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Investment Volume Remains High As Office Net Absorption Sets New Benchmark

OFFICE                                                                                   

Net absorption reached an historical high in Q3 2021 thanks to a wave of relocations and expansions by TMT and pharmaceutical occupiers. Strong leasing momentum ensured asking and effective rents rose by 0.6% and 0.8%, respectively, with growth led by New Bund and Nanjing West Rd.

RETAIL

Three new shopping malls were delivered this quarter, adding 432,000 sq. m. of new retail space to the market. F&B retailers dominated leasing demand, accounting for 39% of total space leased in Q3 2021. The fashion category accounted for 24% of leasing volume, with significant demand originating from women’s wear and sports brands.

LOGISTICS

No new logistics supply came on stream in Q3 2021. 3PLs continued to dominate leasing demand, with Songjiang, Fengxian and Jinshan recording a steady flow of new leases and expansions. Robust demand and limited availability in most submarkets ensured overall vacancy declined and overall rents rose.

BUSINESS PARK

Strong leaving activity pushed up net absorption to 365,000 sq. m., bringing the year-to-date (y-t-d) figure to a level slightly below the record set in 2015.

INVESTMENT

Shanghai remained the country’s most buoyant investment market, registering 25 en-bloc deals worth a combined total of RMB 21.87 billion in Q3 2021. Despite a q-o-q slowdown in investment volume, the y-t-d figure reached RMB 67.8 billion, just below last year’s full-year total.

This article was originally published in https://www.cbre.com/

The Asia-Pacific Prime Office Rental Index saw a 0.3% quarter-on quarter decrease, and a 3.1% year-on-year decline, a continuation of the deceleration we’ve been seeing since the start of 2021, despite the resurgence of cases in many parts of the region.

Overall vacancy remains unchanged, as improvements in take-up in some markets are cancelled out by negative net absorption in others. The final stretch of 2021 should see continued stabilisation of prime office rents. As such, occupiers are more forward-looking as compared to one to two quarters ago and are able to put in place some growth plans in terms of the trajectory of their headcounts and office requirements. We are cautiously optimistic that the rate of rental decline will continue to decelerate towards the start of next year.

This article was originally published in https://www.knightfrank.com/

• Commercial real estate investment totalled HK$19.2 billion in Q3 2021, a decline of 31% q-o-q. However, the Q2 2021 total was skewed by one very large transaction.
• Industrial buildings remained keenly sought-after, with HK$7.9 billion-worth of industrial assets changing hands this quarter, the highest of any sector. Five of the ten largest deals completed in Q3 2021 involved industrial properties.
• The period saw stronger demand for office properties. While no en-bloc deals were signed, several office floors were transacted in both the CBD and in decentralised locations. Office capital values edged up by 0.3% q-o-q, their first quarterly growth since Q3 2018.
• In addition to transactions for street shops in neighbourhood areas, the quarter saw a few eye-catching sales in traditional retail districts.
• Local investors turned more active in Q3 2021, accounting for 32% of investment volume, the highest among all buyer categories.

This article was originally published in https://www.cbre.com/

• The trade environment continues to strengthen. High freight forwarding costs mean traders are looking to utilise more warehouse space to protect margins.
• Ongoing power shortages in mainland China highlight the risk of weaker export growth, which could drag on logistics demand in the near term.
• While leasing demand remained strong in Q3 2021. reduced space availability led to a drop in leasing volume compared with the previous quarter.
• Retail and F&B-related occupiers drove demand, while tech and telecom firms were also observed to be seeking space.
• Retailers are expected to become more proactive in securing both retail and warehouse space in the coming months as fundamentals improve.
• A further decline in warehouse vacancy underpinned steady rental growth in Q3 2021.
• With space availability set to remain for longer, further rental growth in expected over the next 6-12 months.

This article was originally published in https://www.cbre.com/

• The government’s introduction of consumption coupons underpinned stronger retail sales growth in August, reversing the trend of slower m-o-m growth witnessed since the start of the year.
• Leasing sentiment improved over the quarter, with demand being driven by casual wear, sporting goods and F&B retailers.
• Central saw several major commitments by a range of retail trades and for a variety of lease durations and purposes.
• The expiry of several short-term leases ensured overall vacancy edged up in Q3 2021.
• Both high street shop and shopping centre rents were stable over the quarter.
• While rents are expected to rise steadily in the coming months, a sharp uptick is not expected until luxury and other premium retailers resume expansion along high streets.
• Stronger rental growth will materialise in 2022 should cross-border travel normalise by early next year.

