Asia Pacific Outlook 2016 - Cushman & Wakefieldcushmanwakefield.com/.../global-reports/Asia_Pacific_Outlook_2016.pdf · Beijing and Shanghai: ... and investment trends across the

ASIA PACIFIC OUTLOOK 2016 Sustained Optimism

ASIA PACIFIC: SUSTAINED OPTIMISM

Hong Kong, Chinacushmanwakefield.com | 1

Contents

Key Stories to Watch in 2016 .............................................................................................................. 2

Executive Summary ................................................................................................................................4

The Sun Always Rises in the East .....................................................................................................6

Strong Office Demand but with Rampant New Supply in Most Markets .....................8

Agile Working Environment Gains Momentum .........................................................................9

Broadening Investment Horizons ................................................................................................... 10

Tokyo: Still Going Strong .....................................................................................................................12

Seoul: Slow Recovery ............................................................................................................................13

Beijing and Shanghai: Shifting Drivers, Continued Strength ............................................ 14

Hong Kong: Holding Steady ............................................................................................................. 16

Singapore: Mind the Gap, but Keep the Faith ...........................................................................18

Jakarta: On the Mend ........................................................................................................................... 19

Manila: Still in the Fast Lane .............................................................................................................20

Ho Chi Minh City: Heating Up ..........................................................................................................20

India: On the Upswing ..........................................................................................................................22

Sydney and Melbourne: Treading on Firmer Ground ........................................................... 23

Annual Absorption*Absorption gains to reach eight-year highs of 85 msf

New Completions

Investment ActivityPotential upside of 3% in investments

New completions to peak at 130 msf

2009 2010 2011 2012 2013 2014 2015 2016F

*Absorption values are in million sf (msf)

2009201020112012201320142015P2016F

in U

S$

bn,

Co

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rop

erti

es o

nly

(exc

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nd, r

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Vo

lum

esASIA PACIFIC: Key Stories to Watch in 2016

129.7125.9

125.7115.8

9492.8

86.250.7

Asia Pacific Leasing Trends - 2016

Delhi-NCR

KolkataAhmedabad

Mumbai

SOUTH ASIA SOUTH EASTASIA

GREATERCHINA

AUSTRALIA & NEW ZEALAND

NORTH ASIA

Pune

BengaluruChennai

Hyderabad

Kuala Lumpur

Singapore

Jakarta

PerthAdelaide

Brisbane

SydneyAuckland

Melbourne

Ho Chi Minh City

Bangkok

Hanoi

Chengdu

Beijing

Shanghai

Seoul

Shenzhen

Hong Kong*

Tokyo

Guangzhou

Manila

Taipei

24

63 66

52 5255

7785

Tenant Favorable

Neutral

Landlord Favorable

5.4% Asia Pacific

2010 2011 2012 2013 2014 2015 2016F

5748

71

5957

99

130

Annual Rental GrowthDiminished rent growth expectations

Stable

2015-2016

2-3%

2011-2012

0-1

%

2014-2015

5-6

%

2009-2010

2016 GDP growth

1.5% Eurozone2.4%

U.S.

*Hong Kong Greater Central is landlord favorable.

Source: Real Capital Analytics, Cushman & Wakefield


cushmanwakefield.com | 54

A Cushman & Wakefield Research Publication

Shanghai, China

Executive SummaryThe property markets ended 2015 in higher gear even with below-trend economic growth in the region. Absorption gains across all 30 major markets tracked by Cushman & Wakefield have remained unabated, with the bulk of the improvement coming from core markets. China’s Tier 1 markets, along with Hong Kong and Taipei, have been at the forefront while Sydney and Melbourne increasingly showed signs of improvement. Emerging markets finished the year on a solid note with demand most significant for outsourcing hubs led by Bengaluru and Manila. The year also witnessed some landmark events that could be an antidote to this era of slow

economic growth, with notable trade pacts such as the Trans-Pacific Partnership agreement being inked among 12 nations as well as the official formation of the ASEAN Economic Community at the end of 2015.

Looking ahead, we have identified a number of occupier and investment trends across the region and assessed their likely impact on market conditions and investment performance. While the U.S. Federal Reserve has taken its first step towards policy normalization, there are factors that will continue to underpin another period of steady albeit below-trend growth. Over 2016, we expect

continued, low inflation and sustained policy accommodation which will in turn fuel the positive momentum in Asia Pacific’s property markets. The main issues to watch are China’s continuing economic transition and its impact on the region, as well as Japan’s fragile domestic conditions, and emerging markets’ efforts to reform their economies. As the region is a net oil importer, we expect continued low oil prices to significantly aid recovering growth in most countries across the region. We hope this report can offer some guidance as you set your strategic priorities for 2016.

