Office assets in Asia-Pacific continue to attract investors (Aug 6, 2009)

SHANGHAI: Encouraged by the recent flow of new government-created liquidity and a re-bounding market optimism in the Asia-Pacific region as compared with the start of 2009, some real estate investors have taken advantage of inexpensive financing costs by acquiring office assets in the hope of future capital gains. A number of economic indicators in the region are showing signs that the recent dramatic market downturn may be tapering off, offering hope that the worst is over and a global recovery may start in late 2009 or early 2010. These market trends were analysed in the Asia-Pacific Office Market Overview -- July 2009, a quarterly research that covers 26 major cities in the region.

"To combat the threat of a global economic depression, many of the world's central banks, including those in Asia-Pacific, have introduced financial easing measures. The large volume of liquidity created has benefited the Asia-Pacific region over the past three months -- in the form of increased credit availability -- at lower costs," says George McKay, Managing Director, Corporate Services of Colliers International, Asia Pacific Region. "Most of the currently active investors are domestic enterprises and cash-rich individuals. Much of their attention has been drawn to office assets that are expected to offer capital gains once the economy begins to recover. The sales side of the property market may continue to do reasonably well in the second half of 2009."

In the Greater China region, key transactions include the acquisition of Gongsan Plaza No 2 South Office Building in Beijing by a sizeable domestic corporation for RMB250 million (RM129.62 million) and the transaction of a number of strata-title offices, like No 9 Queen's Road Central in the central business district of Hong Kong. In Singapore, a group of high-net-worth private investors purchased the whole block of Anson House for S$85 million (RM207.81 million) from Macquarie Bank. Elsewhere in Australasia, private investors dominate the bulk of the sales transactions in 2Q2009.

Despite the encouraging sales activities in a number of centres in the region, office demand and rentals remain weak. Most companies in the private sector are still cautious about costs and sceptical about their business growth. Headcount reduction continues to be the most widely adopted cost-cutting initiative, leading to a contraction in demand for office space in 2Q2009.

On the supply front, an excess of sub-lease space among existing occupiers remains a key constraint to rental growth. Due to the scarcity of new demand and the threat of rising vacancy rates, average office rentals in the region edged down further by 3.6% quarter-on-quarter in 2Q2009. Again, Hong Kong and Singapore continue to see the steepest fall.  Hong Kong's average prime office rentals fell further by 12.1% q-o-q to HK$41.79 (RM19.12) psf per month as at the end of May 2009. Singapore's effective office rents in the Central Business District dropped 26.1% q-o-q to S$6.73 psf per month.

"Looking ahead, office rentals in the region will experience further downward pressure.  There will be an increase in vacant stock and most occupiers will continue to re-align their business strategies for the balance of 2009 and 2010," says McKay. "In most cases, occupiers are preferring to keep their overall cost structure as low as possible over the near term -- until they see more solid evidence of the beginnings of a full economic recovery."