Quantitative Easing

Credit Suisse report says QE3 won't help Central rental market

Credit Suisse report says it will take more than QE3 to kick-start city office market

PUBLISHED : Wednesday, 03 October, 2012, 12:00am
UPDATED : Wednesday, 03 October, 2012, 5:00am

The third round of quantitative easing (QE3) by the United States Federal Reserve is not expected to rescue the weakened Central office market, according to a report by Credit Suisse.

QE3, announced by Federal Reserve chairman Ben Bernanke last month, is likely to see more money flowing into the global economy, especially Asia. And that has triggered expectations that multinational companies could respond to the capital flows by expanding their presence in the region. But Credit Suisse notes that foreign financial institutions did not expand operations during the first two rounds of quantitative easing.

"It appears that neither QE1 nor QE2 directly and immediately had any impact on the office rent and take-up in Central," Credit Suisse said in its latest report on the office market. Rather, over the period September 2010 to September 2011, when QE2 was announced, major foreign brokers downsized their operations, it said.

"We, therefore, do not count on QE3, which was announced on September 13, to rescue the Central office market," it said.

Central office rents have been on a declining trend since the second quarter of 2011 and have dropped by 12 per cent cumulatively. The decline moderated in the second quarter this year, with a drop of just 1.2 per cent quarter-on-quarter.

Property consultant DTZ said in a report released at the end of last month it believed that QE3 would be regarded as a positive signal by multinational and local companies and this was expected to encourage occupier demand and further consolidate improvement in rentals in some districts.

But DTZ also said how big the impact would be was unknown.

In 2013, Credit Suisse expects office rents to stay flat year on year, taking into account more take-up of Central office spaces in the second quarter to the third quarter of 2012, with some buildings even seeing a minor rebound in office rents.

Most financial tenants opted to renew their leases in Central in 2012 despite the cost pressure, simply because there were not many options left in Central.

Expansion by mainland tenants helped the occupancy rate. "Despite the sluggishness of the stock market and the Chinese economy in 2012, Chinese tenants have been more active in taking up grade A office space in Central; this has helped the occupancy rate stay high amid the down cycle," said Credit Suisse.

Credit Suisse expects capital values for commercial properties to go up by 5 per cent in 2013, as rents stay flat.