Year of the landlords as prospects begin to look up
Reports by Kenneth Ko
Improving domestic economies, corporate expansion plans and a surge in tourism are expected to drive demand for office and retail space in leading cities across Asia
LANDLORDS ACROSS Asia can expect a rewarding season in a climate of tight supply and a growing appetite for office and retail space.
International property consultant Jones Lang LaSalle said the region's continued economic growth was laying the foundation for a strong property market this year.
Leslie Chua, head of Asia real estate intelligence at Jones Lang LaSalle, said in a recent market review that last year's rebound could be sustained this year and even into the next, barring unforeseen circumstances.
He said office rents were likely to rise as corporations continued to rebuild. The demand for office space was expected to go up in most major cities in the region this year, in line with corporate expansion plans.
This broad-based growth was in contrast with the situation over the past two or three years, when most of the demand for office space was in emerging cities in India and China, Mr Chua said.
Improving domestic economies, limited new supply and a surge in the tourist trade were also expected to sustain the demand for retail space across Asia, the consultant said.
Despite a rise in US Federal Fund rates, interest rates in the region remain competitive, suggesting that shoppers for office space are still prepared to spend.
Emerging markets in China and India have helped to open up the retail scene as affluence transforms two of the region's fastest growing countries.
Meanwhile, investors are shifting their focus from the retail to the office sector. With rents on the rise and yields at reasonable levels, investors are once again developing an appetite for this sector.
Jones Lang LaSalle said that funds kept in North Asia are returning to South Asia, with Singapore being the leading beneficiary.
Investors continue to seek opportunities in China and India but have clinched only a handful of deals so far because of the overall risk factor and a general lack of transparency.
Suphin Mechuchep, managing director of Jones Lang LaSalle, Thailand, said all property sectors in Bangkok were on an upward swing, buoyed by Thailand's strong economy.
'The grade-A office market is performing especially well,' she said.
'This could turn out to be the year for the landlords. Property owners' prospects are bright because of a limited supply and a continuing demand from new and established companies seeking space for expansion. As a result, office rents will continue to rise sharply next year,' she said.
Craig Plumb, head of occupier research, Jones Lang LaSalle, said: 'Tenants are likely to face increasing upward pressure on occupancy costs, and this will reinforce the trend towards offshoring and decentralising to the fringes of central business districts and the suburbs seen in some markets last year.'
According to Jones Lang LaSalle, smooth elections and strong economic fundamentals have boosted investor confidence in South Asia.
The result is that international investors are turning their attention away from North Asia and Greater China and focusing on these parts of the region.
All major cities have experienced a strong demand for prime office space, and grade-A office rents have soared across the sub-region.
The average rent for grade-A office space in Bangkok's central business district increased by more than 13 per cent in 2003, and more than 20 per cent from the low it hit in 1999. Limited supply is expected to push rents up steeply.
Call centres competing for prime space in big cities in India and in Manila, capital of the Philippines, have also boosted office demand.
After two years of declines, rents for prime office space in Singapore have bottomed out, supported by the 'flight-to-quality' phenomenon as companies regain interest in moving to plush buildings.
Domestic demand and tourist spending continue to support the retail sector across all South Asian cities.
This, along with limited new supply in most cities, has raised occupancy levels and boosted rents.
In Singapore, the retail investment market remains active, with CapitaMall Trust and private retail funds enhancing their portfolios.
Meanwhile, investors are looking for retail properties with investment potential in Bangkok, Thailand, and Kuala Lumpur, Malaysia.
Despite fears of a slowdown in Japan and South Korea, the consultant said, restructuring efforts should help keep up the momentum in both countries and sustain growth.
Cuts in interest rates in Seoul and zero interest rates in Japan have stimulated domestic consumption, and this has led to a greater demand for office space in both countries.
'Tokyo grade-A office rents bottomed in the first quarter of 2004 and will likely post a modest gain of 5 per cent this year and slightly less in 2006 as rents enter a period of cyclical growth,' Mr Chua said.