“Looking back at 2015, the year has generallymet our expectations – economic performancethat was generally healthy, an occupiers’ marketthat showed positive leasing momentum and aninvestment market that remained red-hot. Theregion was also in the global spotlight with China’sslowing growth dampening sentiment, but webelieve China is on track to moving to a morestable and sustainable model.”

SIGRID ZIALCITAManaging Director Research, Asia Pacific

and Vietnam. Meanwhile China is pursuing the Regional Comprehensive Economic Partnership, an upgrade to the existing ASEAN-China Free Trade Agreement. Apart from ASEAN, the agreement also includes South Korea, Japan, India, Australia and New Zealand. Similar to the TPP, this agreement is concerned with opening trade and investment but will be less encompassing. Likewise, the recent formation of the ASEAN Economic Community should help increase intra-ASEAN trade once trade barriers have been eliminated.




Manila. Philippines

Global growth is projected to edge up this year, but at a slower pace than before. The World Bank lowered its estimate for global growth in 2016 to 2.9% from 3.3%, with expectations for almost all major economies being revised downward. Nonetheless, the region’s ascendancy in the global economy will continue, with regional GDP growth of 5.4-5.5% in 2016 still the highest globally, and has scope for further improvement as global demand for Asian manufactured goods strengthens. Additionally, most policymakers across the region have substantial levers, such as sufficient fiscal space and room to maneuver with monetary policy especially in light of benign inflation and low oil prices, which could be used to shore up domestic demand if growth disappoints in 2016.

Growth in Asia will pick up on the back of firmer growth in Japan and robust expansion in India. Policy developments should help reinvigorate Japan’s economy. India’s domestic demand-

driven economy will continue to outperform, outpacing China’s GDP growth. We also expect solid expansion among emerging Southeast Asian countries, with the Philippines and Vietnam having the strongest growth prospects. Meanwhile, China’s economy will continue to decelerate in 2016. China remains an economic powerhouse and its trading partners throughout the region will remain under pressure as its economy grapples with slower GDP growth and a transition towards being more services-oriented. The decreasing value of the renminbi (RMB) could also have some ramifications for competing manufacturers in Singapore, South Korea and Taiwan, by making them less competitive. While concerns about the health of China’s economy are mounting and creating ripples across global markets, reports of a hard landing seem to be overdone. A housing market revival, coupled with robust consumer spending, will drive a cyclical recovery by year’s end.

A number of important government handovers are scheduled for this year. Notably, elections can have significant implications for economic progress in some Asian economies. Taiwan’s presidential election took place on the 16th of January, with Tsai Ing-wen elected as the first female president and her Democratic Progressive Party (DPP) taking its first-ever majority in the legislature. In the Philippines, President Benigno Aquino III will hand over the reins in May. Democratic elections in Thailand are scheduled for late this year. Korea’s legislative elections are slated for April, while Japan’s upper house elections will be in the third quarter.

Over the longer term, regional export activity should benefit from ongoing trade deals. The Trans-Pacific Partnership (TPP), signed in October 2015, provides preferential market access within the 12-country trade bloc, which in Asia includes Japan, Australia, Brunei, Malaysia, Singapore

The Sun Always Rises in the East

“For 2016, prospects in the region remain the brightest globally, with several economic drivers helping to cope with China’s slowing growth. Low inflation as well as sustained policy accommodation will help support expansion. In Japan, policy developments should help reinvigorate the economy while emerging Southeast Asian growth will benefit from the several strategic trade initiatives undertaken over the last year. In India, we expect reforms implemented by Modi’s government to begin impacting economic growth.”

SIGRID ZIALCITAManaging Director

Research, Asia Pacific


8


The property markets began 2016 with optimism, especially against a backdrop of improving economic sentiment. Solid employment and wage gains, which underpin the real estate sector, are expected. The burgeoning technology sector will continue to be the growth leader as advances unfold. With the increasing penetration of mobile broadband, we also see e-commerce gaining more traction, driving much of the growth for modern logistics. Additionally, a slow expansion of the financial and insurance sector is under way, especially in emerging markets in the region. The expanding Business Process Outsourcing (BPO) sector will remain one of the top employment and broader economic growth generators for fast-growing countries in

the region. We therefore expect strong underlying occupier demand, with absorption gains in all 30 major cities tracked trending higher at 85 million square feet (msf) for all of 2016.

