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Revival in demand for office space seen in Asia-Pacific for 1Q

SHANGHAI: A general stronger-than-expected pace of economic recovery in Asia-Pacific has led to a noticeable revival in demand for office space in 1Q2010.

“Looking ahead, the demand for office real estate in the region continues to gather strength on the back of further economic growth expected over the next few years,” said managing director, Corporate Services of Colliers International, Asia-Pacific Region, George McKay in a statement on May 10.

Despite the projection that interest rates might edge up, possibly in the latter part of 2010, the market consensus is that the prospective rate increase will be mild.

In addition, with expectations of a further increase in rentals, the current price level across various key centres may represent an attractive entry point in the present real estate cycle, despite the challenge of compressed investment yields.

Markets were marked by increasingly positive sentiments owing to the relaxed monetary measures adopted by various central governments, the ease of credit and the sustained low interests rates.

“A number of multinational corporations have been encouraged by the stronger-than-expected economic conditions to reactivate their real estate plans, which had been largely put on hold right after the financial crisis hit,” said McKay.

“Many market activities have been registered especially in Hong Kong, Singapore, Beijing and Shanghai,” he added.

In Hong Kong, companies in the financial sector were active in committing to new space in 1Q2010, boosted by the return of hedge funds and private equities. In Beijing, domestic corporations engaged in the finance, technology and services sectors were particularly active in securing their office addresses.

Elsewhere, in India, occupational demand improved across both IT and non-IT sectors as occupiers moved pre-emptively to secure new leases before the prospect of rentals increasing again from their cyclical lows in 1Q2010. The trend towards a flight to quality remained popular in many cities, with a significant amount of new space coming up for lease -- especially in decentralised locations.

Overall, the leasing market in the region revived somewhat, with rentals edging up by 0.9% quarter-on-quarter in 1Q2010 – the first quarterly increase registered in the past one and a half years.

On the sales front, the investment demand for office properties remained strong notwithstanding the continued compression of investment yields in 1Q2010. Local private investors continued to be one of the key groups of players. In addition, there were initial signs of a return of real estate funds into the market.

In China, the highlight was the sale of Gateway Plaza, a prime office building comprising 131,575 sq m in the Lufthansa precinct, to the Mapletree India China Fund for a total consideration of US$425 million (RM1.36 billion).  Elsewhere in Australasia, Aviva Investors acquired 80 Clarence Street in Sydney for US$27.86 million.
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