Asia Pacific Property DigestThird Quarter 2011Asia PacificLeading Global Rental Growth
Asia Pacific Property Digest • Third Quarter 2011 Dear Reader,At the end of Q3, most real estate markets in Asia Pacific remain in the upturn phase of the cycle. Solid activity levels continueto drive increases in rents and capital values in most locations although growth momentum is starting to slow. Over the next 12months, the regional economy is expected to grow more than twice as fast as the rest of the world and this growth should continueto underpin property market activity.You can also view this report as an on-line version at www.joneslanglasalle.com/thehub where you will also find our other researchreports, property market indexes, clocks and research blogs.Happy reading!Best regards,Dr Jane MurrayHead of Research – Asia Pacific Feature Articles Retail Asia Pacific Economy and Property Market 4 Beijing 41 Asia Pacific CEO Commentary 8 Shanghai 42 Taiwan – Opening Doors to Mainland China 10 Guangzhou 43 Singapore – New Residential Stock 12 Chengdu 44 India – Public Private Partnership 14 Hong Kong 45 Australia – Online Retail Boom 16 Bangkok 46 Office Kuala Lumpur 47 Singapore 48 Tokyo 18 Jakarta 49 Osaka 19 Delhi 50 Seoul 20 Mumbai 51 Beijing 21 Bangalore 52 Shanghai 22 Chennai 53 Guangzhou 23 Australia Sub-Regional 54 Hong Kong 24 Auckland 55 Taipei 25 Bangkok 26 Residential Ho Chi Minh City 27 Beijing 56 Manila 28 Shanghai 57 Kuala Lumpur 29 Hong Kong 58 Singapore 30 Macau 59 Jakarta 31 Bangkok 60 Kuala Lumpur 61 Delhi 32 Manila 62 Mumbai 33 Singapore 63 Bangalore 34 Chennai 35 Industrial Sydney 36 Tokyo 64 Melbourne 37 Beijing 65 Brisbane 38 Shanghai 66 Adelaide 39 Guangzhou 67 Hong Kong 68 Auckland 40 Singapore 69 Sydney 70 Melbourne 71 Brisbane 72Cover picture: China World Tower, Beijing
Asia Pacific Property Digest • Third Quarter 2011 Asia Pacific EconomyEconomy Outperformance Expected to Continue Dr Jane Murray Head of Research – Asia Pacific The Asia Pacific economy continues to outperform the rest of the Indonesia: Real GDP grew by 6.5% y-o-y in 3Q11, the same as world and recent economic indicators show that activity levels the previous quarter, on the back of strong exports and investment generally remain solid. However there is mounting evidence, spending. GI is forecasting slightly lower growth of 6.3% for the full including the first GDP results for Q3, that growth momentum is year 2011 and 5.7% for 2012. Indonesia is one of the least vulnerable starting to slow. This is due to a range of factors including the economies in Asia to slowing export demand and its economy should ongoing sovereign debt crisis in Europe, sluggish activity in the US continue to benefit from strong domestic demand. and previous tightening measures by countries in our region. This Japan: Real GDP contracted by 1.1% y-o-y in 2Q11, similar to situation has started to impact regional export growth as well as the previous quarter, following the disruption to production and domestic activity including industrial production. exports caused by the March earthquake and tsunami. The latest data indicate some ongoing weaknesses, with industrial production Growth still solid in most countries declining by 4.0% y-o-y in September while retail sales fell for China: Real GDP grew by 9.1% y-o-y in 3Q11, slowing from the the second straight month. However GI predicts that, following a 9.5% recorded in the previous quarter. Retail sales grew by a more contraction of 0.6% this year, the Japanese economy will rebound by moderate 11.3% y-o-y in real terms in the first nine months. The latest 2.7% in 2012 due largely to the reconstruction efforts. data indicates a further slowing in growth momentum although we do not expect a hard landing as a result of the government’s various Australia: The economy returned to positive growth in 2Q11, after policy measures to prevent overheating of the economy. IHS Global contraction in the previous quarter induced by natural disasters Insight (GI) expects China’s economy to grow by 8.1% in 2012. This in Queensland which disrupted mineral exports. However, retail represents a moderate slowdown from projected growth of 9.3% in spending has been growing at well below trend levels and the 2011 due to both slower external and domestic demand. unemployment rate has edged up in the past six months. For 2011, full-year growth of 1.7% is expected. Growth is forecast to strengthen India: The economy expanded by 7.7% y-o-y in 2Q11, similar to to 3.2% in 2012, supported by mineral and agricultural exports and the 7.8% growth in 1Q11, as faster growth in manufacturing output related investment spending. helped offset a slowdown in the agricultural sector. GI expects India’s real GDP to grow by 7.7% in 2012, similar to a projected 7.5% in Singapore: Real GDP growth accelerated to 5.9% y-o-y in 3Q11 2011, as generally vibrant consumer spending should help to offset (+1.0% y-o-y in 2Q11), based on advance estimates, with growth slowing exports and investment spending. picking up in the volatile manufacturing sector. GI expects real GDP Figure 1: Real GDP Growth Figure 2: Consumer Price Inflation 10 20 8 18 10 6 8 y-o-y (%) y-o-y (%) 4 6 2 4 2 0 0 –2 –2 China India Indonesia Vietnam Hong Kong Philippines Taiwan Singapore Malaysia South Korea Thailand Australia New Zealand Japan Vietnam India China Indonesia Hong Kong Singapore Philippines New Zealand South Korea Thailand Australia Malaysia Taiwan Japan 2011F 2012F 2011F 2012F Source: IHS Global Insight, October 2011 Source: IHS Global Insight, October 2011
