at an eleven quarter high in Prime Others. The overall vacancy rate fell by 140 bps q-o-q to 23.1%.

Within the Prime South submarket, Planet Sports leased 5,500 sq ft in Ambience Mall and Villeroy & Boch leased 1,650 sq ft in DLF Emporio in Vasant Kunj. In Saket, Aldo leased 3,000 sq ft in Select Citywalk. In Prime Others, major leases included Max and Lifestyle leasing 10,000 sq ft and 11,000 sq ft, respectively in Moments Mall.

In the Suburbs submarket, Kyocera leased 10,000 sq ft in Centrum Plaza in the Gurgaon precinct and Bata leased 2,500 sq ft in Great India Place in Noida. Samsung leased 4,000 sq ft in Shipra Mall in the Ghaziabad precinct while smaller sized leases, largely by domestic retailers, were recorded in the Faridabad and Greater Noida precincts.

SupplyWorld Square Mall (200,000 sq ft) became operational in the Ghaziabad precinct of the Suburbs submarket in 3Q14.

Asset Performance Overall rents remained stable, with flat rentals observed across all retail submarkets.

With leased retail assets being considered by investors, capital values edged up by less than 1% q-o-q in Prime South and at a similar pace in Prime Others. Both of these submarkets recorded a 10 bps q-o-q yield compression.

12-Month OutlookAn improving domestic economy is expected to underpin growth in consumption and retailers will be keen to tap into this potential demand. The availability of quality mall space may be a factor in limiting absorption volumes. Retailers will probably remain keen to undertake store expansion, but are expected to limit themselves to quality projects. A few of the upcoming retail projects, which have shown moderate to healthy pre-commitments, should support the expected higher net absorption levels upon completion.

Sustained retailer interest is likely in the Prime South submarket, with rents expected to show marginal growth. Rent increments in other retail submarkets will probably be driven by individual projects that are performing well. Capital values should grow in sync with rents, with a faster growth likely for leased assets for sale.

Note: Delhi Retail refers to Delhi’s Overall retail market.



Financial Indices


Physical Indicators

Source: JLL

12-Month Outlook



15

^ gross, on GFA

Financial Indicators are for the Prime South.

Index


90

95

115

100

105

110

120

10 11 12 13 14FCompletions Future Supply

Thou

sand

sqm

0

90

60

30

120

150

180

15F

Mum

bai:

Reta

ilPe

rth: O

ffice


Mumbai: Retail

• Leasing activity by anchor tenants pushes net absorption higher • Overall rental growth largely driven by quality malls in Suburbs• Suburbs records modest capital value growth

DemandNet absorption improved during 3Q14 and was recorded at 61,000 sq ft. Prime South witnessed the biggest rise in absorption during the quarter with most contributed by a couple of lease transactions by anchor tenants. Good quality malls in the Suburbs submarket continued to witness good leasing activity, while activity was also strong for high streets in the Prime North submarket mainly due to a lack of quality mall space.

Unlike in recent quarters, which saw leasing activity dominated by apparel retailers and F&B operators, a broad range of retailers leased space in 3Q14. It has been observed that demand for organised retail has increased post-election, possibly due to clarity on retailing policies and a sustained rise in consumer confidence.

SupplyNo new malls became operational during 3Q14 but a few malls are in their final stages of construction. As poor quality malls witnessed less preference from retailers they have resorted to mall restructuring / refurbishment, or converting part of the mall to small office spaces and leasing them in order to minimise losses.

Vacancy declined by 40 bps q-o-q and stood at 20.6% at end-3Q14. With increased take-up in Prime South, the submarket witnessed a 160 bps reduction in vacancy to 2.5%.

Asset PerformanceRents and capital values in the Suburbs increased modestly by 0.7% q-o-q in 3Q14. Stock in the Suburbs is weighted more towards good quality malls, which naturally command a premium rent over low quality malls. However, across the city, most mall landlords did not increase rents as the market recovery is in its nascent stages and continues to be tilted in favour of occupiers.

12-Month Outlook In the coming two quarters, a few malls are expected to become operational. Two of these shopping centres are in good locations and have good potential to witness healthy pre-commitments. The other upcoming mall is located in the Suburbs and is likely to face stiff competition in attracting retailers from established mature malls in the submarket.

A low vacancy environment is anticipated to persist in the Prime North and Prime South. With a steady rise in demand and lack of supply in these submarkets, financial indicators should move higher in the coming few quarters.

Note: Mumbai Retail refers to Mumbai’s Overall retail market.

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL


14

^ gross, on GFA

Financial Indicators are for the Prime South.

Index


90

95

115

100

105

110

120

10 11 12 13 14FCompletions Future Supply

Thou

sand

sqm

0

90

60

30

120

150

180

15F

Sydn

ey: R

etail


Sydney: RetailSydney: Retail

• Retail spending growth is accelerating• Average rents stable across all retail formats• Investors focussing on sub-regional centres

DemandRetail turnover growth in New South Wales (NSW) has recovered significantly over the 12 months ended September 2014 and is now growing strongly by historical standards. The Australia Bureau of Statistics reported that retail turnover growth (year-on-year) in NSW was 7.4% in August 2014, representing a faster pace of growth than the fiscal stimulus induced 2009 (peak of 7%) period and previous high of 7% in Dec-2007.

Leasing demand is gradually improving, although property market indicators are still fairly subdued. In fact, the average Sydney retail vacancy rate for specialty shops edged slightly higher in 1H14 to 2.4% from 2.2% but it does still remain the lowest in the country. International retailers remain the major story in the Sydney market, with a number of notable commitments made in 3Q14: H&M in the CBD; Forever 21 in the CBD; and Zara, H&M, Uniqlo, Gap and Forever 21 at Macquarie Centre.

SupplyOnly two small neighbourhood centres completed construction in 3Q14, but a major (45,000 sqm) extension to Macquarie Shopping Centre completed in early 4Q14. The AUD 390 million project was undertaken by AMP Capital after raising its share in the centre from 50% to 100% (acquired from Westfield in 2012) and raising equity from ADIA and CPPIB.

The supply cycle appears to have troughed in 2013 (106,800 sqm) and is expected to show a rise of 30% y-o-y in 2014 (to 138,400 sqm), before stabilising in 2015 (+2% y-o-y).

Asset PerformanceAverage rents were stable across all retail formats in 3Q14. Over 12 months ended September 2014, CBD, regional, sub-regional and neighbourhood declined fractionally (by 0.5% or less); bulky goods have shown a very minor positive growth in rents, which is likely to continue, driven by a rebound in housing construction.

Sydney has been one of the most active retail markets in the country from an investment perspective. It appears investors are responding to the outperformance of retail turnover growth recovery in NSW relative to other states. A total of AUD 841 million worth of transactions have been recorded as at YTD September 2014. The Birkenhead Point sale for AUD 310 million reached completion after 3Q14. Sub-regional centres continue to be the most active sub-sector and account for 58% of transactions volumes as at YTD September 2014.

12-Month OutlookThe 12-month outlook is looking increasingly positive. Stronger sales growth is likely to translate into more robust leasing demand and rental growth over the next 12 months. Transaction activity is likely to remain high as a number of vendors continue to take advantage of higher liquidity in the investment market to offload non-core assets or re-weight between different retail formats. Further yield compression is forecast across all retail sub-sectors.

Note: Sydney Retail refers to Sydney’s Overall retail market.


Financial Indicators


Physical Indicators

Source: JLL

12-Month Outlook


Rental InformationRental Value^ AUD 1,933 psm paStage in Cycle Rents stableNo. of Quarters Since Last Trough

12

^net, on NLA

NA

Rental Value Index4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

Index

90

100

110

120

Future SupplyCompletions10 11 12 13 14F

Thou

sand

sqm

0

100

50

150

200

250

15F

Melb

ourn

e: R

etail

Perth

: Offi

ce


Melbourne: Retail

• Retail supply pipeline is at a plateau• Rents generally stable despite stronger retail spending growth• Investment volumes higher y-o-y in Jan–Sep period

DemandThe pace of retail turnover growth in Victoria has been strong in 2014, with growth of 5.7% per annum (year-on-year) recorded in August 2014, higher than the long-term 10-year average of 4.1% per annum. The decline in department store spending in Victoria appears to have bottomed in 3Q14. Spending growth in food retailing, cafes and restaurants, and clothing retailing has been robust this year.

The arrival of new international retailers and the addition of Emporium shopping centre in Melbourne’s CBD are helping to invigorate the city centre, putting the focus back on to CBD retailing and in turn boosting leasing demand. Leasing enquiry levels from food-based retailers remain strong. With weaker spending in some discretionary categories in recent years, dining and food retailing have become a significant component of shopping centre income. Landlords are using refurbishments and expansions as an opportunity to add new dining and fresh food retailing options to their centres.

SupplyThe volume of retail project completions is expected to remain steady between 2014 and 2015, having slowed from the peak of 309,600 sqm recorded in 2013. Approximately 120,700 sqm of new supply is expected to be added to the Melbourne retail market in 2014, representing a little more than one third of the supply additions recorded in 2013.

The AUD 580 million redevelopment of a major regional centre and Australia’s largest enclosed mall, Chadstone, commenced construction in late 3Q14. The centre’s retail area will expand by 19,600 sqm as part of the redevelopment, which also includes the construction of a 10-storey, 17,000 sqm office building.

Asset PerformanceAverage specialty rents have remained generally stable in 2014, with slight improvements in the sub-regional, neighbourhood, CBD super-prime and bulky goods categories in the past six months.

Investment transaction volumes in Victoria totalled AUD 1.2 billion as at YTD September 2014; compared with AUD 935.6 million transacting over the same period in 2013. Despite stronger investment activity in comparison to 2013, investment volumes in 3Q14 are lower than levels reached in 1Q14 and 2Q14. Retail yields have recorded moderate compression across each sub-sector over the past 12 months. Sub-regional yield compression has been confirmed by recent transactional evidence.

12-Month OutlookThe expansion of major international retailers will help to support leasing demand. New supply additions over the next 12 months are expected to be below trend, which will likely place downward pressure on vacancy rates. Rental growth is forecast to remain flat in 2014, before making a recovery in 2015. Strong investor demand and a lack of available assets are likely to drive further yield compression over the next 12 months.

Note: Melbourne Retail refers to Melbourne’s overall retail market.

12-Month Outlook



Financial Indicators


Physical Indicators

Source: JLL

Rental InformationRental Value^ AUD 1,462 psm paStage in Cycle Rents stableNo. of Quarters Since Last Trough

7

^ net, on NLA

NA

Rental Value Index4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

Index

90

100

110

120


Thou

sand

sqm

0

100

50

150

200

250

15F

Hong

Kon

g: R

esid

entia

l


Hong Kong: Residential

•Developers expedite new launches to capitalise on pent-up demand •Rents stabilise on back of seasonal demand• Improved buyer sentiment lends support to capital value growth

DemandThe overall market saw a considerable pick-up in sales activity in 3Q14, with home sales rising by 24.7% q-o-q and 80.2% y-o-y to 19,962 transactions. Demand for luxury units also improved with 96 properties priced above HKD 50 million being transacted, up 52.4% q-o-q and 242.9% y-o-y, and well-above the ten-year (2004–2013) quarterly average of 73 transactions.

Since the relaxation of conditions associated with the Double Stamp Duty (DSD) policy in May, developers have actively launched more units onto the primary sales market to meet pent-up demand. Apartment units in the mass residential market were most sought-after due to the more favourable borrowing conditions and more affordable lump sum down payments associated with smaller-sized units.