However, office completions will surge to a record level of nearly 130 msf this year, and conditions in the region will generally favor tenants except in Tokyo’s central five wards, Hong Kong’s Greater Central and Bangkok, where availabilities will hover at sub-5%. The completion of large-scale developments will also provide relief in supply-constrained markets including Beijing, Shanghai, Guangzhou and Shenzhen in China as well as services outsourcing magnets in the region, Manila and Bengaluru. In Singapore, the completion of prime assets totaling 3.6 msf

at the same time that demand remains muted by very low unemployment rates, will cause the vacancy rate to spike to 13-14% after a prolonged period of sub-5% vacancies. Meanwhile, in Sydney and Melbourne, the pickup in occupier demand in addition to continued temporary withdrawals for refurbishment and office-to-residential conversions will also chip away at availabilities and allow incentives to continue their slide from historically high levels. On average, a subdued outlook for rents across major markets is in store this year, especially with nearly half of the 30 markets tracked expected to show flat to declining rents.

Global multinational corporations (MNCs) across multiple industries are continuing to roll out “agile working” in their workplaces. For international firms, this is mostly driven from the headquarters, the motive usually being consistency in the portfolio and the “noble” drivers of brand, including staff effectiveness and collaboration which contribute to productivity. Additionally, there is motivation for these MNCs to contain costs, pre-empt an expensive relocation or even to cut space. Similarly in Asia, there is growing interest among regional MNCs to adopt this agile working concept. However, the impetus is less about cost and productivity, and more about “looking the part” as these companies make their working environments resemble those of

their Western competitors and help boost their appeal as they grow. The themes of innovation and disruption will persist as the mainstream conversation endeavors to work out the implications for the real estate business. The need for change management – an established concept with a number of international MNCs – inches towards greater acceptance as a necessary process, but a costly one with many firms still unclear about what benefits it confers. The acceptance of agile working arrangements will further strengthen as the younger people entering the workforce are inducted into this by their MNC employers.

Strong Office Demand but with Rampant New Supply in Most Markets

Agile Working Environment Gains Momentum

“Whether the benefits are tangible, like costs, or intangible, such as image, the agile working environment is gaining traction and will continue to shape occupier trends in the region. The theme of innovation and associated concepts of disruption will persist as the mainstream conversation strives to work out the implications for the real estate business; detractors will risk being laggards.”

MARC EMILE SHAMMA’A Head of Strategic Consulting Services

Asia Pacific

“As the region has been a hotbed of construction, conditions will provide occupiers a window of opportunity to select from a multitude of options for their space requirements. This is quite an opportune time especially with occupier demand to remain on the rise across the 30 major cities this year. We continue to expect meaningful advances in the technology, media and telecom sector, as well as for the Business Process Outsourcing sector to remain a growth catalyst.”

SANJAY VERMAChief Executive, Global Occupier Services Asia Pacific





Hong Kong China

2015 turned out to be another watershed year for real estate investment in the region. Commercial real estate volumes in the trailing 12 months through November were almost on a par with 2014’s record in the region. Cross-border investments by Asia Pacific investors globally also reached a new high-water mark. In the core markets, overall allocations to hotels and retail properties have increased while offices in emerging markets drew all-time high investments. Looking ahead, we continue to anticipate investment volume to rise another 0-3% this year, reflecting higher transactions in China and Singapore. Increasing allocations to real estate from global investors will result in continuing pressure on pricing to persist in many markets as competition for a limited pool of assets continues unabated. High levels of capitalization of Asian banks and continued search for higher yields are likely to keep ample supply of debt across all markets.

Several macro themes will be at play and will influence investment activity: monetary policy divergence; a strengthening U.S. dollar (USD); and China’s economic rebalancing. Higher allocations to real estate next year will be contingent on the direction

of bond price movements, impacting core allocations. However, with risk aversion stemming from the volatility of the region’s stock markets as well as overall inflation prospects remaining low, the fundamentals for higher allocations into the region’s core markets remain sound. In aggregate, we expect yields to fall again in 2016 in most core markets as there is scope for further movement based on relative pricing and favorable market momentum. As such, investors will also focus on identifying “yield enhancing” markets and sectors. We further anticipate that the strengthening USD will lead to more capital shifting back towards resurging markets in the region and Europe.