Asia Pacific Property Digest • Third Quarter 2011 EconomyKey Performance Indicators GDP (%) Short-Term Interest CPI (%) Unemployment Real Private Industrial Rate (%) Rate (%) Consumption (%) Production 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F China 9.3 8.1 6.4 6.4 5.6 4.1 4.1 4.1 8.2 8.2 13.5 11.4 Hong Kong 5.2 4.5 0.2 0.2 5.0 3.8 3.4 3.1 6.8 4.8 NA NA Taiwan 4.6 4.4 0.7 1.0 1.5 1.5 4.4 4.1 3.5 3.0 7.3 6.9 Japan –0.6 2.7 0.2 0.2 0.2 –0.6 4.7 4.6 –0.8 1.8 –1.4 12.9 South Korea 3.5 1.6 3.4 3.8 4.0 2.0 3.6 3.8 2.8 3.5 7.0 2.0 Philippines 4.6 5.0 1.4 2.2 4.7 4.2 7.2 7.2 5.3 5.3 5.6 5.2 Singapore 4.5 4.4 0.3 0.6 4.9 2.9 2.5 2.7 4.8 3.0 5.9 5.0 Malaysia 4.0 3.7 2.9 2.9 3.2 2.9 3.1 3.2 6.0 5.4 0.6 3.3 Thailand 3.1 3.6 2.8 3.4 3.9 4.0 0.7 0.9 3.1 3.7 –1.0 6.0 Indonesia 6.3 5.7 6.8 6.6 5.5 4.7 6.7 6.5 4.8 4.9 4.3 3.7 Vietnam 5.9 5.8 14.5 10.8 18.7 8.5 2.9 3.0 6.6 7.0 13.0 9.9 India 7.5 7.7 9.8 11.0 8.5 7.0 9.6 9.5 7.5 7.1 5.8 5.7 Australia 1.7 3.2 4.9 5.0 3.4 2.8 5.2 5.3 3.2 2.5 –2.6 2.9 New Zealand 1.6 3.0 2.7 3.3 4.3 2.1 6.3 5.6 1.9 2.5 2.8 1.9 World 3.0 3.0 3.2 3.3 4.1 3.1 8.4 8.3 2.5 2.7 4.1 4.3Source: IHS Global Insight, October 2011to grow by 4.4% in 2012, similar to this year’s pace, as domestic implementing other tightening measures since 3Q09. However, givendemand should help to offset weaker export growth. the more challenging economic environment that has emerged in recent months and the likelihood of moderating inflationary pressures,South Korea: The economy expanded by 3.4% y-o-y in 3Q11, the further policy tightening in the current cycle is now looking unlikely.same as 2Q11, as more government spending helped to offset a Indeed, some monetary loosening has already been implemented, withsoftening in consumer spending. GI expects real GDP growth to Australia and Indonesia cutting interest rates by 25 bps in early 4Q11.moderate from 3.5% this year to 1.6% in 2012, mainly due to slowerexport growth. Regional economy should continue to outperformHong Kong: In 2Q11, economic growth moderated to 5.1% y-o-y There’s no doubt that the world is facing more challenges as we(7.5% y-o-y in 1Q11), slightly above the ten year average of 4.1%. In move towards 2012. However, at this stage we believe that a globalSeptember, retail sales grew by a very strong 24.1% y-o-y, although recession will be averted and that Asia Pacific will continue todown from the 29.0% recorded the previous month. GI expects real outperform next year. The region has strong structural drivers, lowGDP growth to moderate from 5.2% in 2011 to 4.5% in 2012, mainly levels of indebtedness and policy flexibility should conditions worsen.due to slower export growth. According to GI, Asia Pacific should grow by 4.6% this year,Policy tightening has probably come to an end significantly above the rest of the world at 2.6%. In 2012, the region is expected to grow by a slightly faster 5.4% as a moderate slowdownInflationary pressures remain high in many countries. In September, in emerging economies including China should be offset by strongerChina’s CPI inflation rate moderated slightly to 6.1% y-o-y, while in growth in the advanced economies of Japan and Australia. ByIndia wholesale price inflation remained at 9.7% y-o-y. Most regional contrast, the rest of the world is projected to grow by 2.2% next year.central banks have been in the process of raising interest rates or
Asia Pacific Property Digest • Third Quarter 2011 Asia Pacific Property MarketProperty Market Leading Global Rental Growth The property markets in Asia Pacific continue to see positive growth likely to be seen in markets such as Beijing and Jakarta, underlying fundamentals, despite more economic uncertainties. At followed by Tokyo, Sydney and Shanghai. the end of Q3, most real estate markets in the region remain in the Retail sector: Retailer demand remained strong in Greater China upturn phase of the cycle. Solid activity levels continue to underpin during 3Q11 and Hong Kong was a standout performer in terms increases in rents and capital values in most locations. However of retail turnover which continued to surge largely due to Mainland growth momentum is starting to slow, particularly in those markets tourists. Retailers in India, Australia and some South East Asian that are most exposed to global economic conditions. markets were more cautious and as a result rental growth slowed across most markets in 3Q11. Rents should see further uplift in most Rents still increasing in most markets centres over the next few quarters, although generally at a more Office sector: In 3Q11, 1.5 million sqm of new Grade A space was moderate rate, due to the economic climate and/or upcoming supply completed in the Tier I markets of Asia Pacific, with around two-thirds additions. of the total being delivered to markets in China and India. Aggregate net absorption of office space held at a strong 1.4 million sqm, Residential sector: Leasing activity in most luxury and high-end the same as the previous quarter, and this year is on track to be a residential markets was largely stable in 3Q11, but improved slightly record in terms of take-up. Corporates continued to expand in China, in Beijing, Shanghai, Manila and Jakarta. Likewise luxury rents while relocations and expansions bolstered demand in some other were generally stable but increased by up to 4% q-o-q in China. centres. Corporate hiring sentiment and leasing demand weakened More subdued rental growth is expected for 2012, and Hong Kong in Hong Kong and Singapore amidst market volatility and news of and Singapore should see some softening due to slower corporate some corporates shelving relocation and expansion plans. We expect expansion. overall leasing demand to weaken moderately next year, due to Industrial sector: The regional industrial market remained healthy slower economic growth and corporate hiring in some markets, as in 3Q11 despite the slowdown in regional trade. Rents continued well as smaller supply additions. to