Luxury projects launched in the quarter also received good response. At 1&3 Ede Road in Kowloon Tong, Kerry Properties sold over 60% of the 41 units. Hang Lung Properties also capitalised on the improvement in market sentiment, selling more than 80% of the 272 previously unsold units at The Harbourside in West Kowloon, a residential project which was completed back in 2003. In the secondary market, a handful of houses were also transacted on the Island, including the reported sale of 35 South Bay Road for a total consideration of HKD 808 million or HKD 110,776 per sq ft, saleable; a record high for Island South district.

On the leasing front, expatriates were still constrained by tight accommodation budgets. Leasing activities nonetheless stabilised in 3Q14, supported by seasonal demand at the lower-end of the luxury residential sector.

SupplyFour luxury projects were scheduled to have been completed in 3Q14, providing 37 luxury units to the market.

Asset PerformanceLandlords in the secondary market sought to capitalise on positive sentiment in the market. As a result, capital values of luxury residential properties increased by 2.5% q-o-q in 3Q14. Improved levels of leasing activities contributed to a marginal increase of 0.3% q-o-q in luxury rents over the same period.

12-Month OutlookDevelopers are likely to continue to press ahead with new launches to capitalise on the current frenzy among homebuyers. However, we remain cautious on the 12-month outlook as the forthcoming announcement of interest rate hikes as well as growing concerns over the territory’s political stability could lead to a slowdown in demand. The Occupy Central movement has not impacted primary sales so far but could weigh on sales volumes and prices, especially in the secondary market, if the situation persists. Leasing activity is also likely to remain subdued through the remainder of the year on the back of lacklustre expatriate hiring.

Looking ahead, the downward pressure on capital values previously forecasted is still expected to materialise but now may not eventuate until 2015. Rents at the higher-end of the market are likely to stay under pressure but should begin to stabilise in 2015 on the back of an improved economy.

Note: Hong Kong Residential refers to Hong Kong’s Overall Luxury residential market.


Financial Indices


Physical Indicators

Source: JLL

12-Month Outlook


Rental InformationRental Value^ HKD 43.2 psf pmStage in Cycle Decline slowingNo. of Quarters Since Last Trough

12

^ net, on NFA


Index

60

140

100

120

80


0

200

300

350

400

450

Units

150

100

50

250

Detailed historical data, forecasts and reporting for more than 50 cities in Asia Pacific.

Subscribe to JLL’s Real Estate Intelligence Service today.

Contact Roddy Allan, [email protected]

Real estate insights; Past, present and future


www.jll.com/AsiaPacific

Providing expert research consultancy services and economic, demographic and infrastructural insights to investors across office, hotels, retail, residential and industrial sectors.

From bespoke consultancy to in-depth advisory, get in touch today.

Contact: Dr Jane Murray, [email protected]

We are your best resource


www.jll.com/asiapacific

Feasibility Studies

Expansion Strategy

Investment Strategy

Benchmarking Reports

Due Diligence Reporting

Beijin

g: R

esid

entia

l


Beijing: Residential

•High-end apartment transaction volumes shrink•Servicedapartmentrentsremainflatduetostableleasingdemand•Capital values decline in the primary market

Demand Weak mass market sentiment affected the high-end apartment market as many buyers have taken a wait-and-see approach because of the uncertainty over the future direction of the market. Sales volumes for high-end apartments reached only 297 units for July and August, lower than the previous two-month period. However, high reservation rates were reported at several projects, such as Riverside Palace and Poly Hyde Park. This is expected to provide a boost to full quarter transaction volumes. Demand for high-end villa projects, in contrast, was robust, with 269 units transacted in July and August, the same level recorded in 2Q14. The relatively lower villa prices and growing demand for second homes were the major reasons behind the strong sales.

Serviced apartment demand from expatriates at foreign-headquartered firms continued to be weak and there were fewer enquires compared to last year at most serviced apartments. However, several projects saw increasing occupancy rates due to an uptick in short-term leases over the summer holiday period. The overall vacancy rate stood at 11.3% in 3Q14, essentially flat q-o-q.

SupplyOnly two high-end apartment projects received pre-sales certification in July and August, adding 590 apartment units to the sales market. One new villa project entered the sales market with 107 units of new supply. No new serviced apartments were completed in 3Q14. Construction completed on a combined 1,845 units at three high-end apartment projects – Sheng Gu Yu Yuan, Lido One and Ocean Great Mansion.

Asset PerformancePrices were lowered at several luxury apartment projects as some developers were in a rush to sell their remaining units. Also, no high-priced luxury apartments were sold while transaction volumes of lower-priced villas were high. Given that capital values are based on recorded transactions, high-end apartment and villa capital values declined sharply in July and August, registering decreases of 12.4% q-o-q and 17.7% q-o-q, respectively. Although occupancy rates increased slightly, serviced apartment rents were flat q-o-q as most landlords continued to hold a conservative view on demand.

12-Month OutlookContinued weak sentiment in the sales market is expected to lead to a decline in sales volumes in the high-end market, causing prices to decline further. Once homebuyers believe prices are near a trough, sales volumes should pick up and cause prices to stop falling. No new serviced apartment projects are expected to open in the coming 12 months. Demand for serviced apartments is unlikely to see a large rebound unless there is a sharp surge in expansion by overseas companies. However, we expect to see the vacancy rate decline as tenants move in to recently completed projects.

Note: Beijing Residential refers to Beijing’s Overall Luxury and High-end residential market.


Physical Indicators are for the Overall luxury market.

Financial Indices


Physical Indicators

Source: JLL

12-Month Outlook


Rental InformationRental Value^ RMB 126.6 psm pm Stage in Cycle Rents stableNo. of Quarters Since Last Peak

3

^ gross, on GFA

Financial indicators are for the Overall luxury market.

Index


90

100

110

120

140

130

10 11 12 13 14F 15F

Units

0

3,000

6,000

9,000

15,000

12,000

Future SupplyCompletions

Shan

ghai:

Res

iden

tial


Shanghai: Residential

•Buying demand remains subdued in due to tight mortgage policy•Servicedapartmentrentsstayflatduetoweakdemand•High-endpricesedgedownasdevelopersbecomemoreflexibleonprice

DemandAlthough nearly all Tier II and III cities have now lifted home purchase restrictions (HPRs), the policy remains firmly in place in Shanghai. Coupled with tight mortgage policies, buying demand in Shanghai’s residential market remained subdued, as potential buyers continued to delay their purchase decisions, awaiting further certainties in both policies and price trends. As a result, sales volumes of commodity housing saw a contraction of 2% and 7% m-o-m in July and August, respectively. Coming into September, a traditionally busy season for home sales, sales volumes increased by 31% m-o-m, but was still down 40% from a year ago. Sales volumes for the full quarter totalled 2,228,016 sqm, up 6% q-o-q but down 29% y-o-y. In the high-end segment, most projects experienced a sales slowdown in 3Q14 due to weak buying sentiment prevailing in the market. However, several newly launched projects, such as Vanke’s Emerald Riverside, achieved better-than-expected sales. As a result, the high-end segment recorded 343 units sold during the quarter, up 16% from 2Q14.

In the leasing market, demand remained weak and showed little sign of recovery. However, thanks to some landlords deciding to strata sell their serviced apartment projects instead of holding them for lease only, the average vacancy rate of serviced apartments dropped by 0.6 percentage points to 14.5% in 3Q14.

SupplyIn the sales market, a total of 555 units from five projects were launched in 3Q14. Developed by K.Wah Group, Grand Summit in Jing’an District launched its first 156 units in July, and sold 9 units at an average price of RMB 97,533 per sqm. Developed by Vanke, Emerald Riverside in Pudong District launched 103 units in September and sold 48 units in 3Q14, averaging RMB 71,393 per sqm. In the leasing market, no new serviced apartment projects were completed in 3Q14.

Asset PerformanceAmidst weak sentiment, several cash-constrained developers became more flexible on sales prices in order to attract more buyers, although most developers remained reluctant to cut prices. As a result, primary prices for high-end apartments only edged down by 0.3% q-o-q in the quarter. In the leasing market, most landlords kept rents flat given the weakness in demand for serviced apartments. In the land sales market, Lai Fung Holdings acquired a residential-use plot in Huangpu District for an accommodation value of RMB 59,859 per sqm, 62.5% higher than the reserve price. As 30% of the buildable GFA will be used for social housing, the actual accommodation value of this land plot reached RMB 85,513 per sqm, making it the most expensive plot ever in China. This land transaction reflected the optimistic outlook developers still hold for Shanghai’s high-end residential market despite the current weakness in the market.

12-Month OutlookWe expect Shanghai to maintain HPRs in the short term. However, a sales recovery may occur as banks loosen their mortgage policies following reforms announced by the People’s Bank of China on 30th September. In the high-end segment, we maintain our outlook for a flat price trend in the primary market in 2014 despite the current weakness in sales. In the leasing market, a quick upturn in leasing demand for serviced apartments is unlikely in the near term given economic conditions. As such, we expect downward pressure on rents for serviced apartments to persist in the remainder of 2014.

Note: Shanghai Residential refers to Shanghai’s high-end residential market.

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ RMB 131.9 psm pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

19

^ gross, on GFA

Index


80

120

110

100

90

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

Completions Future Supply

010 11 12 13 14F

Units 3,000

2,000

4,000

5,000

6,000

15F

1,000

Sing

apor

e: R

esid

entia

l


Singapore: Residential

•Slow sales volumes amid weak demand environment•Rents soften due to large supply pipeline in near term •TDSR continues to impact capital values in Prime market

DemandIn 3Q14, condominium resale transactions within Prime districts 9, 10 and 11 declined to 92 units, down 33% on a q-o-q basis, according to preliminary estimates obtained from data by the Urban Redevelopment Authority. This is a reversal from the 53% pick up in sales volumes in 2Q14. That said, the current slowdown is reflective of the downtrend that has been ongoing since the latter half of 2013.

New sales activity in 3Q14 reflected a similar trend, but to a lesser magnitude than the resale market. A total of 51 condominium units were sold, marginally lower by 9% q-o-q compared to 2Q14. This comes on the back of five consecutive quarters of decline, and reflects the sustained effect of the Total Debt Servicing Ratio (TDSR).

SupplyBased on preliminary data obtained from the Building and Construction Authority of Singapore, a total of 280 units within the Prime districts were completed in 3Q14. This is a noticeable 77% q-o-q drop from the 1,222 units completed in 2Q14, predominantly due to the absence of large projects obtaining Temporary Occupation Permits in 3Q14. Two notable projects were completed, namely a 65 unit condominium along Nathan Road - Nathan Suites, as well as Buckley Classique, with 64 units.

Asset PerformanceRental demand was healthy in July and August, with a total of 3,263 leasing contracts inked for a total value of SGD 20.1 million. This comes at a slightly stronger pace compared to 2Q14, which saw 3,740 rental transactions with a total value of SGD 22 million. Nonetheless, the large amount of supply expected in the next two years is putting pressure on leasing sentiment. Many owners of units in newly completed projects have toned down their asking rents, which has made such units more competitive with units in older developments in the nearby vicinity. Gross rents in the Typical Prime segment fell for the fourth consecutive quarter to SGD 3.76 per sq ft per month, down 1.6% q-o-q. Similarly, gross rents in the Luxury Prime segment fell 2.5% q-o-q to SGD 4.26 per sq ft per month in 3Q14, matching the pace of decline recorded over the last five quarters.

Buying sentiment remained weak in the Prime market as the borrowing capacities of potential buyers has been constrained since the introduction of the TDSR. Capital values in the Typical Prime segment declined by 1.6% q-o-q to SGD 1,320 per sq ft while the Luxury Prime segment saw a similar drop of 1.8% q-o-q to SGD 2,220 per sq ft.

12-Month OutlookAn air of caution is likely to linger in the Prime market as long as the tight lending environment persists. Sales are expected to remain at a low level, barring any unforeseen policy changes. Rents should come under further downward pressure due to the high level of supply in the pipeline, which is likely to prompt more landlords to lower rents.

