JLL Asia Pacific Property Digest 4q 2015

8/18/2019 JLL Asia Pacific Property Digest 4q 2015

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Asia Pacific Property Digest | Q4 2015

Bright finish for officeleasing in 2015


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

O f c e

Dear Reader,

It was an active year for Asia Pacific’s real estate markets in 2015 and the pick-up in office leasing wasa major highlight. We expect to see ongoing momentum in leasing and investment activity during 2016.

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

As always, the Research team welcomes your feedback.

Best regards,

Dr Jane MurrayHead of Research – Asia Pacific

13

4Asia Pacific Economy and

Property Market

2015: Close to a record year forIndia’s office leasing8The changing profile of theSydney CBD9 How can China’s tier 3 and4 residential markets turnaround?10

The year ahead in Jakarta11

Hong Kong 14

Beijing 15Shanghai 16

Guangzhou 17

Taipei 18

Tokyo 19

Osaka 20

Seoul 21

Singapore 22

Bangkok 23

Jakarta 24

Kuala Lumpur 25

Manila 26

Ho Chi Minh City 27Delhi 28

Mumbai 29

Bangalore 30

Sydney 31

Melbourne 32

Perth 33

Auckland 34


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I n d u s t r i

a l

R e t a i l

R e s i d e n t i a l

H o t e l s

49 65

57 35

Hong Kong 58

Beijing 59

Shanghai 60

Tokyo 61

Singapore 62Sydney 63

Melbourne 64

Hong Kong 66

Beijing 67

Shanghai 68

Tokyo 69

Singapore 70

Bangkok 71

Kuala Lumpur 72

Sydney 73

Hong Kong 50

Beijing 51

Shanghai 52

Singapore 53

Bangkok 54

Jakarta 55

Hong Kong 36

Beijing 37

Shanghai 38

Guangzhou 39

Tokyo 40Singapore 41

Bangkok 42

Jakarta 43

Delhi 44

Mumbai 45

Sydney 46

Melbourne 47


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Varied performance for retail sales

Consistent with the Chinese government’s reform agenda, retailsales are a bright spot in the country’s economy, with growth of11% in 2015 and e-commerce sales jumping by nearly a third over

the same period. Japan’s retail sales performance continues to bepatchy, reflecting the cautious approach of households to spending,

while in Hong Kong a slump in tourism has put pressure on sales. In2015, Chinese tourists to the city fell by 3%, while retail sales werealmost 4% lower than the year before. The retail environment inSingapore is being impacted by weak consumer sentiment, whileconsumption in Australia is being supported by ongoing strength of

the labour market.

Sluggish global demand weighing on exports

A soft global trade environment is impacting regional exports.China’s trade performance remains weak with exports decliningfor a seventh straight month in January. At the same time, China’seconomic slowdown is impacting trade performance throughout therest of the region, with exports falling in most markets. Japan, the

region’s second biggest economy, saw declines for three straightmonths through December.

More rate cuts while inflation remains moderate in mostmarkets

Various governments in AP continue to lower interest rates to shore

up growth in their economies. Over the last four months, China,Indonesia and New Zealand have cut rates by 25 bps while Japan’scentral bank introduced negative interest rates in an attempt torejuvenate its economy. Hong Kong bucked the regional trend withbenchmark interest rates rising by 25 bps in line with the US ratehike. Low commodity prices and weak global demand continue

to keep inflationary pressures at bay across most markets in theregion, a notable exception being India.

Steady growth expected but downside risks to the outlook

Regional growth is expected to remain steady in 2016 with OxfordEconomics forecasting growth of 5.3%, similar to 2015. However, theperformance will not be uniform across AP with China continuing

4 – F E A T U R E S

A rocky start to the year It’s been a rocky start to 2016, triggered by renewed stock market volatility and currency depreciation inChina. This set a gloomy tone for regional and global stock markets in the first few weeks of the new year.Japan’s new policy of negative interest rates announced in early February sent further tremors through

the world’s financial markets.

On a more positive note, the real economies in Asia Pacific remain in decent shape, with growthcontinuing to outpace the rest of the world by a significant margin. China’s government has been

proactive in attempting to stabilise conditions and concerns about Renminbi depreciation havediminished, at least for the time being. AP markets took the first US rate hike in December in their stride,with most governments maintaining loose monetary policy in a bid to support growth. While the rout incommodity prices has impacted exporters such as Australia and Indonesia, the steep fall in oil pricesshould be a net benefit to most economies in the region.

ASIA PACIFIC ECONOMY


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Office leasing activity continues to recover

Asia Pacific leasing activity continued to strengthen in 4Q15 withgross leasing volumes up 23% year-on-year. For the full year,volumes increased by a solid 19%. The Tier 1 cities of India andChina were very buoyant and across the region the most activesectors were technology, domestic financial firms and BPO. InAustralia, Sydney and Melbourne continued to see a good recoveryin occupier demand. Leasing activity was weaker in the SoutheastAsian markets, apart from Manila, impacted by slow economicactivity and weak resources sectors.

Figure 1: Outlook for Major Economies

CountryReal GDP Growth (%)

2016 Outlook2015E 2016F

China 6.9 6.3Continued policy support to aid domestic demand while the service sector remains a positive driver,now accounting for 50% of the economy.

Japan 0.4 0.8Slow recovery supported by monetary policy and more fiscal stimulus. Recent Yen appreciation is arisk to exports.

India 7.4 7.4India is expected to have overtaken China as AP’s fastest growing economy in 2015. Consumptionand investment to support growth in 2016.

South Korea 2.5 3.0 Slight pick-up in growth underpinned by consumption amid loose fiscal and monetary policy.

Australia 2.4 2.7Improved export competitiveness while mining investment remains a drag. The residential market isexpected to slow this year.

Indonesia 4.8 5.1Public investment and consumer spending should be catalysts for growth. Implementation ofreforms will be crucial to improved performance.

Singapore 2.1 2.3Subdued growth amid weak external and residential sectors. Stronger government spending toprovide support.

Hong Kong 2.5 2.5Domestic demand to underpin steady growth. A tourism slump, weak exports and housing marketcorrection are downside risks.

Asia Pacific 5.3 5.3 Stable growth amid accommodative policy support and a slow pick-up in global demand.

Note: India revised its GDP methodology (including historical growth rates) in January 2015.Source: Oxford Economics, February 2016

Pre-leases help ease impact of new completions

Across the region, Grade A stock additions were up by a solid 65% to 5.6 million sqm in 2015. In the final quarter, most Tier 1 marketssaw new completions, with India and China accounting for almost

two-thirds of the total. Strong pre-commitment rates mitigated theimpact of new supply on vacancy in markets such as Tokyo andManila. Vacancy rates are low in many of the major markets, withHong Kong Central’s rate of 1.2% the lowest since the GFC. At theother extreme, Delhi’s current vacancy rate is 25%, followed byPerth at 23%.

to slow as its economic transformation persists while growth isexpected to pick up in some Southeast Asian markets includingIndonesia. The financial market turmoil that arose at the beginningof the year highlights just one of the lingering uncertainties facing

regional and global economies. Other notable risks to the outlookinclude the impact of China’s further slowdown and the extent offurther US interest rate hikes.

Active year for the region in 2015The improvement in office leasing activity was a major highlight for the AP real estate market during 2015.Several cities had a standout performance, including Bangalore and Shanghai which both sawexceptionally strong occupier demand. Hong Kong and Sydney saw double-digit growth in office rents on

the back of solid leasing activity. On the investment front, investor interest remained strong, particularlyfor the major markets of Japan, China and Australia. Office capital values continued to outpace rents inmost markets, with Japanese markets seeing the biggest uplifts.

ASIA PACIFIC PROPERTY MARKET


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Rents gather pace in Asia Pacific

Net effective rents increased in two-thirds of all markets in 4Q15and average quarterly rental growth accelerated to 1.3% as rentalincreases in larger markets such as Tokyo (+2.8%) gathered pace.Sydney registered the strongest quarterly rental growth of 5.4%,followed by Bangalore and Osaka.

Seven markets recorded rental declines in 4Q15, with Perth andJakarta rents falling the furthest due to high vacancy rates and

supply pressure. Beset by weak economic conditions and a largesupply pipeline, Singapore rents continued to fall.