grow in Greater China and Singapore but were broadly flat in Rents rose further in most markets in 3Q11, although growth started Australia, while Beijing and Hong Kong recorded the highest q-o-q to slow in a number of centres. Rents in Jakarta, Beijing and Perth increases. Moderate rental growth is projected for most centres over saw the largest q-o-q increases of between 10.5% and 13.6% on the the next 12 months apart from Hong Kong and Singapore which are back of falling vacancy levels. Among the major financial centres, likely to be more impacted by the slowdown in exports. net effective rents fell marginally in Hong Kong for the first time since the GFC, and moderated to 0.6% q-o-q growth in Singapore, largely Capital values edge higher due to more cautious behaviour of financial corporates. On the In 3Q11, AP commercial real estate investment volumes totalled other hand, rents in Sydney saw stronger quarterly growth of 6.6% US$21 billion, up by 13% q-o-q and 7% y-o-y. Japan regained its top underpinned by healthy take-up. In Tokyo gross rents fell further by spot in the region, with volumes rebounding strongly by over 200% 0.4% although net effective rents were stable. Rental declines were from Q2 which was severely impacted by the earthquake. Greater seen in a few other markets including Seoul, Osaka and Ho Chi China also saw strong buying activity and Hong Kong recorded its Minh City, due to weak tenant demand or new supply, but are close largest ever transaction, the sale of a shopping centre to a cross- to bottoming out. On average, Asia Pacific office rents rose by 2.5% border investor. For the full year 2011, aggregate regional investment q-o-q. This compares with 1.1% for the Americas and no growth for volumes are estimated at around US$89 billion, similar to last year, Europe. More detail can be found in our recently launched Global and slightly below the US$100 billion projected at the beginning of the Office Index. year. The loss of volumes from Japan in Q2, coupled with mounting investor uncertainty, account for the lower than expected volumes. Looking forward, we expect rents to continue to increase in most markets over the next 12 months, although Hong Kong and Most major markets saw either stable or increasing capital values Singapore may see some softening given their greater exposure to during the quarter. The largest quarterly increases were recorded in the global economy. Rents in Tokyo are forecast to correct until the Jakarta (+14.2% q-o-q) and Beijing (+11.8% q-o-q), which also saw the end of this year and a few other laggard markets are also likely to see strongest rental growth. Capital values are expected to remain stable either no growth or some residual rental declines. Rental growth of or increase in most markets over the short to medium term, with the up to 25% is expected across the region for 2012, with the strongest exception of Hong Kong and Singapore. For 2012, we are forecasting
Asia Pacific Property Digest • Third Quarter 2011 Rental Property Clocks, 3Q11 Property Market Grade A Office Prime Retail Hong Kong Guangzhou Hong Kong Singapore Singapore Shanghai Guangzhou Growth Rents Growth Rents Slowing Falling Slowing Falling Beijing Beijing Rents Decline Manila Rents Decline Manila Kuala Lumpur Rising Slowing Rising Slowing Perth Bangkok Adelaide Shanghai Melbourne, Jakarta Seoul Melbourne Sydney Sydney Osaka Bangalore^ Ho Chi Minh City, Canberra SE Queensland Tokyo Brisbane, Mumbai^ Kuala Lumpur, Tokyo Delhi Bangalore Bangkok, Delhi^ Chennai, Taipei, Auckland Auckland, Jakarta ^ CBD SBD *For Prime Shopping Malls Prime Residential Industrial Hong Kong Singapore* Hong Kong Singapore (High-Tech) Singapore (Conventional) Growth Rents Growth Rents Slowing Falling Shanghai Slowing Falling Shanghai Manila Rents Decline Rents Decline Rising Slowing Rising Slowing Beijing Beijing Sydney Kuala Lumpur Melbourne Jakarta Bangkok Auckland, Brisbane Tokyo *Business Parks (Singapore) *For High-end Residential Properties Logistics Space (Hong Kong, Shanghai, Beijing, Tokyo Bay Area)the strongest growth in China, Tokyo and Jakarta. Yields may see About the Authormoderate softening in some markets due to increased investor caution. Dr Jane Murray joined Jones Lang LaSalle in 1998 and in 2005 wasRegion’s drivers should shore up activity next year appointed as Head of ResearchThe regional property market will not be immune from any further – Asia Pacific. In this role, Jane leadsdeterioration in global conditions. However Asia Pacific’s economic a team of over 100 professionaldrivers, together with its attractive cost base, should continue to researchers in the region, whichbuoy leasing activity across the various property sectors. In turn, this forms part of a network of aroundshould see further increases in rents next year in most markets, with 300 researchers in 60 countriesa moderate decline for those that are more exposed to the global around the globe.economy. The Asia Pacific Research teamAs for investment demand, our current outlook for 2012 is for a stable produces a range of outputs to assist the clients of the Firm with theirregional market continuing to see investment volumes at around the decision making, including comprehensive market monitoring andsame level as 2011. Capital values should continue to grow in most analysis across major institutional-grade real estate markets in themarkets, but at a generally slower rate, as for rentals. At this stage we region; forecasts of key real estate indicators; consultancy projects;expect any decline in rents and prices to be temporary and near-term thought leading research papers on topical issues as well as regularweaknesses to subside when the economic and policy environment publications.becomes more favourable.