Note: Singapore Residential refers to Singapore’s Overall Prime and Luxury residential markets.


Financial Indices


Physical Indicators

Source: JLL

12-Month Outlook


Rental InformationRental Value^ SGD 4.26 psf pmStage in Cycle Decline slowingNo. of Quarters Since Last Trough

13

^ gross, on GFA

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15RV Index (Prime)CV Index (Prime)

RV Index (Luxury)CV Index (Luxury)

60

70

100

110

Index

90

80


Units

0

1,000

2,000

5,000

3,000

4,000

15F

Bang

kok:

Res

iden

tial


Bangkok: Residential

•Two new projects complete amid an increase in demand•Limited apartment supply and active leasing supports higher rents•Market yields slightly expand as rental growth outpaces capital values

Demand Demand increased in 3Q14 due to an improvement in consumer confidence after the military coup, coupled with the launch of new projects. Maestro 02 Ruamrudee, a high-end condominium in Central Bangkok with 126 units by Major Development PCL, reported a pre-sales rate of 50% as at end-3Q14 and another project, Dazzle Sukhumvit 7 by Perfect Prestige Property Co Ltd, a 79-unit high-end condominium also achieved a 50% sales rate.

The leasing market was more active in 3Q14 than in the previous quarter owing to limited luxury apartment supply and a more stable political situation. The vacancy rate declined 0.3% q-o-q to 7.5%.

SupplySix high-end condominium projects were scheduled to complete in 3Q14 but four were delayed by labour shortages. Therefore, only two new high-end projects were completed, namely The Room Sukhumvit 40 and Q. House Sukhumvit 79. These projects added 612 units to the existing stock, increasing it to 29,252 units. Another seven high-end condominium projects with a total of 1,952 units are scheduled to complete by end-2014 and had a sales rate of 87% as at end-3Q14. These include M Silom (161 units), Rhythm Sathorn (923 units), Rhythm Sathorn-Narathiwas (315 units), Condolette DWELL (224 units), Focus at Ploenchit (134 units), Mirage Sukhumvit 27 (116 units), and Dazzle Sukhumvit 7 (79 units). Most of these projects have been affected by construction delays. In 3Q14, two new high-end condominium projects comprising 205 units were launched, one scheduled to complete in 4Q14 while the other is due to complete by 2Q16.

No new luxury apartments were launched and total apartment stock was 4,307 units as at end-3Q14.

Asset PerformanceIn 3Q14, condominium gross rents rose to THB 512 per sqm per month, a slight increase of 0.3% q-o-q and 0.9% y-o-y. Apartment rents rose by 0.9% q-o-q to THB 355 per sqm per month.

Capital values edged up by 0.1% q-o-q to THB 111,119 per sqm in 3Q14. As the growth of net effective rents slightly outpaced the increase in capital values, market yields expanded marginally to 4.9%.

12-Month OutlookAlmost 2,000 new high-end condominium units in Central Bangkok and Central East are expected to be completed by end-2014. However, some projects could face delays due to labour shortages.

The residential property markets in Bangkok are expected to continue recovering together with business sentiment and consumer confidence as the political situation improves and there is a clearer view on the economic outlook. Throughout end-2014, major developers plan to launch more than 121 new residential projects including condominiums, detached houses and townhouses after a slowdown in new launches at the beginning of the year.

Note: Bangkok Residential refers to Bangkok’s Central high-end and luxury residential market.


Financial Indices


Physical Indicators

Source: JLL

12-Month Outlook


Rental InformationRental Value^ THB 512 psm pmStage in Cycle Growth slowingNo. of Quarters Since Last Trough

11

^ gross, on NLA


Index

80

90

100

110

120


Units

0

1,000

2,000

3,000

5,000

4,000

Kuala

Lum

pur:

Resid

entia

l


Kuala Lumpur: Residential

•One project completes and three projects launch•Stable rents amid limited leasing demand•Capitalvaluesremainsteadyandyieldsholdfirm

DemandIn 3Q14, Tribeca, Pavilion Hilltop (Block C) and Dorsett Residence were launched.

The remaining 91 units of Tribeca were launched following the initial launch of 227 units in 3Q13. Tribeca, located along Jalan Imbi comprises relatively small built up areas between 510–894 sq ft. The building amenities include meeting rooms, fitness centre and children’s playground. The majority of purchasers have been foreigners from Japan, Hong Kong, Singapore and Indonesia. The price is relatively expensive at MYR 2,300 per sq ft, however, the small unit sizes means that most units are affordably priced below MYR 2 million. The developer, Low Yat Group is offering a 5% discount and free legal fees on Sales & Purchase Agreement and achieved a 50% sales rate as at end-3Q14.

Pavilion Hilltop Block C comprising 168 units was launched in 3Q14 following the launch of Blocks A & B (453 units) in 4Q13. Block C comprises larger unit areas (2,700–2,800 sq ft) compared to the initial two phases (1,200–1,800 sq ft). The units are priced at MYR 960 per sq ft and the developer, 1 Pavilion Property Consultancy Sdn Bhd, registered a sales rate of 70%.

Dorsett Residence (252 units) is located on Jalan Imbi in the City Centre. The unit areas are relatively small in size (below 948 sq ft), fully furnished and priced at MYR 1,750 per sq ft. The developer, Far East Consortium International Limited is offering attractive financial incentives totaling a 12% discount. The development has been marketed since end-2013 and has achieved a 60% sales rate as at end-3Q14. The majority of purchasers have been from Hong Kong and Japan, and came to know about the project through overseas advertising.

SupplyIn 3Q14, market stock increased to 25,977 units with the completion of Soho KLCC, located on Jalan Perak, comprising 480 units.

Asset PerformanceFollowing an increase in rents and capital values in 1Q14, average gross rental rates and capital values have held firm for two consecutive quarters at MYR 3.25 per sq ft per month and MYR 728 per sq ft, while average market yield was stable at 4.7%.

12-Month OutlookThere appears to be a ‘wait-and-see’ sentiment in the market due to property cooling measures, tightened bank lending policies and rising inflation. However, instead of developers reducing prices, many are holding on to projects until market prices are deemed acceptable. The trend of developers soft launching and only officially launching after they have secured a satisfactory number of sales is expected to continue.

Developers are providing fully furnished units to sustain demand and justify pricing and are expected to collaborate with foreign agents to market high-end new developments overseas. Buyers from Hong Kong, Japan and China have shown interest in properties in Malaysia.

Market capital values and rentals are generally expected to consolidate. However, newly completed modern condominiums of better quality and design are expected to command higher prices, whereas rentals of these newer developments are only expected to register marginal growth due to a healthy supply pipeline, limited demand and competitive leasing market climate.

Note: Kuala Lumpur Residential refers to Kuala Lumpur’s Prime residential markets.

12-Month Outlook




Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ MYR 3.25 psf pmStage in Cycle Rents stableNo. of Quarters Since Last Trough

24

^ gross, on NLA

Financial Indicators are for the Prime market.


Index

80

90

100

110

120


Units

0

1,000

2,000

3,000

4,000

Jaka

rta: R

esid

entia

l


Jakarta: Residential

•Vacancy moves lower amid slight improvement in demand•Apartment rents remain stable due to tight competition from condominiums •Capitalvaluesgrowinlinewithrents,whileyieldsholdfirmDemandLuxury apartments saw a small improvement in occupancy levels in the quarter. Absorption levels grew with net take-up of 56 units recorded in 3Q14 and as a result, apartment vacancy dropped from 14.7% in 2Q14 to 12.3% in 3Q14. Demand remained focused on quality apartments in prime CBD locations such as Plaza Senayan.

During 3Q14, the strata condominium market recorded no sales due to the absence of new supply. However, buyer interest in the luxury residential market remains very strong, with pre-sales in premium developments being very strong.

SupplyAscott Serviced Apartments in Ciputra World is expected to start operations in early 4Q14. In the condominium market, stock remained unchanged at 7,003 units. The luxury condominium Raffles Residence in Ciputra World 1 is expected to be completed by end-2014.

Asset PerformanceMost landlords remained reluctant to increase rents due to tight competition from luxury condominiums. Overall net effective rents in the luxury apartment market stood at USD 218 per sqm per annum in 3Q14, edging up 0.5% from the previous quarter.

Capital values increased in line with rentals, while yields remained stable compared with the previous quarter. Local investors continue to dominate and drive the sales market in Jakarta as they perceive luxury condominiums to be an investment that offers capital gains potential. Limited stock of luxury residential condominiums has created an opportunity for developers to deliver new supply to the Jakarta market as positive buying sentiment persists.

12-Month Outlook Rents in the luxury apartment market are expected to rise over the next 12 months alongside an improvement in demand driven by the continued increase in business activity post-election and an expected recovery in the economy. However, competition from new projects and existing condominiums will limit rental growth.

Buying sentiment in the luxury condominium market is expected to rise in the next few quarters as confidence in the new government grows. Sales of luxury condominiums will likely be driven by project location and quality, as affluent Indonesian buyers perceive luxury condominiums as an attractive investment that offers good returns.

Note: Jakarta Residential refers to Jakarta’s Overall Prime residential market.

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ USD 218 psm paStage in Cycle Rents stableNo. of Quarters Since Last Peak

5



Index

80

100

120

140

200

180

160


Units

0

100

150

200

350

250

300

50

Mani

la: R

esid

entia

l


Manila: Residential

•One development completes, adding more than 500 units to stock•Rental growth remains stable supported by steady leasing demand •Capital values increase moderately, while yields show slight decline

DemandThe luxury condominium market in Makati CBD and Bonifacio Global City (BGC) continued to see healthy demand in the quarter. Demand was supported by expatriate employees from offshoring and outsourcing (O&O) firms and high-income households.

With only one development completed in the quarter, net absorption decreased from 3,209 units in 2Q14 to 351 units in 3Q14. The average vacancy rate increased by 50 bps q-o-q to 6.2% in 3Q14 as several existing luxury residential developments had increased vacant space.

Nonetheless, residential sales demand continued to be supported by positive investment sentiment. Enquiries for luxury condominiums remained firm in 3Q14.

SupplyIn 3Q14, one new development was completed, namely Edades Tower and Garden Villas, which added 568 units to the existing stock.

Meanwhile, SM Development Corporation, through its new brand SMDC Premier, has started selling its new project in Makati City named Air Residences. The development is expected to contribute more than 3,600 units to the existing stock once it is completed in 2020.

Asset PerformanceStable leasing activity in the market underpinned a moderate increase in rents of luxury condominiums. Average rents increased 1.4% q-o-q to PHP 8,604 per sqm per annum in 3Q14.

Along with stable investment demand and a positive outlook for the economy, capital values grew by 2.8% q-o-q to PHP 135,225 per sqm in 3Q14. Investment yields declined marginally by 10 bps to 6.4% q-o-q.

12-Month OutlookLeasing and investment demand are expected to remain healthy supported by the positive economic outlook for the country as well as the expanding O&O industry. Buoyant investment demand is likely to support moderate growth of capital values over the next few quarters. Although the large incoming residential supply may put downward pressure on rental growth, rents are projected to grow modestly in the next few quarters.

Upcoming projects in 4Q14 are expected to supply more than 2,300 units and this will bring total new supply for the year to close to 8,900 units. Most of these developments are located in Makati CBD and its fringe areas. The large upcoming supply is expected to push vacancy rates up in the coming year.

On another note, the central bank of the Philippines raised its policy rates to 3.75% and 5.75% for overnight borrowing and overnight lending. These higher rates may potentially affect commercial bank interest rates and consequently residential sales demand.

Note: Manila Residential refers to the Makati CBD and Fringe Residential Condominium Market.