In aggregate, rents increased 3.7% over the 12 months to end-2015. Hong Kong and Sydney were the regional outperformers withgrowth of 13%. Bangalore, Shanghai and Tokyo also recorded stronggrowth. Annual declines were seen in a few markets includingKuala Lumpur (–4.2%), Singapore (–10.5%) and Perth (–19.4%).

Mixed retailer demand

In 4Q15, retailer demand in China continued to be supported by fastfashion retailers and F&B while demand from luxury retailersremained weak, despite a cut in import duties for luxury goods.Market conditions in Hong Kong remained challenging amiddeclining tourist arrivals from China, while a difficult operating

environment persisted in Singapore. Expansion of majorinternational brands remained a major theme in Australia withleasing activity led by developments. Over the short term, we seelimited scope for much rental growth in most markets, andHong Kong is likely to see the biggest decline in rents for high streetspace.

3PLs and e-commerce firms support demand for logisticsspace

Generally healthy leasing activity was observed in 4Q15, drivenmainly by third party logistics and e-commerce companies,especially in China and Tokyo. Leasing demand in Hong Kong waslacklustre, with activity largely driven by cost saving relocations by3PLs. In Singapore, relocation and renewal demand for businesspark space stemmed from research and IT firms, while demand

from the finance sector remained muted. Rents were generally flatacross the region, with the highest quarterly rental growth of 1.1%in Beijing.

Rate cut supports residential sales in China; most othermarkets less active

Policy restrictions remained in place in various markets across Asia.An accommodative credit policy stance provided support forhigh-end sales volumes in China’s Tier 1 markets. Home sales inHong Kong fell to an all-time quarterly low in 4Q15. Subdued salesactivity was also evident in Singapore with fewer new launches.Most markets across the region continued to see stable or smallincreases in rents and prices, a trend that is expected to continueover the short term, with the notable exceptions of Hong Kong andSingapore.

Another solid year for commercial real estate investmentactivity

For full-year 2015, investment volumes were slightly lower than therecord 2014 level but in part due to the stronger USD, the reportingcurrency. Japan, Greater China and Australia accounted for around80% of total volumes. Cross-border investors were active during theyear, accounting for 40% of total investment volumes.

In 4Q15, commercial investment volumes declined 19% y-o-y toUSD 35.6 billion with the overall performance dragged down byJapan (–61% y-o-y) and Australia (–22%). However, strong volumeswere recorded by China (+49%), Hong Kong (+106%) and Singapore

(+55%). The pick-up in activity in China saw it overtake Japan as the largest market by volume, with sales totalling USD 10.5 billion in4Q15. In emerging Asian markets, volumes were impacted by globaleconomic uncertainty and financial market volatility.

Office capital value growth accelerates

Asia Pacific quarterly capital value growth ticked up to 2.6% in 4Q15.Capital values rose q-o-q in all but four markets with three achievinggrowth in excess of 6%: Canberra (+6.3%), Tokyo (+6.2%) andSydney (+6.1%). Singapore capital values slid the furthest, by 3.1%.

Office leasing to strengthen. Rent and capital value growth tomoderate

During 2016, we expect office leasing activity to improve further andvolumes should get close to the previous peak back in 2011.Investment should also remain strong on the back of plenty ofliquidity and low borrowing rates. We expect core markets to see

the lion’s share of activity. In general, it should be another good

Figure 3: Direct Commercial Real Estate Investment 2007–2015

Figures refer to transactions over USD 5 million in office, retail, hotels and industrialSoruce: JLL (Real Estate Intelligence Service), 4Q15

Figure 2: Office Rental & Capital Value ChangesYearly % Changes, 4Q15

Figures relate to the major submarket in each citySoruce: JLL (Real Estate Intelligence Service), 4Q15

Rental Values Capital Values

y - o - y %

–5

–15

–10

20

15

5

10

0

H o n g

K o n g

S y d n

e y

S h a n

g h a i

T o k y

o

B a n g k o

k

B e i j i n

g

J a k a

r t a

M a n i l a

M e l b

o u r n e

S e o u l

M u m

b a i

S i n g a

p o r e

Japan AustraliaChina

Hong Kong

Singapore

South Korea Other

U S D B

i l l i o n

0

25

75

150

125

50

100

2015$123.6 bill–6% y-o-y

2007 2008 2009 2010 2011 2012 2013 2014 2015



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ABOUT THE AUTHOR

Dr Jane Murray joined JLL in 1998 and in 2005was appointed as Head of Research – AsiaPacific. In this role, Jane leads a team of150 professional researchers in the region,which forms part of a network of over 400researchers in 65 countries around the globe.

year for the office sector, while conditions in the residential sectormay be more arduous. The year will not be without its challengesas China’s economy continues to slow and some of its propertymarkets face ongoing oversupply issues. Nonetheless, we think thatChina’s Tier 1 markets will fare well and that Shanghai in particularwill continue to be a magnet for corporates and investors.

Growth

Slowing

RentsRising

Rents

Falling

DeclineSlowing

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

Beijing

Hong Kong

Tokyo

Singapore (Business Park)Singapore (Logistics)Shanghai

Auckland, Manila

Melbourne

Sydney

Brisbane

Wellington

Growth

Slowing

Rents

Rising

Rents

Falling

Decline

Slowing

Beijing

Guangzhou

Hong Kong

Jakarta

Hanoi

Bangkok

Taipei

Manila, Tokyo

Osaka

Seoul

Auckland,Bangalore

Delhi

Chennai

Kuala Lumpur

Singapore

Shanghai, Sydney Perth

BrisbaneMelbourne

Canberra, Adelaide

Ho Chi Minh City, Mumbai

Wellington

Growth

Slowing

RentsRising

Rents

Falling

DeclineSlowing

*For Luxurious Residential Properties

Beijing

GuangzhouJakarta

Bangkok

Singapore*

Shanghai

Kuala Lumpur

Manila

Hong Kong

Growth

Slowing

Rents

Rising

Rents

Falling

Decline

Slowing

*Regional

^High Street Shops/Multi-level High Street

*Regional

^High Street Shops/Multi-level High Street

Shanghai, Beijing

GuangzhouHong Kong^

Kuala Lumpur, Jakarta

Bangkok

Tokyo^

BangaloreDelhi

Mumbai

Chennai

Singapore

Manila

Sydney, Melbourne, SE Queensland* Wellington

Auckland

Shanghai, Beijing

GuangzhouHong Kong^

Kuala Lumpur, Jakarta

Bangkok

Tokyo^

BangaloreDelhi

Mumbai

Chennai

Singapore

Manila

Sydney, Melbourne, SE Queensland* Wellington

Auckland

Figure 4: Rental Property Clocks, 4Q15

Source: JLL (Real Estate Intelligence Service), 4Q15Note: Clock positions for the office sector relate to the main submarket in each city.

Grade A Office Prime Retail

Prime Residential Industrial


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ABOUT THE AUTHOR

Subash Bhola is an Associate Director ofResearch based in Mumbai. He is responsiblefor managing the operations of JLL’s RealEstate Intelligence Service (REIS) in India.Other key responsibilities include commercialreal estate analysis and forecasting.

India’s office space absorption during 2015 was 36.2 million sq ft – the second highest figure in the country’s history, after 2011. Thiswas possible because of the performance of markets such as

Bangalore, Hyderabad, Pune and Chennai. Bangalore alonecontributed 10.8 million sq ft – close to one-third of the total.Chennai absorbed 3.9 million sq ft in 2015 – nearly double theamount seen in 2014. Despite being two tier II cities, Pune andHyderabad have jointly contributed about 85% of the totalabsorption of Mumbai and Delhi put together. This indicates thegrowing attractiveness of tier II cities which offer similar quality ofoffice space at competitive rentals as compared to tier I cities.

While the absorption of 2015 is similar to 2011, it is distributedacross new and old buildings, whereas previously it was largely innewly completed buildings. The demand for office space during 2011was from occupiers taking advantage of low rents after the globalfinancial crisis; this time, it is largely because of implementation ofgrowth plans by corporates. Cities such as Pune, Bangalore,

Hyderabad and Chennai have a vacancy rate of just 5–10%,prompting the need to build fresh supply to meet growing demand.