Asia Pacific Property Digest • Third Quarter 2011Alastair Hughes, CEO AP A Change in Mood as a Chill Wind from West Blows East: Five Reasons to Be Cheerful Economic storm clouds are gathering over parts of Europe and slow to India and the Philippines are part of the solution. This is resulting in growth in advanced economies is weighing on global sentiment, and demand for office space remaining at very high levels. there is no doubt this has spread to most markets in Asia Pacific Fourth, Asian companies are still growing. Corporate fundamentals during Q3. Even with this wind from the west blowing towards the remain in good shape across the region. Companies have access east, we have good reason to remain optimistic about Asia Pacific and the resilience of real estate markets in this part of the world. So what are some of the reasons that I remain cheerful as I travel around the region seeing our offices and our teams growing? First, the economies of Asia Pacific are still growing. Some quickly, like China and India, and some more slowly, like Australia and Japan, but overall there are still reasons for optimism that this will continue looking ahead to 2012. Second, western companies still see Asia as their growth market. A good example of this is the fact that two big household name US companies engaged us during Q3 in two separate projects to execute big land deals for new manufacturing facilities in China. These companies are looking to target their products at the growing middle class consumer markets in Asia. It is this type of movement of western firms looking for growth that is likely to continue whilst the growth differential in our two speed world continues. Third, western companies are looking even harder at their costs in light of uncertain future revenues and ‘business process outsourcing’
Asia Pacific Property Digest • Third Quarter 2011 Alastair Hughes, CEO APto capital and access to a growing market of consumers who havesavings, little debt and a growing propensity to spend. We areincreasingly acting for Asian companies. This gives me cause foroptimism in that as a firm we are truly embedded in the countrieswhere we operate. All real estate is by definition ‘local’. We employlocal talent and are increasingly being appointed by local firms tointeract with other local parties. Several recent cases spring to mindwhere we have been appointed to advise on deals between twolocal firms or to advise state-owned enterprises. Our local strengthsand global connections add value to both our local and internationalclients.Fifth, as well as occupier growth, Asia Pacific is home to some of theworld’s largest sources of capital and international investors remainkeen to gain exposure to the real estate investments markets in thispart of the world.We continue to assist investors buying into real estate deals inour high-growth cities. Australia and New Zealand continue to beattractive to local and overseas buyers alike, and that includesemerging market Asian buyers with high levels of equity. In NewZealand we assisted an Asian high net worth family to buy the MetroCentre office development for approximately USD 30 million, andin Australia we have been appointed to assist another Asian Familyoffice to sell one of Sydney’s most central properties, the WynyardComplex of office hotel and retail properties.Investors have continued to put money to work in the real estatemarkets looking for diversification and we have sold a number of in the third quarter through our merger with King Sturge and our 330properties recently. In Australia they include 286 Sussex Street office new colleagues from Procon in Indonesia, one of the region’s fastest-building in Sydney for AUD 32.5 million (USD 33.2 million); the Target growing economies.Centre, a retail and office property in the Melbourne CBD for AUD88.0 million (USD 89.9 million) to an offshore private investor; and Jones Lang LaSalle continues to step up to the demands of ourThe Peninsula Lifestyle Centre in Victoria to BB Retail Capital for clients all over the world and here in Asia Pacific. The wind from theAUD 44.5 million (USD 45.5 million). West may be taking the edge off Eastern exuberance, but there is still plenty of activity in the real estate markets in Asia Pacific and, atSingapore was also popular where we completed a deal on 182 least, five reasons to be cheerful.Clemenceau Avenue for SGD 74 million (USD 58.4 million), six-storey office building in the CBD and we sold the Paramount Hotel Shopping Centre for SGD 214 million (USD 168.9 million).Asian buyers have been busy in other advanced economies, notablythe London residential market where we have facilitated project salesof over USD 2 billion in the last 18 months for our London-baseddeveloper clients, connecting them up with buyers here. We are alsoconfident that some clients from Europe would like to reciprocate bybuying residential properties in Asia Pacific. We have been appointedto sell some quality projects in Sydney, Singapore, Kuala Lumpur andMacau.So there are reasons from both the occupier and investor sides of ourbusiness for us to keep growing in the region. I would like to welcome Alastair Hughesall our new colleagues and clients that have joined us in Asia Pacific CEO, Asia Pacific
10 Asia Pacific Property Digest • Third Quarter 2011 What Has Changed in Taiwan After It Opened Its Doors to Mainland China?Taiwan Howie Wang Research Associate – Research, Taiwan Cross-Strait relationships have been improving since the inauguration world has seen in Hong Kong, there is no shortage of supply when of Taiwan’s president, Ma Ying-Jeou, in 2008. A few important it comes to Mainland tourists. Indeed, the spending and capital flow changes have been made over the past four years, especially that has resulted from mass tourism from Mainland China has had in terms of economic cooperation. Moreover, it appears that the a significant impact on Hong Kong’s hotel, retail and residential real Mainland Chinese leadership has been willing to provide Taiwan with estate sectors. In Taiwan, in addition to the tour groups Mainlanders more goodwill economic incentives, e.g. the cross-Strait financial were originally required to travel in, a regulation allowing up to 500 Memorandum of understanding (MOU) and Economic Corporation individual Mainland visitors per day