Financial Indices


Physical Indicators

Source: JLL

12-Month Outlook


Rental InformationRental Value^ PHP 8,604 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

8



Index

80

90

110

130

150

100

120

140

Units


0

2,000

4,000

6,000

12,000

10,000

8,000

15F

Hong

Kon

g: In

dust

rial


Hong Kong: Industrial

•Warehousing demand remains strong, supported by improvement in visible trade•Rents record strongest growth in year-to-date to reach new high• Improvement in market sentiment lifts sales volumes and capital values

DemandVisible trade continued to improve in 3Q14 with the total value of all exports and imports growing by 5.4% y-o-y and 6.6% y-o-y, respectively, in July–August. Air freight cargo volumes were up 8.6% y-o-y over the same two month period and helped offset the 0.6% y-o-y decrease in container throughout volumes.

The continuous improvements in the external trading environment underlined demand for warehousing space. Swedish freight forwarder Geodis Wilson, for example, expanded by 32,100 sq ft in Tuen Mun Distribution Centre. In addition to the usual logistics tenants, end-users also became more active, including wholesaler Wo Kee Hong leasing 22,600 sq ft in Tai Hing Industrial Building in Tuen Mun.

Vacancy in the overall market remained extremely low despite a small amount of space being returned to the market as some tenants consolidated operations. The lack of leasing alternatives resulted in many tenants renewing leases. Other occupiers opted for available space in secondary locations. For example, Japanese freight forwarder Nippon Express leased 120,000 sq ft in Jumbo Plaza in Sheung Shui at a monthly rental of HKD 10 per sq ft.

SupplyNo new supply was completed in 3Q14. Goodear’s warehouse development in Tsing Yi, whose completion date has now been brought forward, is the only new supply that is expected to come onto the market during the rest of 2014. SF Express reportedly will occupy up to 20% of the total floor space. On the other hand, China Merchant’s warehouse development in Tsing Yi is likely to be delayed and may not be completed until late 2016 based on the latest information from the landlord and a recent site inspection.

Asset PerformanceWith overall vacancy remaining tight and the leasing market still largely favouring landlords, rents recorded their strongest quarterly growth as at YTD 3Q14, to reach a new record high.

Capital values also continued to trend higher, buoyed by improved market sentiment. Investors showed the strongest interest in buildings with revitalisation and redevelopment potential. Two en bloc transactions were recorded in Fanling. Fook Lee Group continued to offload assets in its portfolio, selling EAC Distribution Centre for HKD 405 million, while a local investor acquired the whole of Mineron Centre for HKD 515 million.

12-Month OutlookHong Kong’s visible trade is expected to maintain momentum over the near term, growing by 2.3% in 2014 and 10.3% in 2015. Domestically, the retail sector is likely to return to growth in 4Q14. In addition, new supply coming online is expected to have limited impact on the market owing to the current supply-demand imbalances. As a result, demand for warehousing space should be well supported over the short term. The better-than-expected performance of rents and capital values through the first three quarters of the year has prompted us to revise our full-year forecast for 2014 upwards to a range of 10–15% and 15–20%, respectively. The Occupy Central movement has not impacted the warehouse market so far, but may hold back warehousing demand from retailers if the situation persists. The attractive yield spread over other industrial classes should continue to draw investors towards the warehouse market and push capital values higher.

Note: Hong Kong Industrial refers to Hong Kong’s Industrial Warehouse market.

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ HKD 11 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

19

^ net, on GFA


90

100

110

180

130

120

Index

170

160

150

140


0

100

200

300

500

Thou

sand

sqm

400

250

250

450

350

50

Beijin

g: In

dust

rial


Beijing: Industrial

•Net absorption reaches its highest level in two years•Competitionfromoutlyingareaskeepsrentsflat•Market yields are unchanged

Demand The non-bonded logistics market recorded 164,000 sqm of net take-up in 3Q14, the largest quarterly figure on record. Net absorption came mainly from two projects completed in 3Q14. Yupei Beijing Logistics Park and China Resources Phase II achieved commitment rates of 90% and 100%, respectively. Benefiting from both online and brick-and-mortar retailer demand, third-party logistics (3PL) firms were the most active in the leasing market in 3Q14. Another large space was leased to a multinational electrical appliance company, which took half of the available space at Yuehai International Logistics in Tongzhou Logistics Park. However, the electrical appliance company outsources its logistics management to the warehouse operator, continuing a recent market trend. The pharmaceutical industry continued to lease warehouse space. For example, a pharmaceutical company expanded its existing footprint by 5,500 sqm at a Liangxiang project. Beyond Beijing’s borders, relatively abundant space and lower rents have made outlying areas a strategic location for companies to operate their regional distribution centres. In a renewal and expansion deal, sports retailer Decathlon leased an additional 57,000 sqm. Some tenants struggling with high Beijing rents are likely to relocate, but they will have to consider the increased transportation costs.

SupplyYupei Beijing Tongzhou Logistics Park finally completed after a four quarter delay, while China Resources Logistics Phase II completed after a delay of two quarters. Both projects were delayed by lengthy permit approval processes. These projects feature a two-storey format and brought a combined 136,000 sqm of new supply to the supply-constrained non-bonded market.

Asset PerformanceThe market has tipped in favour of tenants due to the available supply in outlying areas beyond Beijing’s borders, resulting in flat rental growth q-o-q. Tenants are giving consideration to the outlying areas because they are more affordable. However, Beijing remains the first choice for tenants.

12-Month OutlookTwo projects are planned to complete construction over the coming 12 months, adding an additional 130,000 sqm of new supply. Demand for prime warehouse space is likely to remain stable and we expect to see 3PL companies continue to drive demand, while medical and pharmaceuticals as well as e-commerce firms are likely to remain active in the leasing market. As such, we expect the vacancy rate to remain low and rents to increase modestly over the next 12 months.

Note: Beijing Industrial refers to Beijing’s Prime non-bonded logistics market.

12-Month Outlook


Rental InformationRental Value^ RMB 1.09 psm per dayStage in Cycle Rents stableNo. of Quarters Since Last Trough

19


Physical Indicators

Source: JLL

Financial Indices




Thou

sand

sqm

0

50

150

250

300

100

200

Index


80

100

120

140

160

Shan

ghai:

Indu

stria

l


Shanghai: Industrial

•Non-bonded vacancy increases with few commitments in new completions •Soft demand leads to slight slowdown in non-bonded rental growth•Mitsui and Mitsubishi invest RMB 888 million into Beijing Properties

DemandShanghai’s non-bonded market slowed in 3Q14 as leasing demand softened and competition from Kunshan and other Yangtze River Delta cities continued to grow. Three projects reached completion in the quarter with few pre-commitments. In addition, new space became available in projects in Jiading, Fengxian and near Pudong Airport. As a result, overall vacancy levels climbed to 16% in 3Q14. The lack of commitments in two new projects in Songjiang was especially noteworthy, considering that as recently as last year projects in West Shanghai were often fully leased before completion. Enquiry levels were somewhat less pessimistic, however, as we observed increasing numbers of firms making site inspections and beginning serious lease negotiations. The Songjiang properties are in good locations and are expected to fill up, albeit at a slower pace than during the market’s peak.

Vacancy in the bonded market continued to decline in 3Q14, but the pace of take-up slowed as the initial wave of excitement for the Shanghai Free Trade Zone (FTZ) began to ease. Amazon announced plans to establish a presence in the FTZ, though details have yet to be released.

Supply Three new non-bonded projects were completed in Shanghai. Vailog and Blackstone both completed two-storey projects in Songjiang, respectively adding 65,000 and 85,000 sqm to the market. Both projects had enquiries but no signed commitments. GLP completed a three-storey project in Lingang, adding 200,000 sqm to this submarket and with the pre-commitment rate below 10%.

Asset Performance Non-bonded rents increased 0.7% q-o-q on a like-for-like basis to RMB 1.27 per sqm per day in 3Q14, slowing slightly as demand eased, vacancy rose, and landlords became more flexible with incentives to attract tenants. Bonded rental growth slowed to 1.6% q-o-q.

Despite a lack of tradable assets, interest from investors in China’s logistics sector remained upbeat. For example, Mitsui and Mitsubishi invested RMB 888 million into Beijing Properties Holdings Group, who bought the Shanghai’s Phoenix Waigaoqiao Bonded warehouse in 2013 and is actively pursuing additional developments across China (including Shanghai). In addition, Ping An Real Estate and PAG signed a strategic agreement with commercial developer Wuzhou to commit RMB 1.5 billion to wholesale market and warehouse projects. While large amounts of money continue to enter the logistics market, the implications for Shanghai are limited as many developers are hesitant about entering the market due to this year’s restrictive new land policy.

12-Month Outlook Looking forward, non-bonded vacancy should decline from the peak in 3Q14 as deals under negotiation in recently completed Songjiang projects are finalised. However, with nearly 700,000 sqm of new supply scheduled for the next 12 months, there is considerable upside risk for market vacancy over the medium term. Large amounts of supply and competition with nearby cities for limited demand will help to limit rental growth in Shanghai to 3–4% in 2015.

Bonded vacancy will continue to decline while rents rise in the near term, though both at a slower pace as the effect of the FTZ launch continues to fade.

Note: Shanghai Industrial refers to Shanghai’s high-quality modern warehouse market.

12-Month Outlook


Physical Indicators

Source: JLL

Rental InformationRental Value^ RMB 1.25 psm per dayStage in Cycle Growth slowingNo. of Quarters Since Last Trough

20


Financial Indices




0

300

200

400

500

700

15F

100

Thou

sand

sqm

600

Index


80

100

150

140

130

120

90

110

Toky

o: In

dust

rial


Tokyo: Industrial

•SignificantadditionstothedevelopmentpipelineinGreaterTokyo•Rents continue to edge up, albeit marginally•GLPJ-ReitacquiresGLPTokyoIIforJPY36.1billionDemandKey performance indicators for August were weak, likely due to lingering effects of the consumption tax increase and relatively weak recovery of the global economy. Industrial production decreased 2% y-o-y, while exports decreased 1.3% y-o-y.

However, demand for prime distribution centres remained strong as corporates streamline logistics operations and third party logistics players, as well as apparel, pharmaceutical and food & beverage manufacturers lease space across Greater Tokyo.

Leasing transactions in 3Q14 were limited in the Tokyo Bay submarket as vacant space continues to be in short supply. However, a number of lease transactions were recorded in Greater Tokyo, where there is ample supply. Noteworthy transactions in the quarter included Itochu Logistics taking up 20,000 sqm at D Project Kazo, Shibamata Transport taking up 11,000 sqm at Prologis Park Kitamoto and Oriental Land leasing the 6,200 sqm Urayasu Chidori Distribution Centre II.

SupplyNo new supply came on stream in the Tokyo Bay submarket in 3Q13. In Greater Tokyo, ample supply continued, with the completions of Mitsui Fudosan Logistics Park Kuki (75,000 sqm, GFA), D Project Kazo (20,000 sqm, GFA) and D Project Kuki IV (19,000 sqm, GFA).

F Plaza Tokyo Wing-M (61,000 sqm, GFA) and F Plaza Tokyo Wing-N (162,000 sqm, GFA), scheduled for completion in 2018 and 2020, were added to the development pipeline in the quarter.

Greater Tokyo continued to see significant additions to the development pipeline. New projects announced in 3Q14 included Goodman Business Park Chiba New Town (133,000 sqm, GFA), GLP Atsugi II (89,000 sqm, GFA) and Landport Kashiwa Washinoya (50,000 sqm, GFA), all due in 2016.

Asset PerformanceRents in 3Q14 averaged JPY 6,034 per tsubo per month, increasing 1.2% q-o-q and 3% y-o-y. This marked the 13th straight quarterly rise and was likely due in part to a temporary increase in demand related to the redevelopment of a major distribution facility.

