Results for Q4 2018 Knight Frank Asia-Pacific Prime Office Rental Index rose 1.4% quarter-on- quarter and 7.7% year-on-year in the fourth quarter of 2018 Slower index growth was mainly attributed to heightened global uncertainties from Brexit and US–China trade tensions While underlying economic fundamentals in the Asia-Pacific remain in favor for growth, 2019 is unlikely to match up to 2018’s performance COMMERCIAL RESEARCH ASIA-PACIFIC PRIME OFFICE RENTAL INDEX Despite the healthy economic fundamentals for the Asia-Pacific region in Q4 2018, the overhang of Brexit and the US – China trade tensions continued to weigh on market sentiments, leading to relatively softer rental growth compared to in previous quarters. For Q4 2018, Knight Frank’s Asia-Pacific Prime Office Rental Index grew 1.4% quarter-on- quarter to 143.5, slowing from the 2.2% rise witnessed in the previous quarter. Of the 20 cities tracked by the index, 17 reported either stable or higher rents; 1 less than the 18 reported in Q3. Overall for 2018, the rental index reported a 7.7% year-on-year growth, much higher compared to the 2.7% rise seen in 2017. However, heading into the new year we believe a repeat of 2018 is unlikely and hold a more muted outlook for 2019 with expectations for the rental index to rise between 0 to 3% this year. In India, the Bengaluru office market continues to shine this quarter with a 8.9% quarter-on-quarter rise, rebounding from the 0.4% rise seen in Q3. For the full year, the office market there is up 17% year-on-year, more than three times the 5.4% rise seen in 2017. The undersupply of quality space and improved demand from the IT/ITeS sectors were again the main drivers behind the strong rental uplift in Q4. Mumbai’s and NCR’s rents remained relatively stable in Q4, rising 0.9% and 0% respectively; Mumbai’s rents were up 5% year-on-year while NCR’s were flat. Going forward, with most of the upcoming new supply in Bengaluru already pre-committed, its market is expected to do well this year. Similarly, Mumbai rents will see stable growth due to constricted supply and from further co- working expansion while NCR is expected to see subdued growth. Prime office rents in Bangkok rose 3.7% quarter-on-quarter and 8.3% year-on-year as tenants continued to seek out higher quality space and limited immediate supply in the near term. Manila’s rents rose 2.3% quarter- on-quarter and 9.4% year-on-year on strong BPO demand. However, with a large supply coming online over the next 3 years, circa. 25% of existing stock, rental growth expected to slow over the coming 12 months. Grade A rents in Jakarta fell 10.7% quarter-on- quarter, the largest drop seen across the Asia- Pacific region this quarter, as the market took the full brunt of its oversupply situation; for the full year rents have fallen 16.0% year-on-year. ASIA-PACIFIC PRIME OFFICE RENTAL GROWTH LOSES STEAM IN Q4 2018 2018 A tale of two halves as strong 1H rental growth tapered off in 2H Over the next 12 months, we keep our flat outlook for the market as the rate of rental decline slows mainly due to market inactivity ahead of the elections this year. Melbourne remained active in Q4, recording a 6.2% quarter-on-quarter rise as limited leasing options for tenants and supportive labor market fundamentals continue to drive rents up. On a full year basis, Melbourne topped the Australian markets with a 13.9% year-on-year growth. Sydney rents were up 1.4% quarter-on-quarter and 11.9% year-on- year in Q4 on persistently tight supply, while Brisbane saw a 0.8% quarter-on-quarter and 3.6% year-on-year rise on further upgrading demand. With on the ground sentiment improving, Perth rents rose 0.2% quarter- on-quarter and 0.5% year-on-year; the first positive year-on-year growth seen since 2012. FIGURE 1 Prime Office Rental Index Stock Weighted Asia Pacific Index (LHS) Vacancy Rates (RHS) Source: Knight Frank Research Rents in Tokyo rose another 1.5% quarter- on-quarter and 14.4% year-on-year as prime vacancy within the city contracted further to 0.7%. Hong Kong’s prime office rents fell -0.1% quarter-on-quarter as Central rents came under pressure from tenant decentralization; on a year-on-year basis rents were up 7.8%. Shanghai rents rose 2.1% quarter-on-quarter, the only positive quarterly rise this year, while year-on-year growth was flat as supply concerns continue to weigh on the market and tenants flock to cheaper decentralized locations.