Investors will likely position themselves to manage the region’s continued compressing yields. While this is likely to be weighted heavily towards core markets in the year ahead, involving built-to-core, opportunistic or value-add strategies in core markets, exposure to select markets like Brisbane, New Zealand and Osaka will also increase. Growth markets with good fundamentals such as Bengaluru will also have attractive yields. We see the appeal of alternatives, such as data centers, increasing in the

region. Rapid yield compression will produce exit opportunities for investors, making it an opportune time to recycle their capital and seek growth elsewhere. This would imply that acquisition opportunities would be generated by portfolio rebalancing activities due to a changing risk-return profile in the region.

Broadening Investment Horizons

“Investment fundamentals for higher allocations into the region’s real estate, especially the core markets, remain intact. We anticipate investment volume to be sustained with the possibility of a 3% upside this year; the amount of capital deployed is largely restrained by the lack of assets available for sale. Investors will get creative and we see the overall concept of yield enhanced markets and sectors gaining momentum as investors strive to balance the low yields available in core properties in gateway cities.”

GARY HOLLIS Managing Director Head of Capital Markets,

Asia Pacific




Tokyo, Japan Seoul, South Korea

Japan will resume its modest growth this year, driven by supportive quantitative easing policies. An additional boost to the growth outlook is anticipated in relation to further progress on reform, especially on structural issues in the labor market. Plans to lower the corporate tax rate this year could boost investment; and with companies continuing to record meaningful improvement in earnings, we expect a positive spillover to the broader economy via employment. Although we may see a slight increase in vacancy rates in 2016 due to a larger supply pipeline, given that the Japanese economy is on course for a gradual recovery over the near term, we can expect healthy

broad-based occupier demand to sustain high office occupancies through 2017, further aided by the decrease in office building supply next year. Prime rents in Tokyo’s five central wards are expected to grow the fastest in the region, rising by 5-6% per annum through next year. While strong investor interest will put downward pressure on yields, the risk-free rate will remain low thanks to current monetary policy; the spread between commercial property yields and 10-year Japanese government bond yields will remain compelling. Consequently, we see a continued incentive for investors to have exposure to Tokyo’s property market.

Korea’s economy is struggling with a weak external sector due largely to slower economic growth in China, which is a key export destination for Korean goods, while domestic conditions are also challenging given rising household debt. The year 2016 should see firmer growth as the global economy performs better. Nonetheless, there are positive developments heading into 2016 that could boost growth over the long term. The Free Trade Agreement with China has been ratified. Additionally, progress has been made on mending the relationship with Japan, which is seen as the first step to strengthening ties and bolstering trade between the two countries. Against this economic backdrop, we expect tenant activity in Seoul to remain conservative in 2016. The majority of tenant movements will emanate from companies’ restructuring,

consolidating, or merging their offices, rather than expansion. A case in point is electronics giant Samsung, which has begun consolidating the offices of its affiliates in multiple locations.

Furthermore, with the completion of several large-scale office developments, such as Myeongdong District 3 and Janggyo District 4, the overall vacancy rate will continue its uptrend this year. While face rental rates are forecast to remain steady this year, owners will need to adopt a more flexible attitude towards leasing negotiations in order to attract new tenants in a competitive setting. The perpetuation of elevated vacancy rates, combined with the lack of any growth catalyst and relatively high office prices, are likely to weigh on investment activity. Competition for core stabilized

assets has already compressed cap rates. Nonetheless, Seoul will remain a magnet for foreign investment, especially with continuing attractive yield spreads. With the continued lack of investment-grade office buildings available in the market, other asset classes like retail and industrial are expected to receive increased interest from investors. At the same time, a growing number of institutional investors will seek opportunities to acquire office buildings in overseas markets as rising surpluses in savings face constraints in domestic deployment. Corporations facing financial restructuring are expected to continue to put their real estate holdings up for sale.

Tokyo: Still Going Strong Seoul: A Slow Road to Recovery

12




Shanghai, China

While the prolonged construction boom has left China mired in debt and excess capacity in some industries, there is also evidence that continued fiscal and monetary stimulus are already helping to stabilize GDP growth and support domestic demand, thereby benefitting the more domestic-facing service sector, which is critical to the office sector. The nonmanufacturing PMI, which includes industries like retail, software, real estate and construction, continues to improve, thanks to resilient income growth and the economy’s gradual transition towards becoming more services-oriented. Recent reforms, such as removing the long-standing one-child policy and liberalization of the RMB, could help turn the tide over the longer term. Given this backdrop, we expect the property market in Tier 1 cities to remain resilient, with gains expected to spread to rising Tier 2 cities.