A few emerging categories, such as e-commerce, telecom andhealth care, are witnessing strong growth in office space leasing inmajor cities. The contribution of e-commerce to total absorptionincreased from just 0.3% in 2011 to 6.0% in 2015 (Figure 1). Someheadline e-commerce transactions in 2015 included Snapdealleasing about 450,000 sq ft in Gurgaon and Flipkart committing toabout 2 million sq ft in an under-construction project in Bangalore.The telecom and healthcare industries had a good year. UHG, aglobal healthcare major, absorbed 200,000 sq ft in Hyderabad, whileleading telecom company Vodafone has taken up 133,000 sq ft inPune. The IT/ITeS sector – the major industry driving demand foroffice space – retained its top ranking among categories. Banking,Financial Services & Insurance (BFSI) companies are seengradually expanding their footprint in IT dominated cities such asBangalore and Chennai.

With industry type and share levels in absorption changing and theemergence of new categories, occupier choice over cities has alsoaltered (Figure 2). Bangalore outperformed in absorption in 2015,

taking the position Mumbai held during 2011. Suitable space atcompetitive rents and a young, creative talent pool make the city amajor business destination. Hyderabad is another city showing goodmomentum in leasing after settlement of political issues in the state.

The performance of 2015 may be followed by relatively lowerabsorption in 2016, when the country is forecast to witness

absorption of about 33 million sq ft. However, we do not foreseemuch of a drop-off in 2016 due to the present strong economicfundamentals and the optimistic forecast for India’s GDP.


2015: Close to a record year for India’soffice leasing

Figure 2: 2015 and 2011: Changes in city’s share of office absorption

Source: JLL (Real Estate Intelligence Service)

Figure 1: 2015 and 2011: Changes in industry’s share of office absorption


2011 2015

O f f i c e A b s o r p t i o n ( m i l s q f t )

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

11.0

10.0

9.0

B an ga lo re M um ba i NCR Pun e H yd erab ad Ch en na i Kolka ta

8 . 3 1 0 . 8

9 . 6 5 . 8 6 . 4 5 . 1 4 . 4 4 . 7 2 . 5 4 . 6 4 . 9 3 . 9 1 . 0 1 . 3

2011 2015

O f f i c e o c c u p i e r i n d u s t r y s h a r e ( % )

0.0

40.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

IT & IT ES Telecom,Healthcare

& Others

BFSI Manufacturing/Industrial

E-Commerce ConsultancyBusiness

3 6 . 8

3 4 . 1

1 8 . 5

2 8 . 6

1 0 . 7

1 3 . 7

2 5 . 4

1 3 . 4

0 . 3 6 . 0

8 . 4 4 . 4


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ABOUT THE AUTHOR

Joanne Henderson is a Director in theresearch team in Australia, located in theSydney office. Joanne heads up the MarketResearch division of the Australian research

team whose primary responsibility isproducing the Real Estate Intelligence Service(REIS) across the office, industrial and retailsectors.

JLL’s head office on George Street in the Midtown precinct of theSydney CBD offers a prime vantage point to view the transformation

that is taking place along the Western side of the city. The new

towers at the Barangaroo development (International TowersSydney) are changing the Western city skyline with 4Q15 marking

the full completion of the first tower adding 87,580 sqm to stock. The traditional epicentre of the City has shifted from the North towards the Midtown precinct and is now continuing to spread west of theCBD Core.

The Sydney CBD office market comprises four precincts. The Coreprecinct has been the traditional commercial hub, contributingaround 50% of total Sydney CBD office stock when JLL startedmonitoring Sydney stock by precinct in 1994. However, since 2004

the proportion of stock located in the Core has declined to 43% asstock across the Midtown and Western Corridor precinctsexpanded by 33% and 49% respectively over the past decade. With

the majority of the Barangaroo development still to complete, the

Western Corridor will become Sydney’s second largest precinct,comprising 27% of stock by the end of 2019.

The new ranking of the precincts is reflected also on the demandside, with only 38,800 sqm of net absorption recorded in the Coreprecinct since 1Q05. This is overshadowed by the Western Corridorand Midtown precincts, both of which recorded net absorption inexcess of 240,000 sqm over the same period. What has this meantfor rental growth across the precincts? Over the last 10-years,average annual prime gross effective rental growth has been ledby the Midtown precinct (6.0%), followed by the Western Corridor(5.3%), the South (4.9%) and the Core (3.5%). The Core stillcommands the highest average rents, explained by the highconcentration of premium grade stock. However, the gap betweenrents achieved in the Core and those achieved in Midtown andWestern Corridor has narrowed over time. With vacancy levels ofbelow 10% since 1Q14 across both the Midtown and WesternCorridor, further rental growth within these precincts may see thegap narrow further.

Recent announcements by the State Government for furtherinvestment into the city’s infrastructure will see a metro stationlocated at Barangaroo directly linking the Western Corridor to submarkets such as North Sydney and Chatswood along the Northernrail corridor. It will also see the Western side of the City connectdirectly to the Core precinct at Martin Place and the South precinct

through to Central station, before continuing South-West towards

Sydney CBD Prime Gross Effective Rents by Precinct

WCCore Midtown S outh

4 Q 9 6

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4 Q 0 2

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the emerging hubs of Bankstown and Liverpool. New transportinfrastructure, taken together with the sharp rise in the Sydney CBDresidential population all add to the changing ranking of Sydney’s

precincts. Investors, tenants and landlords with a long termperspective in mind need to take a strategic look at the changingface of the Sydney CBD.

Te changing profile of the Sydney CBD



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ABOUT THE AUTHOR

Joe Zhou joined JLL in 2005 and is the Head ofResearch for China. He is a key contributor tovarious research publications and isresponsible for coordinating consultancyprojects. His area of focus is on tracking andanalysing government policies and economicdata and updating clients on the implications.Joe is one of JLL’s media spokespersons andan active property market commentator.

How can China’s tier 3 and 4 residential marketsturn around?

1 0 – F E A T U R E S

Residential sales volume for 20 cities in China

Note: The 20 cities are Beijing, Shanghai, Guangzhou, Shenzhen, Changsha, Chengdu,Chongqing, Dalian, Hangzhou, Nanjing, Ningbo, Qingdao, Shenyang, Suzhou, Tianjin,Wuhan, Wuxi, Xiamen, Xian and Zhengzhou.Source: CREIS, JLL (Real Estate Intelligence Service)

over time. Going forward, China will continue to invest heavilyin infrastructure to create modern, well connected cities. But tosucceed over the longer term in the market-based economy, Tier3 and 4 cities will need to look beyond measures aimed purely atstoking GDP growth and consider other factors – such as the qualityof talent, the presence of robust, symbiotic industrial clusters,environmental conditions, and ‘quality of life’ – that will make themmore attractive locations in which to live, work and do business.Whatever the combination of factors, it will be the attractivenessof a location that determines where businesses locate and peoplemove and consequently the ability to absorb the inventories inChina’s lower tier cities.

In December 2015, China’s central leadership held a closed-doorEconomic Work Conference in Beijing, which was followed byan announcement acknowledging challenges in China’s housingmarket and pledging to tackle the property inventory issue in 2016.

China’s housing market started 2015 with subdued sales, but endedon a strong note, thanks to the government’s accommodative policystance. Looking back, the easing measures were primarily focusedon the demand side, aiming to improve buyers’ affordability throughreduced down payment requirements and lower mortgage rates,etc. As shown in the chart below, overall sales volume for 20 majorcities surged 28% y-o-y in 2015. However, price trends divergedacross different city tiers due to their inventory levels. In Tier 1cities like Shenzhen and Shanghai, price growth has acceleratedas inventories fall sharply, and prices in Tier 1.5 and 2 cities also aregaining momentum. In contrast, Tier 3 and 4 cities still face mountinginventories, which weigh on China’s broader economy.

Although details remain unclear, it is known that the government ismaking reducing property inventories in Tier 3 and 4 cities a policypriority for 2016. We may see officials roll out additional demand-side measures – such as further reductions in down paymentrequirements – which would help alleviate short-term concernscaused by high inventories. Nonetheless, over the medium andlong term, we believe that the health of housing markets in China’slower-tier cities will depend instead on supply-side reform, whichis becoming the latest buzzword among China’s leaders andeconomists.

China’s macro policy tended to focus on demand-fuelled reformsfor much of the past three years, but the effectiveness of suchmeasures has been diminishing. In a turning point for macro policy,

the central government vowed instead to roll out and deepensupply-side reform. Such reforms will entail changes in regulations

on labour, land, capital markets, tax regime, regulatory barriers,administration, and more in order to generate new growth engines

to boost China’s long-term growth prospects. Shanghai has beenon the frontier of this reform with initiatives like the Free Trade PilotZone (FTPZ). As the government extends supply-side reforms toother parts of the country, we would do well to ask: which Tier 3 and4 cities are best positioned to benefit and achieve a turnaround in

the coming years?