was implemented in June 2011. Framework Agreement (ECFA). We expect further relaxation of the Taiwan’s real estate markets are in a good position to enjoy similar restrictions on trade and investment with Mainland China, and a more benefits from Mainland visitors as Hong Kong. stable Taiwan-Strait relationship. Together this should help Taiwan’s The 2010 Annual Survey Report on Visitor Expenditure and Trends in economy grow at a healthy pace. Taiwan revealed that Mainland shoppers spend more than any other Milestones in the relationship between Taiwan and Mainland China: nationality. While the average shopping expenditure in Taiwan is USD 77 per day, Mainland visitors now splash out USD 138 per day • Direct cross-Strait flights inaugurated and Mainland groups on shopping, a 72% increase over 2008. By our estimation, the 4,000 permitted to travel to Taiwan (July 2008) Mainland visitors added USD 550,000 daily to Taiwan’s retail outlets, • A cross-Strait financial MOU signed (November 2009) boosting annual retail sales by USD 201 million. Government data • Economic Corporation Framework Agreement (ECFA) signed also indicates that department store sales in Taiwan saw an average (June 2010) increase of nearly 4% from 2008 to 2010, rising 8.3% to NTD 251,113 million (USD 8.2 billion) in 2010 alone. Although renewed weakness • Individual Mainland visitors permitted to travel to Taiwan in the US and Europe would have an impact on sales, Taiwan’s (June 2011) overall retail market continues to be underpinned by Mainland New Shoppers in Taiwan shoppers. The liberalisation of direct flights between Taiwan and China allowed Notable shopping areas in Taipei, such as the Xinyi Planned Area, the Mainland groups to visit Taiwan from mid-2008. The initial limit of Zhongxiao East Road area and Xinmending, have seen the opening 3,000 people permitted per day was then increased to 4,000 per of new flagship stores to meet the demand of Mainland visitors, with day in 2011. In 2010, the total number of visitor arrivals to Taiwan the increase in high street rents estimated conservatively at 5-10% jumped to an historical high of 5.6 million, of which Mainland visitors to NTD 10,000-30,000 per ping per month (USD100-303 per sqm accounted for the largest single group, at 29%. Despite the political per month). In the meantime, as there is no heavy tax on jewellery or issues, the common culture and language has made Taiwan one of cosmetics in Taiwan, Mainland shoppers enjoy tax-refund shopping the most favoured travel destinations for Mainland tourists. As the on the island. Figure 1: 2010 Taiwan Per Capita Visitor Spending by Category Figure 2: Taiwan Approved Indirect Mainland Cumulative Investment Amount 320 120,000 280 100,000 240 USD spending per day 200 80,000 USD Thousand 160 60,000 120 40,000 80 20,000 40 0 0 Japanese Chinese American European 1991-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1-8 Hotel Shopping Outside Meals Local Transportation Entertainment Miscellaneous Expense Source: Taiwan Tourism Bureau, 2011 Source: Investment Commission, Ministry of Economic Affairs, August 2011
Asia Pacific Property Digest • Third Quarter 2011 11 Taiwan Regulations governing free independent travellers from Mainland China: Maximum length of stay: 15 days Daily allowance: 500 people Applicants must be legal inhabitants of Beijing, Shanghai or Xiamen; they are required to provide a guarantee from travel agency and their relatives, but do not have to pay a deposit for their tour. REQUIRED DOCUMENTATION for visa application: • Mainland applicants must be at least 20 years old and have a bank deposit of a minimum of NTD 200,000 or an annual income of NTD 500,000, or possess a gold card issued by a Mainland financial institution. • Applicants can be accompanied by their spouse and/or a direct relative. • Students aged 18 or older also qualify with a valid student ID. • Applicants are required to take out health insurance valid in Taiwan for the duration of their stay. Source: National Immigration AgencyEconomic Cooperation OutlookThe signing of the ECFA and the financial MOU with the Mainland With the improved bilateral relations between Taiwan and MainlandChina government are the most important factors driving the real China, FDI into Taiwan is expected to continue increasing, solidifyingestate market. The economic cooperation has enabled Mainland its position as one of the economic centres of the region and one offinancial institutions to establish corporate banking services in Taiwan, the key destinations for outbound investment from China. Additionally,which is one of the Mainland’s top trading partners, with authorised the influx of Mainland visitors will support the retail and hotel markets,investment totalling USD 103 billion from 1991 to August 2011. and boost Taiwan’s tourism industry.The ECFA not only eased cross-Strait political tensions, but alsoencouraged a more cooperative relationship between Mainland About the AuthorChina and Taiwan. Under the agreement, both sides agreed to Howie Wang joined the Researchlower tariffs on goods in the textile, auto parts, machinery and Department of Jones Lang LaSalle’spetrochemical sectors, among others. Mainland China reduced Taipei office in 2010.tariffs on 539 Taiwanese goods, while Taiwan reduced tariffs on 267Mainland commodities. We also expect more foreign corporations He is responsible for researchto be interested in the Taiwan market due to the lower tariffs. From publications and research projectsJune 2010 to August 2011, the number of authorised Mainland primarily focusing on commercialcorporations with a presence in Taiwan nearly tripled from 55 to 152, property. He is actively involvedwhile the number of foreign companies escalated by 167 to 3,536 in giving market presentations forand the number of foreign representative offices increased by 252 to Jones Lang LaSalle’s clients and3,520, with mounting investment reaching NTD 11 billion (USD 328 to various other organisations withmillion). We estimate that, due to cross-Strait economic cooperation, interests in the Taiwan property market. Howie holds a Master degreeMNCs and Mainland occupiers absorbed some 10,000 ping (33,000 in European Property Development and Planning from Universitysqm) of Grade A office space in Taipei over the last 12 months. College London.