In Shanghai, office completions will peak in 2016, totaling over 26.0 msf across the CBD and decentralized office markets. About 60% of the new supply will be located in emerging submarkets, which will intensify

competition for tenants in these areas. Due to this supply wave, the citywide availability rate will increase and soften rental growth going forward. However, core CBD markets like Lujiazui and Jing’an will remain tight due to strong occupier demand, supporting rental levels. Domestic occupiers will remain active in both the CBD and decentralized office markets, particularly financial and TMT (technology, media and telecom) companies. Significant deliveries in Beijing this year will provide relief to growing office-using sectors that have been constrained by the lack of supply and soaring costs of office space especially in CBD locations. Core sub-markets in Beijing will account for 55% of the 15 msf with expected deliveries in 2016, which may lead to CBD landlords easing their rents to attract tenants; overall market rent is likely to decline slightly. Despite these completions, prime core sub-market leasable areas will remain quite constrained with pre-leasing of projects in core locations to stay strong. Occupiers will consequently have more options in decentralized areas. The trend of tenants relocating to emerging sub-

markets such as Wangjing, Yizhuang and Fengtai is expected to pick up.

Shanghai and Beijing will remain popular among investors, given their stature as the mainland’s top business centers and historically resilient prices. Shanghai’s investment market performed well in 2015. Major deals were mostly stable cash flow-generating high-end office buildings or offices with retail properties. The buyers of these properties were primarily big investment companies. Domestic as well as foreign investors were active, which greatly helped drive the en-bloc sales total to exceed RMB 46.2 billion (USD 7.2 billion). Foreign investors, more optimistic on the outlook for Shanghai’s property market, have also begun exploring options in decentralized markets. Ongoing structural reforms in the financial sector are yielding other promising signs. Highly leveraged real estate companies have been deleveraging selectively via asset sales, a trend which we expect to continue, making these Tier 1 markets more attractive to investors.

*Values are in million square feet (msf)

**Delhi-NCR refers to New Delhi,

Gurgaon and Noida which are part of

the National Capital Region

Beijing and Shanghai: Shifting Drivers, Continued Strength

0 5 10 15 20 25 30

Supply Absorption

Ho Chi Minh CityBangkok

HanoiKolkata

Mumbai (CBD/SBD)Ahmedabad

Kuala LumpurChengduChennaiJakarta

PuneHyderabadDelhi-NCRShenzhen

GuangzhouManila

Bengaluru

PerthAdelaideAucklandBrisbane

MelbourneSingapore

SydneySeoulTaipei

Hong KongTokyoBeijing

Shanghai

Supply and Absorption - 2016




Hong Kong, China

In Hong Kong, the CBD office market has been relatively upbeat despite a subdued economic landscape. The Shanghai-Hong Kong Stock Connect launched in late 2014, combined with an upcoming Shenzhen-Hong Kong Stock Connect and further liberalization of the RMB, is spurring demand for Grade A space in Greater Central by Chinese financial institutions. Consequently, rising occupancies are supporting rent increases, and at the same time encouraging tenants such as Chinese insurer China Life Insurance to procure their headquarters in order to manage their costs and space requirements. Rents in Greater Central as of year-end 2015 were just slightly below their 2011 peak and a sub-5% vacancy rate will keep rents on an upward trajectory or at elevated levels. In 2016, mainland companies

will continue to be the major demand driver for office space in Greater Central, but the scale of leasing activities could be affected by concerns over economic uncertainty, high occupancy costs and tight availabilities. Notably, as a small, open economy and a financial hub, Hong Kong is susceptible to downswings in world demand. We thus expect the volume of office absorption and rental growth in core districts to be slower in 2016, although Greater Central should see better performance in rental growth due to its tight availability.