As detailed in our China60 report, benefiting from infrastructuredevelopment and strong clusters in some industries, certain Tier3 and 4 cities like Guiyang and Huzhou have done well, and webelieve they have the potential to digest their property inventories

S a l e s V o l u m e ( m i l l i o n S q m

)

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2011 2012 2013 2014 2015

4Q 3Q 2Q 1Q


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In many ways 2015 was a challenging year in the Jakarta propertymarket. The economy expanded by less than 5%, the rupiahdepreciated by around 13% against the US dollar, commodity pricesremained low and global economic headwinds persisted. Relativelyweak demand for grade A office space ensued, rental growth

turned negative and several new completions caused vacancy rates to rise, while in the residential market, luxury condominium demanddropped off mid-year and sales remained low until year-end.Extremely limited supply meant that prime retail occupancy levelsremained healthy despite a challenging macro environment andrents grew steadily.

Nevertheless, we expect improvements in the year ahead. A cabinetreshuffle in 2H15 indicated a shift towards a more business-friendlyenvironment, infrastructure spending began to gain traction andmost forecasts now point to GDP growth picking up to above 5% in2016. The long-awaited raise of US interest rates came to pass inDecember and fears that this would cause the rupiah to slide further

were unfounded – at least in the short term.

In the office market, we expect an improved economic environment to boost demand from 2016 onwards. However, in the short tomedium term, a packed supply schedule is such that occupancylevels are likely to fall further and we expect continued rentalcompression over the next couple of years. Towards the back-endof the five-year forecast horizon, however, we expect continuedgrowth from firms which feed off Jakarta’s massive populationbase and occupancy is likely to improve and rental growth return topositive territory.

Te year ahead in Jakarta

ABOUT THE AUTHOR

James Taylor is Head of Research for JLL inIndonesia. His team conducts quarterlyresearch on the office, retail and residentialsectors in Jakarta while also covering theproperty markets in Bali, Surabaya and othercities throughout Indonesia.

Demand for luxury condominiums is likely to remain thin in the earlypart of 2016 until buyer confidence returns. Vital to boosting demandis a stable rupiah which affects market sentiment more thanaffordability. Should the rupiah hold its level throughout the year,buyers are likely to return. Meanwhile, demand remains steady in

the middle and middle-low segments where affordability is greaterand the tax burden lower.

The Jakarta governor has been very selective on signing off on newstand-alone retail developments since 2011 and there are noindications that this will change in the short term. Limited supply,high occupancy levels and slow, steady rental growth are likely tocontinue and we expect the prime retail market in core-Jakarta toremain healthy.

Anecdotally, in January, the Jakarta research department receivedmore enquiries for market studies than in any month in 2H15indicating that market sentiment is improving and we are cautiously

optimistic on the year ahead.


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Office


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HONG KONG“ight vacancy environment bolsters landlords’

rental expectations.”

Denis Ma, Head of Research, Hong Kong

1 4 –

O F F I C E

Source: JLLFor 2011 to 2015, take-up, completions andvacancy rates are year-end annual. Future supplyis for 2016.Physical Indicators are for the Overall market.

Physical Indicators

Financial Indices

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

WEAK LEASING DEMAND AGAINST A HIGH OCCUPANCY ENVIRONMENT

• New lettings dropped by 30% q-o-q in 4Q15 owing to reduced market activity

over the holiday season and low vacancy rates. Coupled with several whole

floor lease expiries, net withdrawals were recorded in most of the city’s key

office submarkets.

• Kowloon East was the only submarket to record positive net take-up, partly

due to new leases signed at unsold units in Billion Development’s recently

completed strata-titled office buildings. In Central, demand was supported by

smaller requirements with PRC firms remaining as a source of growth,

accounting for 40% of all new lettings in 4Q15.

TENANT OPTIONS REMAIN LIMITED ACROSS THE MARKET

• The completion of two decentralised projects brought total new supply in 2015

to nearly 2.1 million sq ft, about 10% more than the 10-year historical annual

average.

• With vacancy rates at or below frictional levels across most submarkets,

tenants continued to face difficulties in finding space as most developments

completed in 2015 were either built for the sales market or already secured for

self-use. The vacancy rate in Central remained at 1.2%—its lowest level since

1Q08.

RENTS IN CENTRAL POST THEIR STRONGEST GAINS IN A YEAR SINCE 2010

• Rental increases at the top-end of the market helped lift rents in Central by

2.3% q-o-q in 4Q15, bringing full-year growth to 13.3%—the best performing

year since 2010. Rental growth was recorded across the market against a

tight vacancy environment.

• Investors remained upbeat on the office market as PRC corporates snapped

up two Grade A office buildings in 4Q15 for a combined total of

HKD 18.35 billion. Investment appetite for office properties in Central remained

strong, with the submarket’s share of deal volumes accounting for slightly less

than half of all transactions (excluding en bloc transactions).

OUTLOOK: STILL ROOM FOR GROWTH IN 2016• Leasing activity is expected to moderate in 2016, with modest economic

growth forecasted for the city. PRC demand is likely to again be a key driver

behind growth on the back of strong policy support from China, including

launch of the Shenzhen-Hong Kong Stock Connect. Central rents are

forecasted to edge higher against a tight vacancy environment.

• Positive investment appetite for office properties should be sustained into

2016 as rents steadily rise, supporting prices across the market. PRC

corporates and insurers seeking long-term investments are likely to remain on

the lookout for office assets.

HKD 102.4

SQ FT PER MONTH,

NET EFFECTIVE ON NLA

13.3%

RENTAL

GROWTH Y-O-Y

GrowthSlowing

STAGE IN CYCLE

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

Rental Value Index Capital Value Index

I n d

e x

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

80

120

115

110

85

105

100

95

90

Take-Up (net) Completions

Future Supply Vacancy Rate

–50

11 12 13 14 15

–1

2

4

5

1

3

6

0

300

T h o u s a n d s q m

P e r c e n t

16F

0

50

100

150

200

250


15/76

BEIJING“Due to strong demand and tight vacancy,

chain-linked rents grow 3.7% in 2015, in line withour projections.”

Steven McCord, Head of Research, North China

Physical Indicators

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


Physical Indicators

Financial Indices

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

ROBUST DOMESTIC DEMAND BOLSTERS TAKE-UP

• Net take-up was 77,200 sqm in 4Q15, the highest 4Q figure since 2010, pushing

the total 2015 figure to over 180,000 sqm, up 13.8% y-o-y. Wangjing,

Zhongguancun and Finance Street were the biggest contributors as buildings

completed earlier in the year filled up. Limited large space in high-occupancy

submarkets continued to restrict absorption.

• Domestic IT and finance industries dominated the leasing market. Net take-up

from IT firms shot up in Wangjing, which has benefited greatly from the same

kind of policy support enjoyed by Zhongguancun.

VACANCY DROPS TO 2.7% DUE TO LEASING PROGRESS AT NEW BUILDINGS

• There were no new project openings in the second half of 2015. Two Finance

Street projects scheduled for completion in 4Q15 were delayed to 2016. No

new supply helped keep vacancy rates low.

• All three projects completed in 1H15 have leased well, reaching a minimum of

70% commitment by 4Q15. For example, Dreamsfount 35th in Finance Street

achieved more than 90% commitment at the end of the quarter due to strong

demand from domestic finance companies as well as developer-related

parties.

RENTS INCREASE SLIGHTLY BY 0.7% Q-O-Q

• Landlords in mature submarkets like the CBD were increasingly cautious

about peer-to-peer (P2P) lending firms after the failure of a large P2P player

freed up thousands of sqm in the market. However, the Grade A market has

limited exposure to this sector. Wangjing led with the fastest rental growth

among submarkets as projects completed earlier in the year steadily filled up.

• The investment market was quiet in 4Q15 with no en bloc transaction

recorded. However, several foreign institutional investors continued to seek

opportunities in Beijing. An on-going mismatch between buyer and seller

price expectations was a major impediment to acquisition activity.