Notable investment transactions in the quarter included the GLP J-REIT acquisition of GLP Tokyo II for JPY 36.1 billion or an NOI yield of 4.4%. In addition, in Greater Tokyo, LaSalle Investment Management acquired three facilities referred to as Higashi Ogishima Soko.

12-month OutlookAccording to the economic outlook for Japan in 2015 by Oxford Economics, industrial production is expected to grow 3.2% y-o-y, while exports are expected to increase 9.3% y-o-y. Under these conditions, demand for prime logistics space in the Tokyo Bay submarket should continue to be robust, while new supply is limited. Therefore, rents are expected to sustain a robust growth trend. However, in Greater Tokyo, a large supply pipeline may soften the demand-supply balance and have an impact rents.

Note: Tokyo Industrial refers to Tokyo’s Prime logistics market. Compiled in collaboration with Ichigo Real Estate Services Co., Ltd.

12-Month Outlook




13

^ gross, on NLA

Container Throughput

Source: Bureau of Port and Harbour, Tokyo Metropolitan Government

Financial Indices

Arrow indicates 12-month outlookIndex base: 4Q10 = 100Source: JLL

NA

Financial Indicators are for the Tokyo Bay Area.

Rental Value Index

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

Index

90

95

105

110

100

TEUs

(Milli

on)

TEUs shipped per quarter2Q09 2Q10 2Q11 2Q12 2Q13 2Q14

0.8

0.9

1.0

1.1

1.2

1.4

1.3

Sing

apor

e: In

dust

rial


Singapore: Industrial

•High-value added industries supporting business parks demand•Stableactivityfromfinancialbackofficeoperationssupportsrents•Capital values witness marginal improvement while yields stable

DemandBased on data released by the Economic Development Board, Singapore’s manufacturing output grew modestly in July and August by 3.3% y-o-y and 4.2% respectively. High value-added industries registered modest increases, with biomedical manufacturing output rising 28.5% y-o-y and 9.7% in the same period due to improvements in pharmaceutical outputs. In contrast, the electronics cluster witnessed a weaker performance with output declining in July by 2.9% y-o-y and then rising 7.2% in August. There was a mixed performance among segments within this cluster.

Despite limited expansion plans of many multinational corporations, leasing activity within business barks remain healthy. Anecdotal evidence suggests that companies remain keen on the decentralisation of business support functions to better manage occupancy costs. In addition, R&D activity in Singapore remains healthy with interest from both local and foreign corporations. Companies like MediaTek have announced plans to develop their R&D capabilities in Singapore, and in the case of this company the intention to set up an innovation centre. In 3Q14, vacancy rose by 20 bps to 15.2% and remained below the historical average of 18.5%.

SupplyAn estimated 10,900 sqm of business park space was completed in 3Q14. Based on preliminary data obtained from the Building and Construction Authority of Singapore, 3Q14 witnessed the completion of Cleantech Two, Singapore’s first eco-business park along Cleantech Loop located in the western part of the island.

Asset PerformanceGross rents of business parks increased slightly to SGD 3.87 per sq ft per month in 3Q14. Recently completed asset enhancement programs at some developments provided support to rental values of business parks. Pre-commitments of business parks in the pipeline have also been strong with a number of projects slated to be completed in 2014-15 securing tenants for 90% of space. Capital values of business parks increased slightly by 1% q-o-q to SGD 554 per sq ft in 3Q14, with investor interest holding firm.

Industrial investment activity in 3Q14 kept healthy with a number of acquisitions by REITs. Aperia Complex, a mixed-use development located within Kallang iPark was bought by A-Reit at a transaction value of SGD 458 million. In addition, Viva Industrial Trust acquired two industrial properties in the month of September. Jackson Square, a light industrial complex within Toa Payoh was acquired at SGD 80 million, while Jackson Design Hub along Tai Seng Street was purchased for SGD 31.5 million. With capital values and rents holding up, yields have kept stable.

12-Month OutlookDemand for business park space is likely to remain relatively stable despite the large supply pipeline for 2014-15. High value-added industries are likely to continue to seek space in Singapore and with healthy pre-commitment at upcoming projects, rents are likely to be stable. Amongst supply in the pipeline, notable projects include Fusionpolis Phase 2A (88,000 sqm) and Fusionopolis phase 5 (58,510 sqm).

Note: Singapore Industrial refers to Singapore’s island-wide Business Park market.

12-Month Outlook



Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ SGD 3.87 psf pmStage in Cycle Rents stableNo. of Quarters Since Last Trough

9



Index

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

90

100

140

130

120

110


10 11 12 13 14F

Thou

sand

sqm Percent

200

100

50

150

250

10

15

5

0 0

20

25

15F

Sydn

ey: I

ndus

trial


Sydney: Industrial

•Tenant activity rebounds due to strong pre-lease demand •Net face rents rise in Inner West, Outer South West and South Sydney• Investor demand remains very strong with AUD 645.5 million transacting

DemandTenant demand improved significantly in 3Q14, buoyed by an increase in pre-lease activity. Total gross take-up for the quarter reached 157,400 sqm, rebounding from the 85,600 sqm of gross take-up recorded in 2Q14. Pre-lease take-up accounted for 59% of the total (93,300 sqm) with the largest individual tenant pre-lease deal occurring in Eastern Creek in the Outer Central West where Techtronic Industries committed to 40,900 sqm.

The majority of the tenant activity was again centred on the Outer Central West precinct, which accounted for 63% of the quarterly take-up (98,800 sqm). Apart from the aforementioned Techtronic move, the most significant move came from logistics firm Austpac, which leased 22,600 sqm in Yennora. Activity in the Outer North West precinct remained positive with a further 36,600 sqm of gross take-up recorded. M3 Transport’s commitment to 25,800 sqm of space in Blacktown accounted for the majority of this absorption.

In the nine months to September 2014, a total of 383,100 sqm of gross take-up has been recorded across all Sydney industrial precincts. This year-to-date total is 67% of the 2013 total gross take-up of 574,500 sqm.

SupplyCompletions fell 48% q-o-q to 66,800 sqm in 3Q14. Of the four projects that reached practical completion, a design & construction development in Greystanes for Makita was the largest (21,900 sqm). New developments for Grace Records Management in Campbelltown (Outer South West) and Kuehne + Nagel in Eastern Creek (Outer Central West) also added 17,700 sqm and 20,600 sqm respectively.

Asset PerformanceImproved business sentiment and enquiry levels boosted average prime net face rents between 1–2% across most industrial precincts in 3Q14. The largest uplift in average rents occurred in the Outer South West (2%) which has benefited from two years of subdued supply which has placed downward pressure on vacancy levels.

Yields tightened in 3Q14 as investor demand for modern industrial assets with secure tenancy covenants continued. Average prime yields in Sydney breached the 7.00% threshold in the quarter with the yield range in the Outer Central West sharpening to 6.75%–7.75%, on par with pre-GFC levels. Aggregate yields now range from 6.75%–8.50%.

There were 17 transactions recorded in 3Q14, totalling AUD 645.5 million. Industrially zoned property expected for residential conversion accounted for 73% of the transaction totals as the Sydney high-density residential market continues to gain momentum.

12 Month OutlookOnline retailing, both domestic and overseas, is likely to underwrite the demand for distribution space in Sydney over the next 12 months. Rents in supply constrained areas like South Sydney should record moderate growth, while rental growth in areas further west should be less robust. Investment demand is likely to continue, with several portfolios coming to market in the near future.

Note: Sydney Industrial refers to Sydney’s Industrial market (all grades).

12-Month Outlook



Financial Indicators are for Outer Central West.

Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ AUD 112 psm paStage in Cycle Rents stableNo. of Quarters Since Last Trough

8

^ net, on GFA


Index

80

90

100

130

120

110

Take-Up (gross) CompletionsFuture Supply

10 11 12 13 14F 15F

Thou

sand

sqm

0

200

400

600

800

Melb

ourn

e: In

dust

rial


•Transport and storage sector continues to drive demand •Rents stable across all precincts •Prime grade industrial prices reach record high

DemandLeasing activity was below trend in 3Q14 with 115,00 sqm of gross take-up recorded. Leasing activity of existing space remains low with 73% of demand expressed through pre-commitment and design and construct (D&C) activity. As at YTD September 2014, 427,700 sqm of gross take-up has been recorded, 12.6% behind the equivalent period last year. The transport and storage sector continues to drive demand, accounting for 65% of take-up as at YTD September 2014. Notable transactions in 3Q14 included TNT (38,000 sqm), Jetport (21,000 sqm) and Stall Logistics (15,000 sqm).

SupplyNew construction activity remains buoyant with 416,825 sqm completed across 27 schemes over the first three quarters of 2014. Of the developments completed this year, approximately 80% was pre-committed. Melbourne continues to boast a high number of speculatively developed projects, with approximately 115,000 sqm under construction. New supply in 2014 is expected to exceed 2013 totals with a further 189,575 sqm anticipated to come on line in the final quarter.

Asset PerformanceThe investment market has been buoyant throughout 2014. As at YTD September 2014, sales volumes are only 12% behind the full year 2013 total of AUD 694.3 million. The most notable transactions in 3Q14 was the AUD 44 million sale of the Fastline facility at Laverton North from Goodman to Charter Hall.

The weight of capital from large and mid-tier domestic funds resulted in industrial asset pricing reaching new benchmark levels. Tightening of 50 basis points occurred in the West and South East precincts, while the North and City Fringe recorded 25 basis points of tightening, shifting the broader Melbourne industrial prime yield band to 7.00%–8.25%.

Rents were stable cross all precincts in 3Q14. Land values for an average standard serviced allotment (2,000 sqm) during the quarter were also unchanged.

12 Month OutlookNotable improvements in industrial demand drivers over the past nine months have seen occupier demand gain momentum. The outlook appears positive based upon key drivers of occupier demand: population growth, retail trade, dwelling investment and import volumes. Melbourne continues to boast high levels of construction activity. In 2014, Melbourne is likely to see more stock complete than in Sydney for the first time since 2006. Melbourne also has the highest concentration of speculative construction. However, softer leasing conditions both in terms of face rental growth and average market incentives will remain a key theme over the medium term.

Melbourne: Industrial

Note: Melbourne Industrial refers to Melbourne’s industrial market (all grades).

12-Month Outlook



Financial Indicators are for West Prime.

Financial Indices


Physical Indicators

Source: JLL

Rental InformationRental Value^ AUD 73 psm paStage in Cycle Rents stableNo. of Quarters Since Last Trough

16

^ net, on GFA

NA

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

Index

Rental Value Index

90

95

100

105

110

Take-Up (gross) CompletionsFuture Supply

10 11 12 13 14F 15F

Thou

sand

sqm

0

200

400

600

800

Hong

Kon

g: H

otels


Note: Hong Kong Hotels refers to Hong Kong’s Luxury hotel market.

•Visitor arrivals from Mainland China continue to show strong growth•New hotels opening are primarily independently operated or local chains•Trading performance remains strong largely due to robust rate growth

DemandAs at YTD August 2014, visitor arrivals continued to rise, recording a 12.3% increase from the same period last year. This is mainly driven by its leading source market, Mainland China, which registered a 15.5% y-o-y growth. Notably, inbound visitation figures from South Korea and Singapore have also improved by 19.6% and 14.9% y-o-y respectively.