Hong Kong: Holding Steady

9-10%

17-18%

CORE MARKETS

EMERGING MARKETS> 20%KOLKATA

CHENGDU

AHMEDABAD

DELHI - NCR

MUMBAI

HANOI

JAKARTA

10-20%PERTH

KUALA LUMPUR

SHANGHAI

BRISBANE

PUNE

SHENZHEN

CHENNAI

ADELAIDE

SINGAPORE

GUANGZHOU

SEOUL

TAIPEI

HYDERABAD

BENGALURU

BEIJING

SYDNEY

MELBOURNE

MANILA

HONG KONG

TOKYO

BANGKOK

AUCKLAND

0-10%

HO CHI MINH CITY

Average Vacancy - 2016

Delhi- NCR refers to New Delhi, Gurgaon and Noida which are part of the

National Capital Region

The city-state continues its efforts to transition its economy towards a greater focus on services, and its export mix towards areas in which it has a comparative advantage and away from areas in which it faces competition from lower-cost competitors. While progress has been made, the policy decision to stem the inflow of foreign labor continues to pose challenges that could weigh on office-using employment, thus restraining net absorption especially in the face of record supply in the CBD during 2016. Tenants will likely seize the opportunity to lock in long-term leases in the upcoming premium developments that are being marketed 20-30% off current prime rents. We also anticipate some tenants, especially in the financial sector, to be lured by lower-cost decentralized

office and business park supply to house their back-office operations. Notably, a surge in business park completions (1.9 msf) will occur this year and rates for these projects are on average 30-40% lower than those in the CBD. With prime vacancies set to jump three-fold in 2016, landlords’ focus will be to retain large occupiers and attract new tenants with incentives during this time, causing rents to dip another 10-12%. Occupiers could expect some cost savings (circa 14-15%) on three-year leases up for renewal this year. However, these market conditions are likely to be temporary, with office completions set for a precipitous drop in 2017.

Singapore is a market where institutions are looking to invest and hold, as the city-

state remains an attractive destination for investment and business, especially with its constructive policies and healthy macroeconomic fundamentals relative to the rest of the region. As such, well-conceived and managed prime office developments in the city-state boast the highest occupancies and rents, and hence, capital values. Few prime commercial assets ever trade on the market, and those that do usually command a premium. A case in point is Asia Square Tower 1, which is said to be valued at SGD 3.5-4 billion (SGD 2,800-3,200 per square foot), making it potentially the biggest office deal in Asia.

Domestic reforms are finally gaining traction and should help unlock investment and boost productivity growth in Indonesia. President Joko Widodo has also vowed to review Indonesia’s restrictive laws limiting foreign investment. However, exports will remain under pressure in 2016, given a collapse in commodity prices and a slowing Chinese economy. While GDP growth will remain below potential this year, the domestic reforms are positive for Indonesia’s long-term economic future as they address chronic structural issues. This favorable backdrop will have a positive impact on job creation, and translate to greater office demand in 2016. With high volumes of new supply through 2017, occupiers will continue to have abundant

options although rents are likely to edge down slowly. Even if base rentals are anticipated to remain under pressure in the short term, service charge levels are expected to see significant movement starting from the first quarter of 2016, following the utility rate increase as well as new Regional Minimum Wage (UMR) levels. For investors, a key risk is a further depreciation of the rupiah, especially if U.S. rates continue to rise in 2016. Over the longer term, Jakarta has plans for at least six major transportation projects: the light rail transit (LRT), the ongoing mass rapid transit (MRT), the airport rail line, the elevated Transjakarta bus transit system, the Jakarta Outer Ringroad 2 and the high-speed railway Jakarta-Bandung.

Jakarta: On the Mend


18


Singapore Jakarta, Indonesia

Singapore: Mind the Gap, but Keep the Faith


-20% -10% 0% 10% 20% 30% 40%

Kuala Lumpur

Mumbai (CBD/SBD)

Chengdu

Hanoi

Kolkata

Ho Chi Minh

Jakarta

Chennai

Guangzhou

Delhi-NCR

Bangkok

Ahmedabad

Hyderabad

Manila

Pune

Bengaluru

Shenzhen

Singapore

Perth

Brisbane

Beijing

Seoul

Adelaide

Hong Kong

Taipei

Melbourne

Shanghai

Auckland

Sydney

Tokyo

Vietnam will share the spotlight with the Philippines as GDP growth leaders in Southeast Asia this year. The combination of rapid investment growth buoyed by positive business sentiment and FDI, consumption growth fueled by solid labor markets, and a booming export sector will cause GDP to expand in the 6% range this year. This expected improvement has further upside potential. Vietnam will be a major beneficiary of the TPP; the Vietnamese government estimates that TPP could boost its economy by USD 33.5 billion during the next decade, roughly a fifth of the country’s current GDP. For real estate, the implications could be profound as the country offers a very

competitive manufacturing base for MNCs. These positive economic developments will have a meaningful impact on the office sector, especially in Ho Chi Minh City, with the number of manufacturing MNCs and in turn business support services setting up operations here set to grow. Grade A vacancy has tightened considerably since 2013, when it hit double digits, to less than 7%; pre-leasing activity has also been strong. With office completions taking a breather this year, we expect Grade A occupancies to improve and rates to stabilize. Real estate investment has also grown and notable foreign investors, such as Gaw Capital, have increased their presence in the country.