12 Asia Pacific Property Digest • Third Quarter 2011 New Stock Arriving in the Singapore Residential MarketSingapore Dr Chua Yang Liang Head of Research, South-East Asia Some analysts have argued that the Singapore residential market 20% of them non-residents. By 2010, the population had jumped to will see a correction in 2014/2015 due to the large amount of stock 5.1 million, with non-residents accounting for 25%. However, total expected to complete over that period. An average of 50,000 housing housing stock (private and public) during this same period grew units (public and private) per year is expected be ready in both 2014 only from 956,275 to 1,158,885 units, equivalent to a 2.1% increase and 2015 – equivalent to about 4.0% of the current housing stock of per annum. The net effect is that the size of the average national 1.1 million units. In our opinion, the residential market will not contract household1 expanded from 4.21 people in 2000 to 4.37 people in as a result of this growth. First, the Singapore residential market 2010. The average household size since 2000 has been about 4.08 has rarely seen a correction based on stock levels alone. Second, (Figure 1). the growth in population over the past few years has outpaced that As a result of the larger households, demand for new housing has in the physical housing stock. Finally, immigration is unlikely to been pressing. Property prices in terms of the URA’s Property slow, as articulated by Prime Minister Lee in his National Day Rally Price Index (PPI) continued to show strong gains over that period, speech. Demand for housing is, therefore, likely to remain fairly especially in 2006/2007, when prices island-wide expanded 31%, and stable and support the injection of new stock over the next few years. again in 2009/2010, when they rose 18%. Convinced by the strong Undoubtedly, the current increase in global economic uncertainty is demand and rising prices, developers have continued to push out likely to dampen sentiment here, resulting in short-term fluctuations new projects with an average of 12,000 housing units per year since in demand and prices but, overall, the mid- to longer-term outlook 2006. With the new stock coming onto the market, the size of the remains stable on the back of these fundamentals. average household should decrease to 3.9 people, assuming that the population growth slows to just 5.2 million by 2015. If immigration Housing market and population growth keeps pace, albeit at a slightly slower rate, the size of the average The growth in population since 2003 has been driven largely by household will be around the long-term average of 4.08, with a immigration. In 2000, there were 4.02 million people in Singapore, population of 5.5 million, in 2015. Figure 1: Average household size rising with population growth Figure 2: Two recent corrections in PPI were externally driven 80,000 4.6 5.0 Global 190 60,000 Financial 4.4 Crisis 40,000 18% 4.0 4.2 170 20,000 –5% 2% Housing Units 4.0 Est. Household Size 3.0 Index Number (mil) 0 150 3.8 –20,000 2.0 3.6 130 –40,000 3.4 –60,000 1.0 110 Tech Stock 3.2 –80,000 Bubble 0.0 3.0 –100,000 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Population Total Physical Stock Annual (ST) Balance of Housing Stock URA Islandwide PPI (RHS) Average Household Size (RHS, 5.2 mil 2015) Cumulative (LT) Balance of Housing Stock Source: Jones Lang LaSalle Source: Jones Lang LaSalle 1 For purposes of simplicity, the size of the national household is calculated by taking the overall population divided by the total housing stock, excluding worker and student dormitory housing. This ratio is different from the 3.5 people per household reported in the Census as the latter includes only Citizen and Permanent Resident households. 2 The completion of housing stock is matched against housing occupier demand each year to arrive at the short-term (annual) balance of housing stock. The long-term balance is the cumulative sum of this annual housing stock balance over time. 3 In this first case, we have assumed that the population will reach only 6.5 million by 2050, in line with the URA’s long-term population estimate used for planning purposes.
Asia Pacific Property Digest • Third Quarter 2011 13 Singapore Figure 3: Cumulative stock not likely to tip property prices 80,000.00 250 Averaging 1.8% per year 60,000.00 Forecast 200 40,000.00 20,000.00 150 Housing Units 0.00 Index –20,000.00 100 –40,000.00 –60,000.00 50 –80,000.00 –100,000.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 Annual (ST) Balance of Housing Stock Cumulative (LT) Balance of Housing Stock URA Islandwide PPI (RHS) Source: Jones Lang LaSalleHistorically, the PPI is sentiment-driven housing stock may be insufficient to meet annual demand, therebyThe impact of the short- and long-term balance of housing stock on 2 supporting further increases in property prices.property prices as measured by the URA’s PPI is shown in Figure 2. Itis commonly accepted that the Singapore residential market is driven Summarylargely by sentiment. The PPI recorded major corrections in 2000/01 Based on the three fundamental issues of historical behaviour, weand 2007/08, despite a shortage of stock in both periods. The PPI have argued that large residual demand and long-term populationremained flat from 2002-04 as the short- and long-term housing stock growth targets will likely support the housing market going forward.exceeded demand. Most recently, in 2007/08, the balance of the While our view is based on the assumption that the Singaporedeficit in housing stock supported a 20.0% rebound two years after economy will remain fairly stable, should conditions worsen beyondthe initial correction of 5.0%. that of a technical recession, we could expect the PPI to decline. We are, however, confident that the PPI would recover in the mid- toResidual demand to continue supporting the market longer-term in line with the underlying fundamentals of residualThe large surplus in the annual balance of housing stock will not demand and new immigration growth. The outlook beyond 2015 willbe sufficient to drive the cumulative balance of housing stock into then depend largely on the state’s immigration policy.positive territory until 2015. Therefore, this outstanding, or residual,housing demand (as further evidenced by the larger size of the About the Authoraverage national household) is likely to continue to supply occupiers Dr. Chua Yang Liang leads the(potential homebuyers) over the next few years. The PPI is unlikely to Jones Lang LaSalle research teamssee a large correction but maintain a more modest growth, averaging in the South-East Asia region,some 1.8% per year until 20153 (Figure 3). encompassing Indonesia, Malaysia, the Philippines, Singapore, ThailandLong-term population target assumes immigration likely to and Vietnam. Trained as an urbancontinue planner, Dr. Chua brings a differentImmigration is unlikely to slow, as articulated by Prime Minister Lee perspective to the fundamentalin his National Day Rally speech. We think that the growth rate for research on the property market.residents is likely to remain at the 2010 level, while the growth of the He publishes original research onforeign population could be slightly lower. Given this, we could be regular property market updates, rental and price indices, topicalhome to 5.5 million people by 2015. If that figure materialises, new property market matters, as well as consultancy assignments.