OUTLOOK: NEW SUPPLY IS EXPECTED TO CAUSE OVERALL VACANCY TO CLIMB

• Net take-up is expected to triple as a new wave of Grade A office supplycomes online. Though half of the space is set aside for self-use, it is still

recorded as absorption. Vacancy is projected to rise as the market takes time

to absorb the incoming supply. Given steady demand and the limited space at

existing projects, rents are likely to continue a modest ascent.

• Beijing is likely to remain a popular target for investors. However, good

opportunities are still rare due to different expectations on pricing and lack of

tradable stock. Off-market sales opportunities in emerging areas such as

Tongzhou are possible and may be facilitated by favourable government

policies.

GrowthSlowing

RMB 386

STAGE IN CYCLESQM PER MONTH,

NET EFFECTIVE ON GFA

3.7%

RENTAL

GROWTH Y-O-Y


I n d

e x

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

80

140

90

130

120

110

100



0

200

400

11 12 13 14 15 16F

0

3

5

7

1

10

100

300

1,000

600

700

800

900

500

4

6

8

2

9


P e r c e n t


16/76

SHANGHAI“Office investment market active as rents

rise strongly.”

Daniel Yao, Director - Research, Shanghai

1 6 –

O F F I C E

Source: JLLFor 2011 to 2015, take-up, completions andvacancy rates are year-end annual. Future supplyis for 2016.Physical Indicators are for the CBD.

Physical Indicators

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

OVERALL NET ABSORPTION HITS RECORD HIGH IN 2015

• Domestic as well as multinational companies in technology, retail and

professional services sectors actively sought office expansion opportunities

in both Pudong and Puxi CBDs. For example, Ping An Financial Leasing

expanded by 5,000 sqm in HSBC Building.

• Overall net absorption in 2015 reached approximately 1.45 million sqm, almost

doubling from the amount in 2014, setting a historical high.

NEW SUPPLY IN ZHUYUAN TAPS PENT-UP DEMAND IN PUDONG

• In the Pudong CBD, Century Metropolis (132,003 sqm) in Zhuyuan reached

completion and by the end of the quarter achieved good leasing progress. No

new supply was delivered in the Puxi CBD.

• In the decentralised market, four Grade A projects with a total GFA of 171,340

sqm were completed, including SCG Parkside (39,000 sqm), Century 333

(39,000 sqm), Lilacs International Commercial Center (52,782 sqm) in Pudong,

as well as International Shipping Centre B02 & B05 (40,566 sqm) in Puxi.

INVESTMENT VOLUMES HIT RECORD HIGH IN 2015

• Strong leasing momentum continued to boost rental growth in both the

Pudong and Puxi CBDs. Pudong Grade A rents increased by 2.9% q-o-q to

RMB 11.1 per sqm per day, while Puxi Grade A rents rose by 2.5% q-o-q to

RMB 9.7 per sqm per day.

• Both domestic and foreign investors held a positive outlook on rental growth

prospects, and thus remained active in the en bloc investment market.

Notable investment deals closed in the quarter included 3 Corporate Avenue

(RMB 5.7 Billion), BEA Finance Tower (RMB 2.8 Billion) and One Prime

(RMB 2.0 Billion).

OUTLOOK: STRONG DEMAND TO DRIVE STEADY RENTAL GROWTH IN 2016

• In 2016, demand from domestic enterprises is expected to take a larger share

of take-up in the CBD market. Meanwhile, although some MNC manufacturers

should continue to look for decentralisation opportunities, MNC retailers and

professional services firms are expected to expand their business and seekoffice upgrade and expansion in the CBD.

• New supply in 2016 is expected to more than double that of 2015. While the

large volume of new supply will put some pressure on rental growth, we

expect CBD rents to grow at a steady pace as leasing momentum remains

strong.

Financial Indices

9.3%

RENTAL

GROWTH Y-O-Y

RMB 10.3

SQM PER DAY,


RentsRising

STAGE IN CYCLE



I n d

e x

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

80

130

90

120

110

100



0

11 12 13 14 15

0

6

10

4

8

12

2

900

150

300

450

600

750


P e r c e n t

16F


17/76

GUANGZHOU“Domestic I companies preparing to occupy

Grade A office space.”

Silvia Zeng, Head of Research, South China


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

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

DEMAND STRENGTHENS AS DOMESTIC TENANTS SEEK HIGH-QUALITY SPACE

• Domestic finance and professional services companies led the charge in the

quarter, with many paying above-market rents to secure spaces in premium

buildings. The largest deal of the quarter involved a domestic IT company

leasing over 25,000 sqm of Grade A space.

• While new supply afforded options to those companies seeking large space, a

number opted for pre-leasing in future projects, leveraging incentives on offer

from landlords in order to maximise their value for money; the 5 largest leases

by GFA in 4Q15 were in future projects.

SIGNIFICANT NEW COMPLETIONS AND WITH GOOD PRE-COMMITMENT

• Four new projects were completed in the quarter, bringing a total of 330,000

sqm of new supply to the market, and increasing total stock to 4,300,000 sqm.

• A combination of increased demand and the completion of buildings with

good pre-commitments pushed net absorption to almost 225,000 sqm in 4Q15,

the highest level in a quarter on record. Guangzhou’s overall vacancy rate

increased 2 percentage points q-o-q to 9.2%, a relatively low increase given

the quantity of new supply which entered the market.

RENTS TREND UP AMID TIGHTENING VACANCY IN MOST MATURE BUILDINGS

• Demand for the limited amount of available space in Zhujiang New Town and

Tianhe North’s premium and lower-tier projects allowed landlords of those

buildings to slightly increase their asking rents, driving overall rents up 1.6%

q-o-q to RMB 163 per sqm per month.

• Office investment activity was muted somewhat in both the strata-titled and

en bloc markets as a lack of options and high asking prices weighed on

investor sentiment. Buyers were forced to expand their search outside of core

submarkets. Capital values recorded modest growth of 1.1% q-o-q.

OUTLOOK: NEW SUPPLY TO RESTRICT RENT GROWTH AND INCREASE VACANCY

• Significant new supply in core submarkets and subsequent vacancy

pressures are likely to result in vacancy rates climbing higher. However,

several of these new projects continue to be the subject of good pre-commitment, and will contribute to net absorption in the region of 550,000–

600,000 sqm in the next 12 months.

• Overall rents are predicted to remain relatively unchanged over the next

12 months due to favourable rental terms from future projects in order to

encourage tenants to pre-commit, and the increasing tenant outflow from

aging properties.

6.1% RMB 172

STAGE IN CYCLESQM PER MONTH,

NET ON GFA

RENTAL

GROWTH Y-O-Y

RentsStable

Financial Indices

Physical Indicators


I n d

e x

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

90

120

105

95

100

115

110



0

100

300

11 12 13 14 15

0

2

6

4

18

12

10

8

200

900

600

14700

16800

400

500


P e r c e n t

16F


18/76

TAIPEI“Corporates cautious amid economic slowdown.”

Jamie Chang, Head of Research, Taiwan

1 8 –

O F F I C E


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

Physical Indicators

Financial Indices

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

DEMAND SLOWS; ACTIVITY MOSTLY RELATED TO SMALL UNITS

• Demand moderated in 4Q15 with high asking rents at recently completed

buildings and lacklustre economic prospects impacting occupier sentiment.

• Annual net take-up reached 25,600 ping in 2015 and with limited contribution

from large owner occupancies. New supply continued to attract tenants, with

about 60% of annual net absorption concentrated in the Xinyi district. The

largest occupier segments were financial services, high-tech/IT and retail

industries.

VACANCY EDGES UP AS OWNERS RELEASE SELF-USE SPACE

• A new building that was expected to enter the market in 4Q15 was postponed

due to some outstanding finishing works and the owner investigating financial

irregularities. Several owners of buildings with high occupancy released self-

use space and this pushed vacancy up slightly by 0.1 percentage point q-o-q

to 10.6%.

• New supply in 2015 totalled 45,000 ping. However, strong pre-leasing and

consolidation activity limited the rise in overall vacancy.

LANDLORDS CAUTIOUS ABOUT RAISING RENTS AS SENTIMENT SUBDUED

• Overall rentals averaged NTD 2,587 per ping per month in 4Q15, an increase of

0.2% q-o-q or 0.8% y-o-y. Landlords have exercised caution in raising rents

amid growing competition from new supply, in particular in the city fringe, and

cost conscious tenants.

• Investment volumes for all real estate asset classes reached NTD 68.2 billion

in 4Q15 and pushed the annual total to NTD 99.3 billion. Full-year 2015 volumes

were the highest level since the government implemented investment controls

on insurers in 2012. However, yields remained flat at 3.3%.