This article was originally published in https://www.cbre.com/

• Net absorption stood at -119,000 sq. ft. in Q3 2021, the eighth consecutive quarter of negative net absorption since the current market downcycle commenced in mid-2019. This downcycle is now the longest and deepest in the city’s history.
• However, the magnitude of negative net absorption continued to moderate from previous quarters thanks to an uptick in new leasing volume.
• Overall vacancy increased over the quarter, with pressure more prominent in Wan Chai/Causeway Bay and Hong Kong East. Vacancy fell in Kowloon East and was stable in Greater Central.
• While still limited, leasing demand was broad based and from a range of industry sectors. Most new leases involved relocation, with several downsizing moves also observed. Chinese firms remained relatively quiet.
• Stronger leasing momentum ensured the rental decline moderated in Q3 2021, with three of the city’s five major submarkets seeing rents fall by less than 1% q-o-q. Rents are expected to edge down further over the next 12 months.

This article was originally published in https://www.cbre.com/

Overall net absorption bounced back to positive after eight consecutive negative quarters

The revival of business activities, office leasing demand and rental rates has led to further improvement in vacancy performance in Q3 2021. Overall net absorption rebounded to 70,900 sq. ft., the first positive quarter since Q3 2019, taking the overall vacancy rate to 10.4%. Rental correction continued to decelerate and overall rent edged down by 0.3% QOQ, compared to the drop of 1.6% QOQ in Q2.

Read the latest Q3 office report to find out the sector’s performance and what the recommendations are for landlords and occupiers.

This article was originally published in https://www.colliers.com/

Robust investment activity across APAC markets setting the stage for a strong year-end performance.

Investor interest, buoyed by ample liquidity and easing of restrictions, supported robust activity in Asia Pacific property markets, setting the stage for a strong year-end performance.

Regional trends and report highlights for Asia Pacific:

• Australia and New Zealand saw renewed investor optimism and business confidence, particularly in the office markets, as key cities emerge from prolonged restrictions.
• Hong Kong registered a 20% QOQ growth in transaction volumes, as economic rebound helped boost investor appetite.
• Investment activity in China picked up, with more than 20 transactions totalling approx. RMB27.2 billion (USD4.2 billion) closed across asset classes in major Chinese markets.
• Singapore‘s retail sector led investment activity in Q3, with total transactions worth SGD7.5 billion (USD5.5 billion) registered.
• Korea‘s office market saw an active quarter, driven by soaring investment demand for office space in Seoul.
• The office, multifamily and logistics sectors in Japan continued to attract robust investor demand, amidst REITs prices recovering to pre-COVID-19 levels.

Download the report below to find out more expert recommendations for investors across Asia Pacific. Contact Terence Tang and John Marasco for more key trends and opportunities across Asia Pacific capital markets.

This article was originally published in https://www.colliers.com/en-in/

Market softening continues

The rapid vaccine rollout, increasing corporate profits, and limited supply should give the market some much needed breathing room.

• The lukewarm market sentiment continued to weigh on office rents and vacancy in the central five wards (C5W) this quarter.
• Average Grade A office market rents in the C5W fell 2.2% quarter-on-quarter (QoQ) and 8.2% year-on-year (YoY), and now stand at JPY34,370 per tsubo per month.
• The average Grade A office vacancy rate in the C5W increased by 0.8 percentage points (ppts) QoQ and 1.8ppts YoY to 2.5% in Q3/2021.
• Average large-scale Grade B office rents declined to JPY26,106 per tsubo per month – a contraction of 2.5% QoQ and 8.4% YoY.
• The average vacancy rate in the Grade B market loosened by 0.5ppts QoQ and 2.3ppts YoY to 3.3%.
• With the rapid vaccination rollout, strong corporate profit growth and limited supply until 2023, market sentiment should begin to stabilise or even improve.
• The poor performance of less accessible and older offices remains a drag on the office market overall. Meanwhile, tenant preferences for easily accessible and new offices persist.

This article was originally published in https://www.savills.com.hk/

Downtrend in rents continues

Although rents have weakened, occupancy rates see a slow recovery.

• Rents in the Tokyo 23 wards (23W) fell by 0.9% quarter-on-quarter (QoQ) and 3.6% year-on-year (YoY) to JPY3,929 per sq m this quarter.
• Average mid-market rents in the central five wards (C5W) saw a small decline this quarter and are now at JPY4,661 per sq m – a fall of 0.2% QoQ and 3.6% YoY.
• The C5W premium has inched up to 17.9% – up 0.3 percentage points (ppts) from Q2/2021.
• In the C5W, average rents for units in the 15-30 sq m size band have again decreased this quarter. However, the 30-45 sq m size band saw a small increase in rents.
• The average occupancy rate in the 23W rose by 0.2ppts to 95.6%. The C5W saw a similar increment, increasing 0.2ppts to 94.5%.
• The C5W has seen a population decline, driven by younger families who appear to prefer larger units.

This article was originally published in https://www.savills.com.hk/