14 Asia Pacific Property Digest • Third Quarter 2011 Public Private Partnership, a Proven Mantra for Infrastructure Development in IndiaIndia Ashutosh Limaye Head of Research and Real Estate Intelligence Service, India Since independence in 1947, the development of infrastructure has • Build/Operate/Transfer (BOT) or Build/Transfer/Operate (BTO) been the responsibility of the Indian government and one that it has • Build-Own-Operate (BOO) dutifully discharged for four decades. It has now become clear that • Build-Own-Operate-Transfer (BOOT) the government cannot go on with this mechanism, considering the natural growth of the country, its phenomenal rate of urbanisation, • Buy-Build-Operate (BBO) and the widening gap between the infrastructure required and that • Design-Build (DB) which can be provided. Thus, while opening up its economy to the • Design-Build-Maintain (DBM) world in 1991, India also opened the gates to private participation • Design-Build-Operate (DBO) in infrastructure, a domain it had previously held closely to its chest. • Developer Finance This attracted significant interest from domestic and international private sectors as both the country and the world were convinced • Lease/Develop/Operate (LDO) or Build/Develop/Operate (BDO) of the growth India is set to achieve over the next few decades. Benefits of a PPP India’s call to introduce and facilitate Public Private Partnership (PPP) proved to be the right step towards collaboration and boosting PPPs bring together the strengths of both the public and private confidence in the private sector, with the government’s active domains to achieve: participation in this joint effort set to create world-class infrastructure • Reduced life-cycle costs in India. • Better risk allocation What is PPP? • Faster implementation “Government and a private corporation combine to provide a public • Improved service quality service through the creation and use of new assets for a set time • Generating additional revenue streams period.” is the easiest definition of a PPP. A private sector consortium • Reduced burden on the government exchequer can form a special company called a “Special Purpose Vehicle” (SPV) • Meeting the changing demand pattern of people: “Bijli-Sadak- to develop, build, maintain and operate the asset for the contracted Paani” (uninterrupted power - all-weather roads - water period. The goal of any PPP is to combine the best capabilities of management) emerging as the voter’s mandate from the the public and private sectors for mutual benefit and to act in the erstwhile “Roti-Kapda-Makaan” (food - clothing - housing) best interests of the project. The result is the integration and cross- transfer of public and private sector skills, knowledge and expertise to Risk allocation forge capacity-building and the efficient use of resources, and bring With its bureaucracy and policy complexities, India is often rightly transparency and accountability to the infrastructure sector. criticised for being slow to grant permission and concessions to private sector companies interested in planning and executing Significance of PPP infrastructure projects. PPP overcomes this through better risk “The infrastructure gap in the country is holding back economic allocation by allocating risk for land acquisition, developing growth by 1.5-2% every year. ” – Planning Commission of India connectivity to the project site, ensuring timely permissions and (2010-11). This statement underscores the significance of PPP authorisations, regulatory risks, and political risk to the public sector. and India has resolved to bridge this gap through PPP initiatives. Investment in infrastructure as per the country’s 11th Five-Year Plan Building confidence in private sector is to the tune of INR 7,656 billion (USD 153 billion) from the Central The Indian government has done a good job in ensuring that the government and INR 6,709 billion (USD 134 billion) from various private sector develops confidence and is comfortable about entering state governments, with INR 6,196 (USD 124 billion) billion from the a PPP. The Indian government has ensured the efficient facilitation private sector, chiefly through PPPs. of PPPs by putting Model Concession Agreement (MCA) documents in place for (a) national and state highways, (b) sea port terminals, PPP Variants (c) non-metro airports and green-field airports, and (d) railways. It The beauty of a PPP lies in its versatility. There are several ways has also put in place a structure for a Viability Gap Funding (VGF) to execute PPP projects, suiting the different needs of different scheme to enhance the financial viability of PPP projects and set up infrastructure projects. Some of the most widely used variants are as the India Infrastructure Project Development Fund (IIPDF) to provide follows: loans to meet development expenses.
Asia Pacific Property Digest • Third Quarter 2011 15 IndiaSuccess stories Leveraging real estate• Roads: the Jaipur-Kishangarh Expressway, the Mumbai-Pune One of the major achievements of PPP projects in India has been the Expressway and the East Coast Road leverage of real estate to cross-subsidise infrastructure capital. This• Ports: Pipapav, Mundra and Krishnapatnam has proved to be the biggest attraction for private agencies to plan and execute infrastructure projects. For example, in the case of Delhi• Railways: Pipapav Rail and Kutch Rail airport spreading over 5,000 acres, for a project cost of about INR• Airports: Hyderabad, Bangalore, Delhi and Mumbai 10,500 crore (USD 21 billion), development rights for only 45 acres• Power: Vishnuprayag, Mundra and Sasan Projects of land (out of 250 acres allowed for commercial development) were monetised for about INR 2,500 crore (USD 5 billion)! At this rate theConstraints investment can be easily recovered from leveraging real estate inDespite these success stories, it is also important to identify and less than 15 years on a highly conservative basis and the concessionappreciate the constraints faced by PPP projects in India: is for 30 years with renewal provision for another 30 years, thus• Project level constraints: underlining the importance of leveraging real estate in infrastructure projects. – Issues in concession agreement – Land acquisition problems With about half of India’s one billion-plus population expected to live in cities by 2020, meeting the infrastructure requirements is a great – Uncertain revenues (project feasibility issues) challenge and leveraging real estate is arguably the most efficient – Creditworthiness of customers (esp. government agencies’ – perhaps the only – way to achieve this mammoth task. Real estate past record of delays in fund infusion, and granting necessary allied with infrastructure is still a rare commodity in India and the permissions) private sector understands perfectly the premium attached to it. With• Institutional constraints: the opening up of Indian real estate to FDI in 2005, the pairing of real – The lack of experience estate with infrastructure seems to be key to solving the infrastructure deficit India is striving to overcome. – Asset-liability mismatch – Inadequate financial structuring About the Author – Limited access to multiple fund sources Ashutosh Limaye is the headWay forward of Research and Real EstateIndia’s PPP sector is now mature and experienced. As India is Intelligence Service, formarching towards greater transparency and accountability, it is Jones Lang LaSalle in India, basedalso improving its project feasibility research, finance structures in Mumbai. He has an experienceand execution capabilities to better its performance. The intention in real estate consulting for overby both public and private agencies to join hands to deliver world- eight years and was heading JLL’sclass infrastructure promises to bridge the gap that exists between Strategic Consulting business foravailable and necessary infrastructure, and to boost India’s economy West India until June 2011. He hasand overall growth. worked on several PPP projects in India, including modernization of Mumbai and Bangalore Airports,India is already significantly moving towards: World Bank funded Mumbai Urban Transportation Project, and• Evolving more robust concession agreements Seawoods suburban train station, Mumbai. He is an architect and• Streamlining the land acquisition process urban planner with a total work experience of over 14 years in real estate, Urban Planning, Urban Governance, and Architecture.• Credit enhancement for projects• Capacity-building on a pan-India basis in order to scale up human capital• Making external commercial borrowing accessible• Expanding Scope of Venture Capital Funds to allow investment in all infrastructure sectors