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Results for Q4 2018Knight Frank Asia-Pacific Prime Office Rental Index rose 1.4% quarter-on-quarter and 7.7% year-on-year in the fourth quarter of 2018
Slower index growth was mainly attributed to heightened global uncertainties from Brexit and US–China trade tensions
While underlying economic fundamentals in the Asia-Pacific remain in favor for growth, 2019 is unlikely to match up to 2018’s performance
COMMERCIAL RESEARCH
ASIA-PACIFIC PRIME OFFICE RENTAL INDEX
NICHOLAS HOLTAsia-Pacific Head of Research
“Despite a number of headwinds seen in the second half of the year, the Knight Frank Asia-Pacific Prime Office Rental Index rose 7.7% in 2018. Given the more muted sentiment and per-sistent uncertainties, prime office rents within the Asia-Pacific region are likely to see a more muted rise in 2019. ”
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Despite the healthy economic fundamentals for the Asia-Pacific region in Q4 2018, the overhang of Brexit and the US – China trade tensions continued to weigh on market sentiments, leading to relatively softer rental growth compared to in previous quarters. For Q4 2018, Knight Frank’s Asia-Pacific Prime Office Rental Index grew 1.4% quarter-on-quarter to 143.5, slowing from the 2.2% rise witnessed in the previous quarter. Of the 20 cities tracked by the index, 17 reported either stable or higher rents; 1 less than the 18 reported in Q3. Overall for 2018, the rental index reported a 7.7% year-on-year growth, much higher compared to the 2.7% rise seen in 2017. However, heading into the new year we believe a repeat of 2018 is unlikely and hold a more muted outlook for 2019 with expectations for the rental index to rise between 0 to 3% this year.
In India, the Bengaluru office market continues to shine this quarter with a 8.9% quarter-on-quarter rise, rebounding from the 0.4% rise seen in Q3. For the full year, the office market there is up 17% year-on-year, more than three times the 5.4% rise seen in 2017. The undersupply of quality space and improved demand from the IT/ITeS sectors were again the main drivers behind the strong rental uplift in Q4. Mumbai’s and NCR’s rents remained relatively stable in Q4, rising 0.9% and 0% respectively; Mumbai’s rents were up 5% year-on-year while NCR’s were flat. Going forward, with most of the upcoming new supply in Bengaluru already pre-committed, its market is expected to do well this year. Similarly, Mumbai rents will see stable growth due to constricted supply and from further co-working expansion while NCR is expected to see subdued growth.
Prime office rents in Bangkok rose 3.7% quarter-on-quarter and 8.3% year-on-year as tenants continued to seek out higher quality space and limited immediate supply in the near term. Manila’s rents rose 2.3% quarter-on-quarter and 9.4% year-on-year on strong BPO demand. However, with a large supply coming online over the next 3 years, circa. 25% of existing stock, rental growth expected to slow over the coming 12 months. Grade A rents in Jakarta fell 10.7% quarter-on-quarter, the largest drop seen across the Asia-Pacific region this quarter, as the market took the full brunt of its oversupply situation; for the full year rents have fallen 16.0% year-on-year.
ASIA-PACIFIC PRIME OFFICE RENTAL GROWTH LOSES STEAM IN Q4 20182018 A tale of two halves as strong 1H rental growth tapered off in 2H
Over the next 12 months, we keep our flat outlook for the market as the rate of rental decline slows mainly due to market inactivity ahead of the elections this year.
Melbourne remained active in Q4, recording a 6.2% quarter-on-quarter rise as limited leasing options for tenants and supportive labor market fundamentals continue to drive rents up. On a full year basis, Melbourne topped the Australian markets with a 13.9% year-on-year growth. Sydney rents were up 1.4% quarter-on-quarter and 11.9% year-on-year in Q4 on persistently tight supply, while Brisbane saw a 0.8% quarter-on-quarter and 3.6% year-on-year rise on further upgrading demand. With on the ground sentiment improving, Perth rents rose 0.2% quarter-on-quarter and 0.5% year-on-year; the first positive year-on-year growth seen since 2012.
FIGURE 1
Prime Office Rental Index
Stock Weighted Asia Pacific Index (LHS) Vacancy Rates (RHS)
Source: Knight Frank Research
Rents in Tokyo rose another 1.5% quarter-on-quarter and 14.4% year-on-year as prime vacancy within the city contracted further to 0.7%. Hong Kong’s prime office rents fell -0.1% quarter-on-quarter as Central rents came under pressure from tenant decentralization; on a year-on-year basis rents were up 7.8%. Shanghai rents rose 2.1% quarter-on-quarter, the only positive quarterly rise this year, while year-on-year growth was flat as supply concerns continue to weigh on the market and tenants flock to cheaper decentralized locations.