Following the Hong Kong Tourism Board’s efforts to establish Hong Kong as Asia’s cruise hub, cruise passengers have emerged as a growing market supporting the leisure segment, with the opening of the HKD 8.2 billion Kai Tak Cruise Terminal in 2013. The terminal has since received 28 cruise liners and more than 100,000 passengers in its first year of operation. The recent opening of its second berth in September 2014 will further increase its handling capacity to accommodate up to 8,400 cruise passengers simultaneously. Hong Kong’s tourism industry will benefit strongly from the city’s strategic location which serves as a key gateway to other cruise destinations in North and East Asia, such as Taiwan, South Korea and Japan. On a longer term, the government aims to diversify its tourism products and enhance the city’s attractiveness to tourists from different market segments.

SupplyAs at August 2014, Hong Kong has 235 hotels comprising 71,446 rooms. By the end of 2014, there are expected to be 255 hotels with about 73,547 rooms, a y-o-y increase of 5% in hotel room supply. Most of the new hotels are independently operated with relatively small room inventory (below 150 rooms). New internationally-branded hotel supply remains limited with the exception of the 548-room Dorsett Regency in Kwai Chung (opened in March 2014) and the anticipated opening of the 145-room Holiday Inn Express in Mongkok in 4Q14.

Asset PerformanceAs at YTD August 2014, occupancy for luxury hotels in Hong Kong improved by 2.4 percentage points y-o-y to 77.8%, while Average Daily Rate (ADR) increased by 5% y-o-y from HKD 3,446 to HKD 3,619. As a result, Revenue per Available Room (RevPAR) registered a strong 8.4% y-o-y growth to HKD 2,817. The moving annual average in RevPAR terms was registered at HKD 2,882 in August 2014, driven by robust occupancy and ADR growth.

12-Month OutlookIn September 2014, pro-democracy supporters held protests outside Hong Kong’s government headquarters, causing disruption to business activities in the city’s business districts. The political turmoil comes ahead of Mainland China’s week-long National Day holiday, which is traditionally a popular period for Mainland Chinese leisure visitors to visit. As a result, tensions following pro-democracy protests are expected to affect Hong Kong’s tourism and retail sector during one of the city’s busiest shopping periods. October usually accounts for Hong Kong’s second-largest retail sales period, after December. Travel demand from other destinations may be negatively impacted as well, following issues of travel advisory from countries such as Australia and Italy due to the public demonstrations.

Hong Kong: Hotels

Luxury Hotel Trading Performance

Source: STR Global, JLLNote: Moving Annual Average

Major Additions to Hotel Supply

Source: JLL

12-Month OutlookRevPAR Rising

Occupancy ADR

ADR RevPAR

Occupancy (%)

Occupancy (%)

010203040506070

9080

0

500

1,000

1,500

2,000

2,500

3,000

4,000

3,500

ADR

/ Rev

PAR

(HKD

)

Feb 0

9Au

g 09

Feb 1

0Au

g 10

Feb 1

1Au

g 11

Feb 1

2Au

g 12

Feb 1

3Au

g 13

Feb 1

4Au

g 14

10 12 13 15F

No. o

f roo

ms

14F110

2,000

4,000

1,000

3,000

7,000

5,000

6,000

Additions to Supply Future Supply

Beijin

g: H

otels


• International visitor arrivals to Beijing trend lower•GrandMercureDongChengandBeijingWangfujingRenaissanceHotelopen•RevPAR registers a slight decrease to RMB 657

DemandBased on the latest statistics from Beijing Statistics Bureau, international visitor arrivals to Beijing continue to decline as at YTD August 2014, decreasing by 6.1% y-o-y to 2.7 million. The top three source markets to Beijing, namely the USA, South Korea and Japan recorded y-o-y decreases of 2.7%, 2% and 0.3% respectively. Concerns over air pollution in Beijing continue to contribute to the decline in international visitor arrivals. However, visitor arrivals from Taiwan showed an upward trend as at YTD August 2014 partly due to promotions carried out by the tourism board. Similarly, domestic visitor arrivals showed a healthy increase of 6.2% y-o-y to 110 million as at YTD June 2014.

SupplyDuring 3Q14, the 202-room Grand Mercure DongCheng and the 329-room Beijing Wangfujing Renaissance Hotel opened, adding 531 rooms to the accommodation stock of internationally-branded hotels. Most of the upcoming hotel supply is scheduled to enter the market in the final quarter of 2014. The anticipated openings include the 279-room Rosewood Beijing, the 320-room InterContinental Beijing City Centre, the 595-room Kempinski Beijing and the 340-room W Hotel Beijing.

Asset PerformanceThe Average Daily Rate (ADR) of upscale hotels in Beijing continued to register a decline, falling by 7% y-o-y to RMB 959, while occupancy levels increased by 4.6 percentage points y-o-y to 68.5% as at YTD August 2014. Nonetheless, there is little change in the Revenue per Available Room (RevPAR), with only a marginal decrease of 0.4% from the previous year to RMB 657.

In terms of moving annual average, ADR continues to reflect a gradual decline from RMB 1,027 in August 2013 to RMB 967 in August 2014, while occupancy levels show a positive trend from 64.8% to 68.3% during the same period of time.

12-Month OutlookJLL estimates that 1,534 rooms from four hotels will be added to the market over the remainder of 2014. This is likely to result in a more competitive market with a large pipeline of new inventory anticipated in 2015. On the other hand, the restrictions and regulations on government consumption continue, especially on the food and beverage sector in luxury hotels. However, it is believed that through a series of adjustments of operation strategies, the hotel market is expected to develop a more efficient model of operation. It is also expected that demand will remain strong in Beijing with support from the Meetings, Incentives, Conventions and Exhibitions (MICE) sector. Beijing has attracted many companies to establish headquarters and is a strategic gateway to Mainland China. The week long National Day holiday in October 2014 is typically a peak period for domestic tourism and is likely to provide an uplift in hotel trading performances.

Beijing: Hotels

Note: Beijing Hotels refers to Beijing’s Upscale hotel market.

Upscale Hotel Trading Performance



Source: JLL

12-Month OutlookRevPAR Stable

Occupancy ADR

ADR RevPAR

Occupancy (%)

Occupancy (%)

0

10

20

30

40

50

60

70

80

0

200

400

600

800

1,000

1,200

1,600

1,400

ADR/

RevP

AR (R

MB)

Feb 0

9

Aug 0

9

Feb 1

0

Aug 1

0

Feb 1

1

Aug 1

1

Feb 1

2

Aug 1

2

Feb 1

3

Aug 1

3

Feb 1

4

Aug 1

4

10 11 12 13

No. o

f roo

ms

15F14F0

1,000

2,000

3,000

500

2,500

1,500


Shan

ghai:

Hot

els


Shanghai: Hotels

• International visitor arrivals maintain growth trajectory•No major hotel openings in 3Q14•RevPAR growth driven by occupancy

DemandAs at YTD August 2014, total international visitor arrivals to Shanghai increased by 5.7% from the previous year, according to latest statistics from Shanghai Statistics Bureau. Visitor arrivals from Hong Kong, Macau and Taiwan collectively recorded a y-o-y increase of 19.1%, spurred by increased business interaction between Shanghai and these cities. The majority of key source markets such as Japan, the USA and South Korea have maintained steady increases in inbound visitation. In terms of leisure tourism, promotions and shows held during the Shanghai Tourism Festival in September have led to increased domestic visitation to Shanghai.

SupplyThere were no major hotel openings in 3Q14. In 1H14, 1,203 rooms were added to the internationally-branded hotel supply in Shanghai. The major openings include the 313-room Crowne Plaza Noah Square, the 338-room Pullman Shanghai South and the 235-room Hyatt Regency Chongming. Although there was an anticipated large pipeline of supply expected to enter the accommodation market in 2014, many have been delayed or cancelled as commonly observed amongst development projects in Mainland China. We expect some hotels to open as planned during 4Q14, including the Holiday Inn Nanxiang, Minhang Marriott and Changfeng Courtyard, with a total of 902 rooms.

Asset PerformanceAlthough the Average Daily Rate (ADR) for upscale hotels in Shanghai declined by 2.2% y-o-y to RMB 1,032, occupancy levels have increased significantly by 6 percentage points to 64% as at YTD August 2014. As a result, Revenue per Available Room (RevPAR) improved by 7.8% y-o-y to RMB 660. Sentiment of hotel managements have been positive about demand growth for Shanghai which continues to be supported by corporate and Meetings, Incentives, Conventions and Exhibitions demand to the city.

On a moving annual average basis, RevPAR has been rising steadily to RMB 666 in August 2014.

12-Month OutlookShanghai’s favourable location as the gateway to the greater Yangtze River Delta along with the development of the Hongqiao CBD should continue to boost greater travel demand to the city. The Shanghai government has stepped up its efforts to attract more multinational companies to set up their regional headquarters through financial incentives, and this is expected to lead to potentially more corporate demand ahead. Nevertheless, there appears to be limited traction with the Shanghai Pilot Free Trade Zone over the past year, and many corporates are still adopting a wait-and-see stance before investing. The anticipated opening of Shanghai Disneyland in 2015 is expected to benefit the tourism industry and boost visitor arrivals and hotel development. If all hotel projects materialise, there will be 5,000 new rooms in 2015 and this is likely to be another substantial influx of hotels in Shanghai after the World Expo. Although demand growth is anticipated to be positive, the significant addition of new supply is likely to place pressure on the marketwide hotel trading performance.

Note: Shanghai Hotels refer to the Shanghai’s Upscale hotel market.




Source: JLL


Occupancy ADR

Feb 1

1

Aug 1

1

Feb 1

2

Aug 1

2

Feb 1

3

Aug 1

3

Feb 1

4

Aug 1

4

ADR RevPAR

Occupancy (%)

Occupancy (%)

0

10

20

30

40

50

60

70

0

200

600

1,000

1,400

400

800

1,200

ADR/

RevP

AR (R

MB)

10 11 12 15F14F

No. o

f roo

ms

130

2,000

6,000

4,000

10,000

8,000


Toky

o: H

otels


•Occupancy remains above 80%, the highest level in seven years•Nomajorfourorfive-starhotelopeningsin3Q14•ADR growth is likely to drive RevPAR in short term

DemandInternational visitor arrivals to Japan recorded a y-o-y increase of 25.8% to 8.6 million as at YTD August 2014. This can be attributed to a significant growth in visitors arriving from Mainland China and Taiwan, which registered a y-o-y increase of 84% and 29.9% respectively. Visitor arrivals from Thailand and Malaysia also registered a robust growth of 57.5% and 54.0% y-o-y respectively, partly due to the deregulation of tourism visas in place since July 2013.

Domestic accommodation demand continues to witness a strong recovery both in business and leisure travel since the earthquake in March 2011. A weakening Japanese Yen and the increase in low cost carriers have also boosted domestic travel.

SupplyThere were no major hotel openings in 3Q14. Over the balance of 2014, there is only one five-star hotel opening in the pipeline. The 80-room Aman Tokyo, set to be the most luxurious hotel in Tokyo, is scheduled to open by end-2014. The 329-room Millennium Mitsui Garden Ginza Tokyo, the first Millennium branded hotel in Japan and co-branded with Mitsui Garden Hotels, a major limited-services hotel operator in Japan, is scheduled to open in December 2014. The Millennium Mitsui Garden Ginza Tokyo will be positioned as a limited-service hotel.

Asset Performance Luxury hotel trading performance in Tokyo continues to show improvement as reflected by the y-o-y Revenue per Available Room (RevPAR) increase of 14.7% as at YTD August 2014. This can be attributed to the growth in both occupancy (3.4 percentage points) and Average Daily Rate (ADR) (9.9%) as at YTD August 2014. On a moving annual average, RevPAR continues on the growth trajectory since 2Q12, reflecting the rebound in hotel trading performance since the March 2011 earthquake.

While there were no hotel transactions in the luxury hotel sector in Tokyo during 3Q14, Japan Hotel REIT Investment Corporation purchased the 278-room Best Western Hotel Sapporo Nakajima Koen for JPY 6.8 billion (JPY 24.4 million per key).