OUTLOOK: MODERATE LEVELS OF DEMAND AND RENTAL GROWTH EXPECTED

• Given weak economic conditions and business sentiment, most tenants are

expected to seek renewals at their existing premises rather than looking for

space in new buildings, which typically have higher asking rents.

• An economic slowdown, tax reforms and presidential election are likely to

keep investors on the side-lines in 1H16 and with some investors continuing to

pursue offshore investment opportunities.

NTD 3,043

PING PER MONTH,

NET ON GFA

1.3%

RENTAL

GROWTH Y-O-Y

STAGE IN CYCLE

GrowthSlowing


I n d

e x

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

80

150

140

90

130

120

110

100



0

11 12 13 14 15

0

2

4

6

8

10

12

14

16160


P e r c e n t

16F

20

40

60

80

100

120

140


19/76

TOKYO“Quarterly rental growth in 4Q15 accelerates to its

highest level o the year.”

Takeshi Akagi, Head of Research, Japan

Physical Indicators

Source: JLLFor 2011 to 2015, take-up, completions andvacancy rates are year-end annual. Future supplyis for 2016.

Physical Indicators

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

Financial Indices

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

BROAD-BASED DEMAND FOR OFFICE SPACE

• Labour market conditions continued to improve in 4Q15, with the

unemployment rate declining to 3.1% in October and the job offer to applicant

ratio rising to 1.25 in November, levels last reached in 1995 and 1992,

respectively.

• Expansion demand continued to come from sectors including information

and communication (IC), manufacturing, and real estate and goods leasing

services. This, combined with healthy commitments to new supply, pushed up

net absorption to 165,000 sqm in 4Q15. For the full year of 2015, net absorption

totalled 341,000 sqm, exceeding the past 10-year annual average by 22%.

VACANCY FALLS TO 2% FOR THE FIRST TIME IN ALMOST EIGHT YEARS

• In 4Q15, market stock increased by 1.0% q-o-q as the Shin-Tekko Building

(51,000 sqm, NLA) and Otemon Tower JX Building (19,000 sqm, NLA) reached

completion. For the full year, stock increased by 4.0%.

• The vacancy rate stood at 2.0% at end-4Q15, falling 130 bps q-o-q and 100 bps

y-o-y. The decline reflected strong expansion demand. Most submarkets

registered decreases, with Akasaka/Roppongi and Shibuya having extremely

limited amounts of vacant space.

RENT GROWTH AND CAP RATE COMPRESSION SPURS RISE IN CAPITAL VALUES

• Rents averaged JPY 35,399 per tsubo per month at end-4Q15, an increase of

2.1% q-o-q and 6.0% y-o-y. Growth accelerated compared with the previous

quarter and marked the largest quarterly increase in 2015. Shinjuku

outperformed other CBD submarkets.

• Capital values increased 6.2% q-o-q and 18.4% y-o-y in 4Q15, with growth

accelerating from the previous quarter. Cap rates declined to the lowest level

in our records. A notable sales transaction in the quarter was Activia

Properties’ acquisition of Shiodome Building (10% stake) for JPY 20.4 billion or

an NOI cap rate of 3.9%.

OUTLOOK: RENTAL GROWTH TO OUTPACE CAPITAL VALUE GROWTH IN 2016

• According to Oxford Economics, real GDP is expected to grow modestly at1.1% in 2016 with exports and fixed investment to rise. However, there are

downside risks related to weak demand from key regional trading partners

and the pace of recovery in the EU and US.

• In 2016, the vacancy rate is likely to y rise but remain below 4% as solid

demand should absorb much of the new supply, which will be equivalent to

170% of the past ten-year annual average. Reflecting this, rents should grow

mostly in line with 2015 and outpace capital value growth.

6.0% JPY 35,399GrowthSlowing

STAGE IN CYCLETSUBO PER MONTH,

GROSS ON NLA

RENTAL

GROWTH Y-O-Y


I n d

e x

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

90

160

150

120

130

140

110

100



0

200

500

0

2

4

5

1

3

6

400

100

300

600


P e r c e n t

11 12 13 14 15 16F


20/76

OSAKA“Rental growth accelerates as a low vacancy

environment improves landlords’ confidence toraise rents.”

Takeshi Akagi, Head of Research, Japan

2 0 –

O F F I C E

Physical Indicators


Financial Indices


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

HEALTHY CORPORATE SENTIMENT UNDERPINS DEMAND

• According to December’s Greater Osaka Tankan survey, business conditions

for manufacturers and non-manufacturers remained healthy. The labour

environment continued to improve in October with the job offer to applicant

ratio rising to 1.15 and the unemployment rate falling to 3.6%; the number of

employed persons was higher (2.6% y-o-y) than the previous year.

• Despite occupier demand from sectors such as finance and insurance, net

absorption moved into negative territory due to some consolidation activity

and a large relocation of a company to its new headquarters building. For the

full year of 2015, net absorption registered 93,000 sqm, the second largest

amount on record.

VACANCY EDGES UP BUT REMAINS NEAR A MULTI-YEAR LOW

• No new supply entered the market in 4Q15. For the full year, only one 56,000

sqm-building (NLA) entered the market and it increased stock by 3.4%.

• Vacancy rose 10 bps q-o-q (250 bps y-o-y) to 5.6% at end-4Q15. This was the

first increase in six quarters and due to consolidation/relocation activity. By

submarket, Nakanoshima saw a major increase, while Umeda and Midosuji

decreased.

CAPITAL VALUES RISE AS CAP RATES COMPRESS AND RENT GROWTH PICKS UP

• Rents at end-4Q15 averaged JPY 16,362 per tsubo per month, increasing 1.5%

q-o-q and 4.4% y-o-y. Rental growth continued to pick up and the strongest

growth was registered in the Umeda submarket.

• Capital values increased 5.6% q-o-q and 29.2% y-o-y in 4Q15, with cap rates

compressing to levels last seen in 2007.

OUTLOOK: RENTS AND CAPITAL VALUES TO TREND HIGHER IN 2016

• According to Oxford Economics, real GDP in Greater Osaka is expected to

grow moderately in 2016 (0.9%). However, weaker regional demand, in

particular from China, poses a downside risk to exports.

• In 2016, the vacancy rate is expected to decrease further, reflecting steadydemand and no new supply. This environment should support rent growth,

albeit at a slightly slower pace than 2015. Capital values are also expected to

grow, largely reflecting rent growth and further cap rate compression.

RentsRising

STAGE IN CYCLE

JPY 16,362

TSUBO PER MONTH,

GROSS ON NLA

4.4%

RENTAL

GROWTH Y-O-Y


I n d

e x

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

80

150

140

110

120

130

100

90



11 12 13 14 15

0

4

8

10

2

6

12


P e r c e n t

16F

0

60

150

120

30

90

180


21/76

SEOUL“Vacancy rises as two divisions o Samsung

depart Gangnam.”

Yongmin Lee, Head of Research, Korea

Physical Indicators



Physical Indicators

Financial Indices

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

MODEST PICK-UP IN LEASING ACTIVITY

• In 4Q15, net absorption was strongest in Yeouido where logistics company

Pantos (3,200 pyung) and Hyundai Capital (750 pyung) both entered FKI Tower,

and IFC benefited from the arrival of ten new tenants which occupied a total

of 2,600 pyung.

• Business expansion activity was a strong theme during the quarter. CJ Korea

Express relocated to Pacific Tower and doubled their occupied area to 1,400

pyung, ING relocated and expanded to 700 pyung at SFC, Hana Bank took up

an additional 750 pyung at Seoul Square and in Gangnam, Descente leased

another 550 pyung at Capital Tower.

SAMSUNG ELECTRONICS UMYEONDONG R&D CENTER COMPLETES

• The CBD and Yeouido benefited from positive absorption of 4,400 pyung and

6,500 pyung, respectively. CBD vacancy declined 50 bps to 12.5% while

Yeouido declined 160 bps to 12.6%. For the first time since 3Q12 – when IFC

completed - the vacancy rates in these two districts are at similar levels.

• The departure of the design and software divisions of Samsung Electronics

(total 13,000 pyung) from Samsung Seocho Town and Prudential Tower in

Gangnam saw absorption in that district decline by 12,600 pyung and this

pushed the overall vacancy rate up 10 bps q-o-q to 11.0%.