Ho Chi Minh City: Heating Up



Ho Chi Minh City

Manila, Philippines

The Philippines is on track to record another year of enviable growth. The government continues to make strides in improving business conditions and addressing corruption. The BPO sector will continue to propel the Philippines’ economy as one of Asia’s strongest performers; at the same time, accelerated implementation of public-private partnership projects and spending related to the May 2016 presidential election will lift growth. According to the IT and Business Process Association of the

Philippines (IBPAP), the BPO industry will have 1.3 million full-time employees in 2016. While current vacancies remain at record low levels (3.4% as of year-end 2015), we may see slower rental growth this year given the massive upcoming supply totaling 10.2 msf that is concentrated in Manila’s new prime district, Bonifacio Global City. Nonetheless, expect strong take-up levels to sustain high office occupancies and record rents, and continued increases in capital values this year.

Manila: Still in the Fast Lane


Rent Reversion 2013-16

*Rent reversion for Australia is based on a 5-year rental rollover period

**Delhi-NCR refers to New Delhi, Gurgaon and Noida which are part of the National Capital Region




Sydney, Australia

The office sector in Australia’s largest markets is poised for modest improvements. Sydney’s CBD is benefiting from ongoing structural changes to the Australian economy, especially with the services sector in New South Wales witnessing a resurgence in employment as the state economy returns to trend growth rates. Population growth, retail spending and dwelling construction activity have been the main contributors to the state’s economic growth in recent quarters. Similarly, a revival in Melbourne’s CBD will persist as corporate expansions gain traction and the flight-to-quality sees businesses relocate from the suburbs. As the development cycle ebbs, prime office rents in Melbourne’s CBD are forecast to edge up moderately as vacancies continue to fall. That said,

expect office prices in both cities to appreciate and spur further compression in cap rates, especially for the highest-grade buildings, although investment volumes are expected to slide due to the lack of stock on the market. Another factor driving up prices in both cities is the perpetuation of high yields. Notably, with interest rates forecast to stay at record lows, not to mention that the Reserve Bank of Australia has left the door open to further easing to guard against downside risks, projected yield spreads (320-340 bps) will remain among the highest in the region. However, Western Australia, which is disproportionately exposed to mining, will continue to lag behind. As such, the office sector in Perth will continue to be sluggish.

India overtook China as the region’s fastest-growing economy in the first quarter of 2015, guided by a very strong and independent central bank, public markets regulator (Securities and Exchange Board of India), sub-5% inflation and healthy policy climate. Lower borrowing costs will encourage investment and set the stage for higher GDP growth in 2016. We believe growth will be even higher if the government can successfully continue its reform agenda and speedily implement the measures announced such as GST (Goods and Services Tax), banking reforms and the Real Estate (Regulation and Development) Bill 2015, as well as fixing the tax-related issues around Real Estate Investment Trusts that would help uplift overall sentiment around real estate in the country. The first quarter of fiscal year 2015-16 (April to June) has already recorded inward FDI of USD 2.6 billion in the computer hardware and software sector, as compared to USD 2.2 billion received during the entire fiscal year 2014-15, which bodes well for the information technology (IT) sector. Notably, the IT sector accounts for nearly half of the total amount of office

space leased within the eight major cities in India (Mumbai, Delhi – National Capital Region, Bengaluru, Chennai, Pune, Hyderabad, Kolkata and Ahmedabad); hence, we expect demand gains to climb this year to 35 msf. Rents are also rising gradually especially in Bengaluru and Hyderabad, which remain a hotbed of activity for offshoring and BPO sectors. Meanwhile, new supply across eight major cities will reach a record level of 40 msf this year, with large availabilities proliferating in Ahmedabad, New Delhi, Mumbai and Kolkata.

The real estate market is becoming more institutionalized and there is a large amount of long-term capital from the likes of Blackstone, GIC, Brookfield, Canada Pension Plan Investment Board, APG, Abu Dhabi Investment Authority, Abu Dhabi Investment Council, Ascendas, Mapletree, Qatar Investment Authority, State General Reserve Fund, etc. flowing into India real estate. In Asia Pacific, China, Japan and South Korea have shown greater interest in developing infrastructure and real estate space in India. With stable growth in the office sector, along with stabilization in the

residential sector, other sectors like industrial, warehousing and logistics are also being explored. The industrial sector under the Make in India initiative and urban infrastructure propelled by the Smart City initiative are expected to act as new growth drivers. Greater connectivity due to the renewed modernization push and expansion of the Indian Railways and the new initiatives in roadways and waterways are expected to attract investment, and also broaden the development.