12-Month OutlookDomestic and international demand is expected to maintain upward momentum, given the steady increase in inbound tourism since the lows of 2011. RevPAR growth in the short term is likely to be driven by a growth in ADR as occupancy has recovered and is at its highest level in seven years.

The successful bid to host the 2020 Olympic Games is expected to stimulate demand and underpin growth in Tokyo’s room supply over the next few years. As new projects are being developed, existing hotels are likely to benefit from increasing ADR.

Tokyo: Hotels

Note: Tokyo Hotels refers to Tokyo’s Luxury hotel market.




Source: JLL


Occupancy ADR

ADR RevPAR

Occupancy (%)

Occupancy (%)

010203040506070

9080

0

10,000

20,000

30,000

40,000

50,000

ADR/

RevP

AR (J

PY)

Feb 0

9Au

g 09

Feb 1

0Au

g 10

Feb 1

1Au

g 11

Feb 1

2Au

g 12

Feb 1

3Au

g 13

Feb 1

4Au

g 14

10 11 12 13 15F

No. o

f roo

ms

14F0

100

300

200

500

400


Sing

apor

e: H

otels


Singapore: Hotels

•Tourist arrivals trend lower amid decline in Mainland Chinese visitors•502-room Hotel Jen Orchardgateway opens•Marketwide hotel trading performance remains stable

DemandAs at YTD July 2014, international visitor arrivals to Singapore declined by 2.5% y-o-y, based on statistics released by the Singapore Tourism Board (STB). This was due to a significant decrease of 29.4% y-o-y in Mainland Chinese visitors, the second largest source market. This was mainly attributable to new tourism laws in Mainland China which clamped down on hidden fees from tour operators as well as tourists avoiding Southeast Asia due to the recent chain of events including the disappearance of the Malaysia Airlines flight MH370, political tensions in Thailand and kidnappings in Sabah. Nevertheless, major source markets such as Indonesia, Hong Kong and South Korea continued to show healthy growth.

In September 2014, Singapore hosted the Formula One Grand Prix for the seventh time. Based on preliminary estimates, the annual event was expected to draw more than 100,000 spectators of which almost half is estimated to be overseas visitors.

SupplyIn 3Q14, three new hotel projects were completed, adding 833 rooms to the hotel stock. The 502-room Hotel Jen Orchardgateway is the first Hotel Jen property to be launched worldwide by the Shangri-La Group. The new hotel brand replaces Traders and caters to evolving travel trends. The hotel operator has also rebranded the existing Traders Hotel Singapore. The other major opening is the 243-room One Farrer Hotel and Spa in the Little India heritage district. As at 3Q14, 1,754 rooms have been added to the Singapore’s accommodation market in 2014.

Asset PerformanceAs at YTD August 2014, occupancy levels declined slightly by 0.4 percentage points to 80.1%, while the Average Daily Rate (ADR) increased by 3.6% to SGD 403 as compared to the same period in the previous year. As a result, Revenue per Available Room (RevPAR) gained 3% y-o-y to reach SGD 323. As at August 2014, RevPAR of luxury hotels registered SGD 343 on a moving annual average basis, underpinned by gradual but steady growth in both occupancy levels and ADR.

12-Month OutlookWhile there is a decline in Mainland Chinese visitor arrivals, their average length of stay has increased from 2.7 days in the first half of 2013 to 4.2 days in 2014. In addition, Mainland Chinese tourists have also overtaken Indonesia as the highest contributors in tourism receipts. These positive trends are in line with STB’s yield-driven strategy and target of quality tourism.

Looking ahead, occupancy levels in Singapore’s hotel sector are likely to be stable and ADR growth is expected to remain modest with competition arising from the entry of large midscale and economy hotels in 2014. Nevertheless, travel demand is expected to remain strong with the growth of externally-oriented sectors such as finance, insurance and wholesale trade, along with the modest pick-up in the global economy.

Note: Singapore Hotels refer to Singapore’s Luxury hotel market.




Source: JLL


Occupancy ADR

ADR RevPAR

Occupancy (%)

Occupancy (%)

010203040506070

9080

0

200150100

250300350400450500

ADR/

RevP

AR (S

GD)

Feb 0

9Au

g 09

Feb 1

0Au

g 10

Feb 1

1Au

g 11

Feb 1

2Au

g 12

Feb 1

3Au

g 13

Feb 1

4Au

g 14

10 11 12 13

No. o

f roo

ms

0

3,000

5,000

2,000

1,000

4,000

6,000

Additions to Supply Future Supply15F14F

Bang

kok:

Hot

els


• International arrivals to Bangkok continue to decline•No major hotel openings in 3Q14•RevPARshowsasignificantdeclineof29%y-o-y

DemandAccording to the latest statistics from Tourism Authority of Thailand (TAT), total international visitor arrivals have experienced a decline of 18.2% to 9.5 million as at YTD August 2014 as compared to the same period in 2013, due to political demonstrations and the military coup during the first half of the year.

In the first eight months of 2014, visitor arrivals from all major source markets declined. Following the political upheaval, the number of Mainland Chinese tourists, the largest source market to Bangkok, declined significantly by 31.3%, relative to the same period in 2013. There was a significant decline in Asian travellers to Bangkok, particularly Mainland Chinese, Japanese and Korean visitors due to their sensitivity towards political issues in 1H14. Mainland China, Japan and Russia remained the three largest source markets as at YTD August 2014, accounting for 17.2%, 7.8% and 5.9% of total international visitor arrivals respectively.

SupplyThere were no major hotel openings in Bangkok in 3Q14. Approximately 945 rooms will be added to the Bangkok market in 4Q14 if all projects materialise. The majority of new branded supply is in the upscale segment, accounting for 67.3% of total new room stock. Future hotel openings in 4Q14 include the 214-room Le Meridien Suvarnabhumi Golf Resort and Spa and the 250-room Amara Bangkok.

Asset PerformanceTrading performance across the Bangkok hotel market in the first eight months of 2014 witnessed a significant decline with a drop in occupancy levels across all hotel sectors relative to the same period in 2013, on the back of a decline in the number of foreign visitor arrivals. Although Average Daily Rate (ADR) in the luxury hotel segment recorded a modest growth of 1.1% y-o-y to THB 5,763, occupancy declined by 20.2 percentage points to 47.6% as at YTD August 2014. As a result, Revenue per Available Room (RevPAR) experienced a significant drop of 29% y-o-y to THB 2,743 for the same period.

In terms of moving annual average, ADR continued to be stable whilst RevPAR has shown a persistent decline since December 2013, reaching THB 3,149 in August 2014 owing to the dip in occupancy.

12-Month OutlookBangkok was recently displaced as the world’s top destination city in the 2014 MasterCard Global Destination Cities Index, replaced by London. However, the city remains the top destination within Asia Pacific. Overall, we expect hotel trading performance in Bangkok to rebound in the last quarter of 2014, albeit still below levels recorded in 2013. Thailand has been a resilient market during previous political uncertainties and we expect tourism arrivals to recover in 2015.

Bangkok: Hotels

Note: Bangkok Hotels refer to Bangkok Luxury hotel market.




Source: JLL


Occupancy ADR

ADR RevPAR

Occupancy (%)

Occupancy (%)

0

10

20

30

40

50

60

70

80

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

ADR

/ Rev

PAR

(THB

)

Feb-

09Au

g-09

Feb-

10Au

g-10

Feb-

11Au

g-11

Feb-

12Au

g-12

Feb-

13Au

g-13

Feb-

14Au

g-14

No. o

f roo

ms

Additions to Supply Future Supply10 11 12 13 14F 15F

0

2,000

4,000

1,000

3,000

5,000

Kuala

Lum

pur:

Hote

ls


• Internationalarrivalsshowimprovementof10%y-o-yasatYTDMay•No major hotel openings in 3Q14•RevPAR improves on back of an increase in ADR

DemandLatest statistics from Tourism Malaysia show that international visitor arrivals to Malaysia have improved, recording a 10% y-o-y increase to 11.5 million as at YTD May 2014. This is surprising with the negativity surrounding the country’s national airline carrier and the kidnapping incidents in Sabah. Most source markets to Malaysia have shown an increase apart from Mainland China and Brunei. Singapore and Indonesia remain the top two source markets to Malaysia, comprising 50.3% and 9.7% of total international visitor arrivals respectively. However, we note that there was a 5% y-o-y decline in Singaporean visitors to Johor Bahru after a hike in toll fees for Singapore vehicles crossing the border.

SupplyIn 3Q14, there were no new hotel openings. In the first nine months of 2014, approximately 1,030 rooms have opened in Kuala Lumpur comprising midscale hotels located in suburban areas. From 2015 to 2018, JLL forecasts an estimated 4,000 rooms to enter the market. This comprises mostly of upscale and luxury hotels. Some of the notable international hotel brands entering the market in the next few years include St. Regis, Regent, W Hotel, Four Seasons, Clermont, Fairmont, Banyan Tree, Harrods, Swissotel and Kempinski, all of which currently do not have a presence in Kuala Lumpur.

Asset PerformanceAs at YTD August 2014, occupancy remained stable at 73.6% while Average Daily Rate (ADR) showed an increase of 4.8% y-o-y to MYR 494. Revenue per Available Room (RevPAR) reflected an increase of 5.1% to MYR 363, driven entirely by the increase in rate. Trading performance of hotels in Kuala Lumpur are largely dependent on corporate and Meetings, Incentives, Conventions and Exhibitions (MICE) demand which has remained stable as reflected by the healthy growth in visitor arrivals of major source markets in 1H14. The decline in Mainland Chinese visitors has not had much of an impact on luxury and upscale hotel trading performance as these are mostly leisure visitors who stay at midscale and economy hotels. On a moving annual average basis, occupancy and ADR of hotels remain stable, resulting in a RevPAR of MYR 338 in August 2014.

12-Month OutlookThe Malaysian government remains committed in promoting Kuala Lumpur as a leisure, MICE and corporate destination through the ‘Visit Malaysia 2014’ campaign. This was also aided by the completion of Kuala Lumpur International Airport 2 (KLIA 2) in May 2014 which can accommodate 45 million passengers. Malaysia is targeting a total of 28 million international visitor arrivals and a corresponding MYR 76 billion in tourism receipts in 2014. However, we note that there might be an oversupply of new hotel rooms in the upscale and luxury sectors which is likely to increase competitive pressure on existing hotels in the short to medium term. Healthy demand from the corporate and MICE sector remain pertinent in the next few years in view of the pipeline of hotels.

Kuala Lumpur: Hotels

Note: Kuala Lumpur Hotels refers to Kuala Lumpur’s Luxury and Upscale hotel market.

Luxury and Upscale Hotel Trading Performance



Source: JLL


Occupancy ADR

ADR RevPAR

Occupancy (%)

Occupancy (%)

010203040506070

9080

0

100

200

300

500

400

ADR/

RevP

AR (M

YR)

Feb 0

9Au

g 09

Feb 1

0Au

g 10

Feb 1

1Au

g 11

Feb 1

2Au

g 12

Feb 1

3Au

g 13

Feb 1

4Au

g 14

No. o

f roo

ms

Additions to Supply Future Supply10 11 12 15F14F13

0

1,200

600

900

300

1,500

1,800

Jaka

rta: H

otels


•Significantincreasefromitslargestsourcemarket,Malaysia•Additions to supply comprise economy and midscale hotels•SignificantimprovementinADRinIndonesianRupiahterms

DemandInternational visitor arrivals to Jakarta grew 2.8% y-o-y to 1.3 million as at YTD July 2014. The slower growth was due to the presidential elections which took place earlier in the year. The largest source market, Malaysia, recorded a significant 9.2% y-o-y growth due to its close proximity and the facilitation of low cost carrier flight connectivity between four Malaysian cities and Jakarta. The development of Shari’ah tourism has also supported the increase in tourists from Middle Eastern countries, with Saudi Arabia registering a 43.4% y-o-y increase.