SALES VOLUME DECLINES AS SEVERAL TRANSACTIONS FAIL TO CLOSE

• Fluctuations in rents during the quarter resulted from adjustments to

incentives. Yeouido rents were negatively impacted by the increased

incentives at FKI Tower, Gangnam rents rose on stable occupancy at large

buildings in the district and CBD rents increased due to incentives being

trimmed back at buildings with higher than market occupancy.

• A widening gap between purchaser and vendor pricing expectations resulted

in a number of deals failing to close in 4Q15. Successful deal activity was led

by Hana Daetoo Securities Building (GFA 21,123 pyung) which traded from

Hana AMC to Koramco for KRW 400 billion, reflecting a record capital value

rate for the district at KRW 19 million per pyung.

OUTLOOK: PACE OF CAPITAL VALUE GROWTH LIKELY TO SLOW

• Office net absorption is forecast to recover modestly; however, the

completion of Parnasse Tower (GFA 44,460 pyung) in Gangnam scheduled for

3Q16 and Myeongdong District 4 (GFA 16,011 pyung) in the CBD by 4Q16 may

push up the overall vacancy rate.

• The yield outlook is clouded by uncertainty over future interest rate

movements and as a result, we do not anticipate a significant change in yield

levels. Liquidity is forecast to remain strong with investors likely to maintain

their focus on low-risk, core properties.

RentsStable

STAGE IN CYCLE

KRW 95,624

PYUNG PER MONTH,


–1.0%

RENTAL

GROWTH Y-O-Y


I n d

e x

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

90

140

130

120

110

100



0

11 12 13 14 15

0

18600

100

200

300

400

500


P e r c e n t

16F

3

6

9

12

15


22/76

SINGAPORE

“Confluence o weak global demand andimpending large supply shifs market in

tenants’ avour.”

Dr Chua Yang Liang, Head of Research, Singapore andSoutheast Asia

2 2 –

O F F I C E

Source: JLLFor 2011 to 2015, take-up, completions andvacancy rates are year-end annual. Future supplyis for 2016.Physical Indicators are for the CBD.


RentsFalling

STAGE IN CYCLE

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

SMALLER OFFICE UNITS BECOME MORE ATTRACTIVE TO TENANTS

• The contraction in occupied space in the CBD persisted in 4Q15 but at a

slower pace than 3Q. Demand continued to be impacted by a combination of

weak business sentiment, lacklustre economic growth and seasonal factors.

• Buildings that offered smaller leasable units and lower rents continued to

attract interest from potential tenants. Landlords also offered more indirect

incentives such as longer fit-out periods in a bid to attract new tenants.

NO NEW COMPLETIONS BUT A LARGE SUPPLY PIPELINE LOOMING

• There were no new buildings completed in 4Q15 but 2.78 million sq ft of space

is scheduled to be delivered to the market in 2016. Marina One and Guoco

Tower are expected to come on stream in 2H16 while 5 Shenton Way (285,000

sq ft), which was originally expected to complete in 2016, will be delayed until

1H17.

• Vacancy is set to increase gradually in the next few quarters as new supply

enters the market. Furthermore, economic headwinds are likely to see

occupiers (in particular from the financial sector) gradually surrender more

space.

RENTS DECLINE FOR THE THIRD CONSECUTIVE QUARTER

• In 4Q15, overall CBD rents declined 1.3% q-o-q to SGD 9.47 per sq ft per

month, a slightly slower pace of decline than the previous quarter. The tenant

favourable leasing market is especially attractive for existing occupiers with

one to two years left on their current leases, as options should be abundant

due to the large volume of supply due to come on-stream.

• Overall CBD capital values declined by 3.1% q-o-q, extending the decline

from the previous quarter. Rising interest rates and declining rents put further

pressure on capital values. However, this was partially offset by the strong

weight of capital looking for assets.

OUTLOOK: RENTAL DISCOUNTS LIKELY TO REMAIN PREVALENT

• In the short term, rental discounts are likely to remain prevalent and may

increase as the market seeks a new equilibrium between the impending 2016supply and lacklustre demand.

• Capital values are likely to decline further but at a slower pace than the rental

decline, with support from a deep capital market. Market yields are expected

to compress marginally; however, there is a risk of yield expansion should the

cost of borrowing rise unexpectedly.

SGD 9.47

SQ FT PER MONTH,

GROSS EFFECTIVE ON NLA

–9.4%

RENTAL

GROWTH Y-O-Y

Physical Indicators

Financial Indices


I n d

e x

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

80

130

90

120

110

100



0

100

11 12 13 14 15

0

4

8

2

6

12

200

50

150

300

10250


P e r c e n t

16F


23/76

BANGKOK“Recent deals in newly completed and upcomingGrade A projects should drive net absorption or

the next several quarters.”

Andrew Gulbrandson, Head of Research, Thailand

Physical Indicators


Physical Indicators


Financial Indices

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

DEMAND REBOUNDS AS TENANTS CONTINUE TO MOVE INTO NEW BUILDINGS

• Net absorption in 4Q15 totalled 12,800 sqm, a sharp turnaround from the

negative figure posted in 3Q15 as a number of new tenants moved into the

recently completed (1Q15) Bhiraj Tower @ EmQuartier.

• A large number of relocation deals were inked in 4Q15 that will see significant

tenant movements from Grade B buildings into new or upcoming Grade A

projects including Bhiraj Tower @ EmQuartier, AIA Sathorn and FYI Center

(1Q16).

METROPOLIS REACHES COMPLETION

• Grade A office stock in the CBA increased to 1,838,000 sqm upon completion

of Metropolis (13,425 sqm) in the Central East submarket.

• FYI Center (48,095 sqm), a mixed-use project comprising the 239-room

Modena by Fraser Hospitality and Magnolia Ratchadamri Boulevard (6,000

sqm), an owner-occupied office building, are scheduled to complete in 1Q16.

RENTS AND CAPITAL VALUES RISE, WHILE YIELDS COMPRESS MARGINALLY

• Gross rents rose 2.4% q-o-q to THB 802 per sqm per month, due mainly to the

sharp increase in rents in some well-performing buildings.

• Capital values rose 4.1% q-o-q to THB 110,883 per sqm and as a result, market

yields declined marginally to 6.7% in 4Q15.

OUTLOOK: STRONGER DEMAND EXPECTED IN 2016

• Annual net absorption is forecast to reach 60,000 sqm in 2016 as upcoming

projects have promising pre-commitment rates. However, vacancy rates are

expected to increase in the short term as new buildings complete but decline

gradually as tenants start moving in to both recently completed and upcoming

projects.

• Given the limited supply in prime areas, rents are likely to increase in 2016.

However, a large supply of Grade A space outside the CBA is scheduled to

complete in 2016 and rental growth in the CBA could slow due to the

increased competition.

5.2% THB 802

STAGE IN CYCLE

GrowthSlowing

SQM PER MONTH,

GROSS ON NLA

RENTAL

GROWTH Y-O-Y


I n d

e x

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

0

180

160

20

100

120

140

80

60

40



0

30

90

11 12 13 14 15

0

3

9

6

18

15

12

60

180

120

150


P e r c e n t

16F


24/76

JAKARTA“Tin demand, rising vacancy and a challenging

macro environment put downward pressureon rents”

James Taylor, Head of Research, Indonesia

2 4 –

O F F I C E

RentsFalling

STAGE IN CYCLE

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

OIL & GAS SECTOR CONTINUES TO STRUGGLE; E-COMMERCE EXPANDING

• Relatively sluggish economic growth, low commodity prices and rupiah

depreciation all impacted demand in 2015. A number of smaller oil & gas and

mining firms either downsized or closed down while the performance of other

sectors was mixed. Law firms remained active in 4Q15 and two international

banks look set to enter Jakarta in the coming months.

• E-commerce remains relatively underdeveloped in Jakarta due to challenges

relating to, amongst other things, payment methods and infrastructure.

However, recent quarters have seen some activity from international

e-commerce players and we expect this sector to continue to grow.

MENARA BTPN THE THIRD NEW COMPLETION IN AS MANY QUARTERS

• Menara BTPN (53,500 sqm), located in the Mega Kuningan area, was

completed in 4Q15. This project, developed by PT Bahanasemesta

Citranusantara, has already attracted BTPN bank and is the third new

completion in successive quarters.