Sydney and Melbourne: Treading on Firmer Ground

India: On the Upswing




Singapore

• Market coverage includes premium and Grade A properties in CBD and, where relevant, new prime centers that are well-located, with office spaces that have higher design standards and large contiguous floor plates, and are managed professionally, are well-leased to high-quality tenants and suitable for institutional grade portfolios.

• Under construction space includes all projects that have broken ground but not stalled as of the reporting quarter.

• Construction completions include all new supply with projects that have completed and ready/fit for possession.

• Absorption refers to incremental new space take-up, and excludes renewals.

• Occupancy costs include standardized market rents on a net leasable area basis and service charges are included as applicable.

• Data for Australia are based on bi-annual numbers as available from the Property Council of Australia.

Country 2016 2017

Australia 2.8% 3.1%

China 6.3% 6.0%

Hong Kong, China 2.5% 3.0%

India 7.4% 7.2%

Indonesia 5.3% 5.8%

Japan 1.1% 1.2%

Malaysia 4.1% 4.5%

New Zealand 2.4% 2.7%

Philippines 6.1% 5.7%

Singapore 2.5% 3.2%

South Korea 3.0% 3.3%

Taiwan 2.3% 3.1%

Thailand 3.1% 3.5%

Vietnam 6.3% 6.9%

*Source: Oxford Economics

GDP Growth by CountryASIA PACIFIC OFFICE FORECASTS 2016-17

NOTES

Vacancy Rate (%) Supply 2016-17 YOY Rent Growth

2016 2017 ('000 Sf) 2015-16

CO

RE

Adelaide 13.3% 12.4% 115 STABLE

Beijing 9.0% 12.0% 30,330 DECREASING

Brisbane 19.0% 17.0% 2,045 DECREASING

Hong Kong 6.50% 7.80% 4,679 STABLE

Melbourne 7.4% 6.0% 773 INCREASING

Perth 21.3% 19.0% 54 DECREASING

Seoul 12.1% 12.3% 1,667 DECREASING

Shanghai 16.0% 15.0% 36,603 STABLE

Singapore 13.9% 13.3% 4,169 DECREASING

Sydney 6.7% 5.8% 3,339 INCREASING

Taipei 12.5% 14.0% 2,569 STABLE

Tokyo 5.0% 4.8% 8,211 INCREASING

EM

ER

GIN

G

Ahmedabad 35.5% 29.8% 340 STABLE

Bengaluru 10.1% 9.3% 22,720 INCREASING

Bangkok 4.1% 3.5% 65 INCREASING

Chengdu 45.0% 47.0% 11,254 DECREASING

Chennai 13.9% 11.6% 6,150 DECREASING

Guangzhou 14.0% 12.0% 15,359 DECREASING

Hanoi 24.4% 25.5% 1,179 DECREASING

Ho Chi Minh City 3.0% 8.0% 587 STABLE

Hyderabad 11.2% 15.3% 11,363 INCREASING

Jakarta 20.3% 24.6% 12,506 DECREASING

Kolkata 39.4% 35.8% 2,444 DECREASING

Kuala Lumpur 18.0% 18.0% 5,430 DECREASING

Manila 6.2% 7.7% 18,777 INCREASING

Mumbai (CBD/SBD)

22.5% 24.6% 2,546 DECREASING

Delhi-NCR 32.1% 31.2% 15,056 STABLE

Pune 16.4% 10.8% 5,848 DECREASING

Shenzhen 15.0% 17.0% 13,481 DECREASING

*Delhi-NCR refers to New Delhi, Gurgaon and Noida which are part of the National Capital Region**Decreasing: < 0%, Stable: 0-3%, Increasing: > 3%

For more information about Cushman & Wakefield Research, contact:

SIGRID ZIALCITA Managing Director, Research, Asia Pacific

+(65) 6232 0875

[email protected] For more information about Cushman & Wakefield services, please contact:

SANJAY VERMA Chief Executive

Global Occupier Services, Asia Pacific

+(852) 2956 7800

[email protected]

GARY HOLLIS Managing Director

Head of Capital Markets, Asia Pacific

+(65) 6393 2328

[email protected]

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