The increase in flight connectivity between Jakarta and major gateway cities will continue to boost visitation. Garuda Indonesia recently introduced direct flights five times weekly between Jakarta and Amsterdam in May 2014, with the same flight expanding its connection to London in September 2014, providing greater accessibility for European travellers to Jakarta and beyond.

SupplyIn 3Q14, five new hotel developments were completed, adding 1,068 rooms to the hotel stock. Mostly targeting the economy and midscale segments, these include the 297-room Holiday Inn Express Jakarta Pluit Citigate, the 145-room Swiss-Belinn Airport Jakarta, the 253-room ibis Styles Jakarta Airport, the 210-room ibis Styles Mangga Dua Square and the 163-room Hotel Mercure Jakarta Sabang. As at 3Q14, Jakarta’s accommodation market comprised approximately 32,745 rooms. Hotels in the pipeline for the rest of 2014 are also predominantly in the economy and midscale segments. There are no new upscale and luxury hotels opening this year.

Asset PerformanceAs at YTD August 2014, occupancy declined by 1.3 percentage points to 62.8% while Average Daily Rates (ADR) fell 2.7% y-o-y to USD 181. The decline in ADR in US Dollar terms can be attributed to the depreciation of the Indonesian Rupiah. Comparatively, ADR showed a significant improvement of 14.4% to IDR 2.1 million resulting in Revenue per Available Room (RevPAR) growth of 12% to IDR 1.3 million. In terms of moving annual average, RevPAR levels have been relatively stable, achieving levels above USD 110 in the past twelve months.

12-Month OutlookAlthough Jakarta and Indonesia as a whole experienced a volatile period in 1H14 with the presidential elections and a significant depreciation of the Indonesian Rupiah, the economic situation has since improved and a cautious optimism has returned to the country. The outlook for the domestic economy is relatively positive with structural and economic reforms in place.

As the capital city, Jakarta should benefit strongly from the growth in both domestic and international visitor arrivals. The boost in infrastructure investment and airport expansion also bode well for Jakarta to handle the anticipated growth in tourism and corporate travel demand. Therefore, hotel trading performance in Jakarta is likely to remain stable in light of the entry of economy and midscale hotels in 2014.

Jakarta: Hotels

Note: Jakarta Hotels refers to Jakarta’s Upscale hotel market.




Source: JLL


Occupancy ADR

0

40

100

140

200

ADR/

RevP

AR (U

SD)

0

20

40

60

9080

10

30

50

Occupancy (%)

70

180160

80

120

20

60

ADR RevPAROccupancy (%)

Feb 0

9Au

g 09

Feb 1

0Au

g 10

Feb 1

1Au

g 11

Feb 1

2Au

g 12

Feb 1

3Au

g 13

Feb 1

4Au

g 14

10 11 12 14F130

2,000

4,000

1,000

3,000

5,000

No. o

f roo

ms

15FAdditions to Supply Future Supply

Sydn

ey: H

otels


•Total visitor nights increase 5.6% y-o-y •No major hotel openings in 3Q14•RevPAR rises 5.7% y-o-y in Jan-Aug period

DemandA total of 43 million visitor nights were spent in Sydney Tourism Region (city and surrounds) as at YTD June 2014, representing an increase of 5.6% compared to the same period in 2013. Domestic visitor nights increased 12.9% y-o-y to 11.7 million and international nights by 3.2% to 31.3 million. Increases were most evident in the domestic and international visiting friends and relatives segments, with international holiday travel also rising.

SupplyThere were no new hotel openings during 3Q14.

We are aware of eight accommodation developments which are currently under construction and due for completion between 2014 and 2017. These projects include: Central Park – Kensington Lane Hotel (60 rooms), Tankstream Hotel (282 rooms), 88 Liverpool Street (76 rooms), Sofitel Darling Harbour (590 rooms), Primus Hotel (171 rooms) as well as three extensions. The extensions are Holiday Inn Darling Harbour (24 rooms), Swissotel Sydney (10 rooms) and Four Points by Sheraton Darling Harbour (231 rooms).

Asset PerformanceAs at YTD August 2014, occupancy levels increased 1.3% y-o-y to 86.8% while average daily rate (ADR) rose 4% to AUD 222. As a result, RevPAR grew by 5.7% y-o-y to AUD 192. Sydney’s accommodation market has continued to trade at strong levels which has been boosted by improving corporate demand, as well as strong leisure, cruise and VFR business.

There were no hotel investment transactions in Sydney in 3Q14.

12-Month OutlookThe outlook for Sydney’s accommodation market remains strong following the recovery which has been evident over the past four years. Occupancy levels have reverted to a very high level and ADR growth is strengthening in line with the benign supply outlook and more stable demand environment with growth across a variety of segments including corporate, cruise and inbound.

The closure of the Sydney Convention & Exhibition Centre in late 2013 has had only a small impact on the overall market with a number of five-star hotels enjoying considerable demand-uplift throughout the year. Notwithstanding, an element of caution still prevails given the lack of ‘blockbuster’ events through the winter months. This has resulted in a slight softening through the mid part of the year but with a strong year end currently anticipated.

Sydney: Hotels

Note: Sydney Hotels refers to all grades of accommodation and includes both hotels and serviced apartments.

Marketwide Hotel Trading Performance



Source: JLL


Occupancy ADR

ADR RevPAR

Occupancy (%)

Occupancy (%)

010203040506070

1009080

ADR/

RevP

AR (A

UD)

0

50

100

150

250

200

Feb 0

9Au

g 09

Feb 1

0Au

g 10

Feb 1

1Au

g 11

Feb 1

2Au

g 12

Feb 1

3Au

g 13

Feb 1

4Au

g 14

10 11 12 13 15F

No. o

f roo

ms

14F0

100

300

200

600

500

400


With Over100 Researchers On The Ground In 50 Markets, We Help You Stay AheadComprehensive Data, Forecasts, Reports, Presentations, Hotline

Dr Jane MurrayHead of Research – Asia Pacific +852 2846 5274 [email protected]

Roddy AllanREIS Asia Pacific +852 2846 5790 [email protected]

To find out more, please contact:

Newly Launched,TokyoGradeBOffice

JLLResearch-AsiaPacific

ASIA PACIFICDr Jane MurrayHead of Research – Asia Pacific +852 2846 5274 [email protected]

GREATERCHINAMichael KlibanerHead of Research – Greater China +852 2846 5276 [email protected]

Hong KongDenis MaHead of Research – Hong Kong +852 2846 5135 [email protected]

BeijingSteven McCordHead of Research - Beijing +86 10 5922 1371 [email protected]

ShanghaiJoe ZhouHead of Research – Shanghai +86 21 6133 5451 [email protected]

GuangzhouSilvia ZengHead of Research – Guangzhou +86 20 3891 1238 [email protected]

ChengduFrank MaHead of Research – Chengdu +86 28 6680 5072 [email protected]

QingdaoCelia ChenAssistant Manager, Research +86 532 8579 5800 ext 817 [email protected]

TianjinDurrell MackHead of Research - Tianjin +86 22 8319 2233 [email protected]

ChongqingJasmine MaHead of Strategic Consulting & Research – Chongqing +86 23 6370 8588 [email protected]

ShenyangCedric WangAssociate Director, Research and Consulting +86 138 0104 9273 [email protected]

WuhanDaisy HuSenior Consultant +86 27 5959 2151 [email protected]

Xi’anLisa ZouResearch Analyst +86 29 8932 9835 [email protected]

TaipeiJamie ChangAssistant Manager +886 2 8758 9886 [email protected]

MacauAlvin MakAssociate Director +853 2871 8822 [email protected]

NORTH ASIAJapanTakeshi AkagiHead of Research – Japan +81 3 5501 9235 [email protected]

South KoreaYongminLeeHead of Research – South Korea +82 2 3704 8888 [email protected]

SOUTHEASTASIASingaporeDrChuaYangLiangHead of Research – South East Asia and Singapore +65 6494 3721 [email protected]

IndonesiaVivin HarsantoNational Director +62 21 2992 3888 [email protected]

The Philippines Claro CorderoHead of Research – Philippines +63 2 902 0887 [email protected]

ThailandAndrewGulbrandsonHead of Research – Thailand +66 2 624 6420 [email protected]

VietnamChris Murphy Head of Research - Vietnam +84 8 3910 3968 [email protected]

Malaysia (Jones Lang Wootton in association with Jones Lang LaSalle)Malathi ThevendranExecutive Director – Research +60 3 2161 2522 [email protected]

WESTASIAIndiaAshutosh LimayeHead – Research & REIS +91 22 6620 7575 [email protected]

AUSTRALASIADr David ReesHead of Research – Australasia +61 2 9220 8514 [email protected]

New ZealandJustin KeanHead of Research +64 9 366 1666 [email protected]

HOTELS&HOSPITALITYFrank SorgiovanniVice President, Research & Strategic Advisory – Asia +65 6536 0606 [email protected]

mailto:[email protected]




Mailto:[email protected]


mailto:cedric.wang%40ap.jll.com?subject=











Jones Lang LaSalle© 2014 Jones Lang LaSalle IP, Inc. All rights reserved. For further details or to unsubscribe, please email [email protected]. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

www.jll.com

For Research services in Malaysia, we work with Jones Lang Wootton with offices in Kuala Lumpur and Johor Bahru.

AsiaPacific9 Raffles Place #39-00 Republic Plaza Singapore 048619 tel +65 6220 3888 fax +65 6438 3361 www.jll.com.sg

Americas200 East Randolph Drive Chicago IL 60601 tel +1 312 782 5800 fax +1 312 782 4339 www.us.jll.com

EMEA22 Hanover Square London W1A 2BN tel +44 20 7493 6040 fax +44 20 7408 0220 www.jll.co.uk

JLLoffices

ASIA PACIFICAdelaide Auckland Bangalore Bangkok Beijing Brisbane Canberra Cebu City Chandigarth Chengdu Chennai Chongqing Christchurch Coimbatore Colombo Guangzhou Hanoi Ho Chi Minh City Hong Kong Hyderabad Jakarta Kolkata Macau Manila

Melbourne Mumbai Nanjing New Delhi Osaka Pasig Perth Phuket Pune Qingdao Quenzon Seoul Shanghai Shenyang Shenzhen Singapore Sydney Taguig Taipei Tianjin Tokyo Wellington Wuhan Xi’an

AMERICASAtlanta Austin Baltimore Boston Buenos Aires Chicago Cincinnati Cleveland Columbus Dallas Dayton Denver Detroit Ft. Lauderdale Houston Kansas City Los Angeles McLean, VA Mexico City Miami Minneapolis Monterrey Montreal New Orleans

New York Orange County Orlando Parsippany, NJ Philadelphia Phoenix Pittsburgh Portland, OR Rio de Janeiro Sacramento St. Louis Salt Lake City San Diego San Francisco Santiago Sao Paulo Seattle Tampa Toronto Vancouver Washington DC

EMEAAbu Dhabi Amsterdam Antwerp Barcelona Berlin Birmingham Brussels Bucharest Budapest Dubai Dublin Dusseldorf Edinburgh Eindhoven Frankfurt Glasgow Gothenburg The Hague Hamburg Helsinki Kiev Leeds Lisbon Liverpool

London Luxembourg Lyon Madrid Manchester Marbella Milan Moscow Munich Norwich Paris Prague Rotterdam Seville Stockholm St. Petersburg Tel Aviv Utrecht Valencia Warsaw Wiesbaden

JLL worldwide

Documents

JLL Asia Pacific Property Digest 3q 2014