• Vacancy rates broke into double digits in 2Q15 on the back of the completion

of Sahid Sudirman Centre and two more completions in the two subsequent

quarters pushed vacancy rates higher. A packed supply schedule is likely to

put further vacancy pressure on landlords.

RENTS FALL FOR THE SECOND QUARTER IN SUCCESSION

• In the face of relatively weak demand, new supply and rising vacancy rates,

many landlords remained focussed on maintaining or improving on current

occupancy levels in 4Q15. As such, some were willing to offer concessions

and rents decreased in IDR terms for the second consecutive quarter (–1.9%

q-o-q).

• A lack of investment market supply is such that en bloc transactions are rare

in Jakarta. Nevertheless, 4Q15 saw sustained interest from investors and the

most likely entry point for international players remained joint ventures with

local partners and development projects.

OUTLOOK: NEW SUPPLY TO PUSH VACANCY UP; RENTS TOFALL FURTHER• With commodity prices widely expected to remain low, demand from the

oil & gas and mining sectors is likely to remain subdued. Nevertheless, we

expect overall demand to pick up in 2016 on the back of macro-economic

improvements; e-commerce firms are likely to continue to grow while the

performance of other sectors is likely to be mixed.

• A pick-up in GDP growth and currency stabilisation would go a long way

towards boosting sentiment in Jakarta. However, the supply situation is such

that some landlords are likely to face vacancy pressure and we expect many

to continue to be flexible on rents in order boost occupancy.

3.1% IDR 4,286,141

SQM PER ANNUM,


RENTAL

GROWTH Y-O-Y



Physical Indicators

Financial Indices


I n d

e x

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

0

300

50

250

200

150

100



0

50

150

11 12 13 14 15

0

3

9

6

18

15

12

100

300

200

250


P e r c e n t

16F


25/76

KUALA LUMPUR“Continued political and economic uncertainty

dampens office leasing activity.”

Dr Chua Yang Liang, Head of Research, Southeast Asia

Physical IndicatorsPhysical Indicators

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

Financial Indices

Note: Kuala Lumpur Office refers to Kuala Lumpur’s Grade A office market consisting of the Kuala LumpurCity Centre and Decentralised submarkets.

CONTINUED DOWNWARD TREND IN OIL PRICES IMPACTS DEMAND

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

difficult economic environment in part caused by low commodity prices and a

weakened Malaysian ringgit. Oil and gas companies and large financial

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

• Services firms continued to show preference for the Decentralised submarket

as it offers good infrastructure and access to public transport. The newly

completed Damansara City Tower 2 had a good pre-commitment rate of close

to 70% upon completion.

TWO NEW BUILDINGS COMPLETE IN THE DECENTRALISED SUBMARKET

• Damansara City Towers 1 and 2 entered the market in 4Q15, adding 74,044 sqm

to stock.

• New supply in Kuala Lumpur City Centre is expected to remain at modest

levels through 2018. However, there are concerns over the large incoming

supply beginning in 2019 from major government-led projects such as KL 118,

Tun Razak Exchange and Bukit Bintang Commercial Centre.

RENTS DECLINE ON THE BACK OF A SUBDUED LEASING MARKET

• Rents continued to move downward as some landlords competed for tenants

in a bid to maintain occupancy. Select landlords of older buildings within the

CBD submarket offered rental incentives including longer rent-free periods.

• Investment yields held generally stable as rents and capital values moved

relatively in tandem.

OUTLOOK: MARKET CONDITIONS TO REMAIN TENANT FAVOURABLE IN 2016

• Landlords are expected to offer more incentives and/or reduce rents further

to improve occupancy. The leasing market should continue to favour tenants

with vacancy rates rising. The Decentralised submarket is expected to fare

better than the City Centre due to its quality infrastructure and relatively

congestion-free roads.

• Yields should remain flat amid a quiet investment market and generally stableinterest rate environment.

–0.9% MYR 6.24Rents

Falling

STAGE IN CYCLESQ FT PER MONTH,

GROSS ON NLA

RENTAL

GROWTH Y-O-Y

Source: JLLFor 2011 to 2015, take-up, completions andvacancy rates are year-end annual. Future supplyis for 2016.Physical Indicators are for Kuala Lumpur CityCentre.


I n d

e x

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

80

130

90

120

110

100



0

70

280

11 12 13 14 15

0

4

12

16

8

20

210

140

350


P e r c e n t

16F


26/76

MANILA“Strong pre-commitments to new completions

keeps net absorption relatively high and vacancyrates low.”

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

2 6 –

O F F I C E



GrowthSlowing

STAGE IN CYCLE

Physical Indicators

Financial Indices

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

EXPANDING O&O INDUSTRY CONTRIBUTES TO DEMAND GROWTH

• Net absorption in Makati CBD and Bonifacio Global City (BGC) remained high

at 67,700 sqm in 4Q15, albeit lower than the previous quarter’s 114,400 sqm, on

the back of an increase in occupancy at established buildings and high pre-

commitment levels in recently completed developments.

• Notable leases in 4Q15 included a consultancy firm taking up 5,600 sqm and

an IT solutions firm taking up 700 sqm of space in Tower 6789 in Makati CBD;

a transport services firm taking up 2,100 sqm in Wilcon IT Hub in Makati CBD

and an online retailer taking up 300 sqm in Panorama Tower in BGC.

VACANCY FALLS DUE TO STRONG PRE-COMMITMENTS IN NEW COMPLETIONS

• Three office developments, Uptown Place Tower 1, BGC Corporate Center and

AO United Life Building completed in 4Q15, adding 69,400 sqm of space. Two

office developments scheduled to complete during the quarter faced

construction delays.

• The vacancy rate dipped slightly to 4.6% in 4Q15 from 4.7% in 3Q15 on the

back of high pre-commitment to developments completed in 4Q15, as well an

improvement in occupancy at established buildings.

MODERATE RISE IN RENTAL AND CAPITAL VALUE GROWTH

• Rents inched up by 0.9% q-o-q to PHP 903 per sqm per month in 4Q15. This

was due to the continuous expansion of O&O firms contributing to healthy

occupancy levels, while capital values grew modestly by 0.7% q-o-q to

PHP 117,360 per sqm.

• The investment market remained quiet amid uncertainty regarding an

anticipated US Federal Reserve interest rate hike and its potential impact on

emerging economies. However, investor interest remained firm.

OUTLOOK: LARGE INCOMING SUPPLY LIKELY TO CAUSE VACANCY TO RISE

• A total of 278,000 sqm of office space is scheduled to complete in the first two

quarters of 2016 from eight office developments. The large incoming supply is

likely to push vacancy rates upwards.

• Growth in demand for office space is expected to continue, significantly

driven by the O&O industry, as shared services operations continue to expand

in the country. This should support an upward trajectory in rents for the next

few quarters, albeit moderate growth.

2.9% PHP 903

SQM PER MONTH,


RENTAL

GROWTH Y-O-Y


I n d

e x

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

90

150

140

100

130

120

110



0

150

450

11 12 13 14 15

0

2

6

4

8

300

600


P e r c e n t

16F


27/76

HO CHI MINH CITY“Rents rise slightly amid declining vacancy and a

strong perormance at a recentlycompleted building.”

Tram Nguyen, Manager - Research, Vietnam

Physical Indicators


Physical Indicators

Financial Indices

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

BANKING AND INSURANCE SECTORS LEAD OFFICE DEMAND

• Notable leasing deals in 4Q15 included PVI Sunlife Insurance, Idemitsu and

Bank Pay taking up space totalling 3,000 sqm at Vietcombank Tower. Two

notable lease renewals recorded in the quarter were GSK (2,500 sqm) at The

Metropolitan Tower and Boehringer (1,000 sqm) at Kumho Asiana Plaza.

• The oil and gas sector was relative inactive in the quarter. In 4Q15, Cuu Long

Oil and Gas JSC relocated from Diamond Plaza to a suburban submarket. This

move resulted in the building’s occupancy rate dropping below 90% for the

first time in ten years.

VACANCY DECLINES DUE TO NO NEW COMPLETIONS AND IMPROVING DEMAND

• With no new completions in 4Q15, total Grade A office stock remained

unchanged at 192,000 sqm. Positive take-up in the quarter and no new supply

pushed the vacancy rate down by 1.3 percentage points q-o-q to 9.3%.

• Construc

Documents

JLL Asia Pacific Property Digest 4q 2015