Colliers International Asia Pacific Office Market Overview Q4 2011

Highlights

1. Heightened uncertainties and volatility arising from the debt crisis in the Eurozone has taken its toll on more cities in the Asia Pacific region. 

The unresolved sovereign debt problems in the Eurozone and the continued slowdown of key economies around the world have caused more office property markets in the Asia Pacific region to turn south in the last quarter of 2011.

In 4Q 2011, prime office rental growth in 15 out of the 28 Asia Pacific cities surveyed were in the red.  This was up from 12 cities in 3Q 2011. 

Beijing recorded the highest office rental growth rate of 8.8% quarter-on-quarter (QoQ) in 4Q 2011.  However, this was noticeably lower than the 11.6% QoQ growth achieved in the preceding three months - indicating a moderation in market sentiments.

On the other side of the scale, Mumbai suffered the steepest cut in office rents by 12.8% QoQ.  This was a sharper correction than the 9.1% decline in 3Q 2011 - on the back of restrained demand for office space arising from increased cautiousness, amid prevailing economic uncertainties.

Rankings of Prime Office Rents as of 4Q 2011 (US$ per sq ft per year)

Source: Colliers International Research

2. Singapore remains the third most expensive office location in the Asia Pacific region. 

Cautious occupier demand, amid the rocky global economic backdrop, saw Singapore's prime office rents trend downwards in 4Q 2011.

In local currency terms, the average monthly gross rents for CBD Grade A office space fell for the first time since the market bottomed out in 4Q 2009.  Rents edged down 1.6% QoQ in 4Q 2011 to S$8.93 per sq ft per month.

In US Dollar terms, rents for Singapore's CBD Grade A office space contracted 1.7% QoQ from US$83.81 per sq ft per year in 3Q 2011 to US$82.42 per sq ft per year in 4Q 2011.

At US$82.42 per sq ft per year in 4Q 2011, Singapore remains the third most expensive office location in the Asia Pacific region - a position she has maintained since 3Q 2009.  The Republic also continued to maintain her competitive edge in office occupation cost over Hong Kong and Tokyo.

3. Singapore office property market expected to remain soft but the magnitude of rental decline expected to be milder as compared to the previous crisis. 

In anticipation of a more challenging global economic environment, many firms, including major financial institutions, are expected to continue to rein in their short-term expansion and hiring plans, while reducing headcounts in poor-performing and non-essential fields.  This could further impact occupier demand for office space.

However, these firms are expected to maintain their presence in Singapore as Asia is the current growth region.  Additionally, Singapore's strong economic fundamentals could help the country and the office market ride through the current uncertainties. 

Hence, going forward, although Singapore's office rents will likely soften from current levels, the magnitude of decline is expected to be more tamed as compared to the previous crisis.  Office rents are forecast to decline by around 10-15% in 2012, as against a 20-50% correction seen in the first year of the global financial crisis-led decline in 2009.

As macro risks/factors - including slowing economic growth and market risks, among others - are expected to also similarly affect other cities, Singapore is likely to remain the third most expensive office location in the Asia Pacific region in the near term. 

To download the full report, please click here.