Rental Decline - Slowing Rental Growth - Accelerating Rental Growth - Slowing Rental Decline - Accelerating
ASIA-PACIFIC RESEARCHNicholas Holt Asia-Pacific Head of Research +86 10 6113 8030 [email protected]
Justin Eng Senior Manager Research, Asia-Pacific +65 6429 3583 [email protected]
ASIA PACIFIC GLOBAL CORPORATE SERVICESRoss Criddle Senior Director, Asia Pacific +852 6198 0201 [email protected]
Tim Armstrong Head of Occupier Business Development +65 6429 3531 [email protected]
© Knight Frank 2018 - This report is published for general infor-mation only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no re-sponsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a gener-al report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form and content within which it appears.
Knight Frank Research Reports are available at KnightFrank.com/Research
ASIA-PACIFIC PRIME OFFICE RENTAL INDEX
RECENT MARKET-LEADING RESEARCH PUBLICATIONS
FIGURE 2
Asia-Pacific Prime Office Rents
Markets City Submarket(s) Prime Net Headline Rent Local Measurement^ 12-month % change
(Q4 2017- Q4 2018)3-month % change (Q3 2018 - Q4 2018) USD/sq m/month
Gross Effective Rent**
USD/sq m/month
Forecast next 12 mths
Aust
ralia
Brisbane CBD 600.0 AUD/sq m/annum (Net Floor Area) 3.6% 0.8% 35.2 29.0
Melbourne CBD 638.0 AUD/sq m/annum (Net Floor Area) 13.9% 6.2% 37.4 37.2
Perth CBD 591.0 AUD/sq m/annum (Net Floor Area) 0.5% 0.2% 34.7 28.2
Sydney CBD 1,110.3 AUD/sq m/annum (Net Floor Area) 11.9% 1.4% 65.2 61.1
East
Asi
a
Tokyo* Central 5 Wards 39,581.4 JPY/tsubo/month (Net Floor Area) 14.4% 5.6% 109.1 104.8
Beijing Various 381.0 CNY/sq m/month (Gross Floor Area) 2.8% -1.0% 55.4 81.4
Guangzhou CBD 192.0 CNY/sq m/month (Gross Floor Area) 3.3% 0.7% 27.9 46.7
Shanghai Puxi, Pudong 295.0 CNY/sq m/month (Gross Floor Area) 0.0% 2.1% 42.9 65.1
Hong Kong Central 164.0 HKD/sq ft/month (Net Floor Area) 8.2% -0.3% 225.4 226.8
Taipei Downtown 2,734.0 TWD/ping/month (Gross Floor Area) 2.5% 0.2% 27.0 41.1
Seoul CBD, GBD, YBD 33,770.0 KRW/sq m/month (Gross Floor Area) 2.0% 0.4% 30.3 76.6
Indi
a
Bengaluru CBD 1,495.0 INR/sq ft/annum (Gross Floor Area) 17.0% 8.9% 19.3 32.5
Mumbai BKC 3,600.0 INR/sq ft/annum (Gross Floor Area) 4.9% 0.9% 46.4 78.2
NCR Connaught Place 3,906.0 INR/sq ft/annum (Gross Floor Area) 0.0% 0.0% 50.3 84.9
ASEA
N
Phnom Penh City Centre 23.5 USD/sq m/month (Net Floor Area) 0.1% 0.0% 23.5 30.8
Jakarta CBD 4,201,308.0 IDR/sq m/annum (Semi-Gross Floor Area) -16.0% -10.7% 24.3 30.4
Kuala Lumpur City Centre 5.8 MYR/sq ft/month (Net Floor Area) -1.4% 0.0% 15.2 18.3
Singapore Raffles Place, Marina Bay 10.9 SGD/sq ft/month (Net Floor Area) 22.2% 3.3% 86.2 99.0
Bangkok CBD 1,083.2 THB/sq m/month (Gross Floor Area) 8.3% 3.7% 33.5 37.2
Manila Various 1,042.4 PHP/sq m/month (Net Floor Area) 9.4% 2.4% 19.9 23.2
Source: Knight Frank Research / *Sanko Estate ̂ Based on net floor areas for except for China, India, Korea, Taiwan, and Thailand (gross) **Inclusive of incentive, service charges and taxes. Based on net floor areas.
FIGURE 3
Prime Office Rental Cycle
Urban Futures – 2019 Prime Global Cities Index – Q4 2018
Global Outlook – 2019
Increase No Change Decrease
Kuala Lumpur
Jakarta
BrisbaneBengaluruMumbaiGuangzhouPerth
BeijingBangkokMelbourneSingapore
Hong KongManilaNCRTaipeiSeoulSydney
Phnom PenhShanghaiTokyo
Source: Knight Frank The diagram does not constitute a forecast and is intended only as an indicative guide to current rental levels.Rents may not necessarily move through all stages of the cycle chronologically.
(Y)our space
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