16 Asia Pacific Property Digest • Third Quarter 2011 Australia’s Online Retail Boom:Australia What Does Greater Retail Competition Mean for Landlords? Leigh Warner Director – Research, Australia Australian consumers appear to finally be embracing online retailing. should take some of the sting out of the pace of online sales growth Online retail penetration in Australia has been low relative to other by narrowing the price differential slightly. developed countries, with the online market estimated to be only equivalent to 3.9% of total Australian retail trade in 2010 (Urbis)1. Impact of competition on Australian retailers Nevertheless, a strong Australian dollar (AUD) relative to other While an improvement in the general retail environment will help developed nations over the last few years has made the price Australian retailers, they will have to deal with much stronger levels of differential between goods in Australian stores and online significant. international competition, which historically they have been relatively A study in June 2011 by Morgan Stanley2 compared 99 identical isolated from. This greater international competition is not only items and found that prices were 19-64% cheaper online than in coming from online sales, but also: Australian stores. This has seen growth in online retailing in Australia accelerate considerably over the past few years, which is evident • The strong AUD has prompted record levels of outbound in a number of indicators such as bank credit card data to offshore international travel by Australians (and conversely dampened merchants and inbound international postage volumes. inbound tourism), which has led to greater spending by Australians abroad on both tourism services and consumer The impact of increased online sales is particularly stark at present goods; and because it is generally a slow retail environment. Australian retail • More international retailers are increasing their physical presence turnover has grown just 2.1% over the year to August 2011, which in Australia, motivated by strong economic growth prospects in is below the pace of inflation and well below average growth seen Australia relative to other developed nations. International brands over recent decades. While online sales have contributed to this such as Zara have recently had enormous success in their entry slow pace of turnover growth, there are many other cyclical factors into the market, which is prompting many more, such as Top that have contributed to the slower pace of growth. In the short-term, Shop, Uniqlo, Abercrombie Fitch and Forever 21, to increase retail turnover is forecast to steadily pick up over the next 12 months, their presence in the market. while the AUD has also depreciated slightly over recent weeks, which Figure 1: Australian Exchange Rates Figure 2: Retail Vacancy 90.0 1.2400 Specialty store vacancy by centre type 10.0% 80.0 1.0400 8.0% Index (1970 = 100) 70.0 0.8400 6.0% % of shops vacant AUD/USD 60.0 0.6400 4.0% 50.0 0.4400 2.0% 0.0% 40.0 0.2400 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Dec-83 Dec-84 Dec-85 Dec-86 Dec-87 Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 CBD Regional Sub-regional Neighbourhood Trade Weighted Index (LHS) AUD/USD (RHS) Note: Arithmetic average of all major cities. Sub-regional vacancy excludes Canberra. Source: RBA, Jones Lang LaSalle Source: Jones Lang LaSalle Research 1 ‘Unravelling Online Retail in Australia’ Urbis, August 2011. 2 ‘Australian Retail: Internet Retailing 2.0’ Morgan Stanley, June 27, 2011.
Asia Pacific Property Digest • Third Quarter 2011 17 AustraliaThe sudden exposure of Australian retailers to global competition has online sales. As is the case internationally, many retailers are lookingexposed some inefficiency that comes with operating in a relatively to use their store network as distribution points for online sales, whichsmall and isolated market. Wage costs to turnover appears high further re-enforces the need to be in good strategic locations withinrelative to international retailers, Australian retailers’ stock systems prime shopping centres.appear less efficient, while rent is also high as a proportion of The continued growth of online sales is going to force retailers toturnover. adapt their business models to a new competitive environment. This will mean centre owners will also have to adapt centre configurationsWhat does all this mean for landlords? and rental structures over time to accommodate this change.While on the face of it continued strong online sales growth and Nevertheless, a large amount of shopping will always remain aboutthe adjustment that Australian retailers need to make to global the experience and the service provided. Prime shopping centres willcompetition appears bad for rental growth prospects for major centre always be at the heart of facilitating this experience and Australia’sowners, there are a number of mitigating factors to suggest that the strong retail landscape means that dominant regional and CBDimpact on prime retail assets will not be as bad as some suggest. centres will continue to have destinational pull and be strong andFirstly, retail vacancy remains very low. At last measure in June consistent performing assets. Likewise, convenience centres heavily2011, major ‘regional’ shopping centres in Australia had an average focused towards non-discretionary spending will remain largelyvacancy rate of 1.2% and vacancy in larger markets of Sydney, unaffected by online sales growth and also continue to be solid andMelbourne, Brisbane and Perth all remained below 1%. Similarly, stable investments.average vacancy rates in sub-regional centres and CBD centresremains around 3% across the country, which is in line with average About the Authorlevels over the past decade. Vacancy is particularly low in the very Leigh heads Jones Lang LaSalle’sbest centres, which means there is still competitive pressure to Queensland Research team andsecure tenancies in prime assets and landlords have been able to also co-ordinates national retailmaintain some moderate positive rental growth in spite of the weak market research. He is responsibletrading environment. for the delivery of strategic adviceSecondly, both the current weakness in retail turnover growth on the office, industrial and retailand online sales penetration are largely contained to areas of sectors to the Queensland business,discretionary spending and conditions remain fairly healthy for many as well as to the national Retailretailers of non-discretionary goods, particularly food and many retail Investments and Managementservices. Food retailing and retail services account for around 60% teams. Joining the firm in mid-2004,of total retail trade. This has supported turnover-based rental growth Leigh has a strong background in economics, previously workingin some cases for prime centres from their supermarket anchor as an economist for the Reserve Bank of Australia and Queenslandtenants and also allowed owners to squeeze rental growth out of Treasury. Since joining Jones Lang LaSalle, he has extensivethose specialty store tenants not so exposed to the weakness in experience providing strategic consulting advice to both private anddiscretionary spending. public sector clients. He holds an honours degree in Economics fromLonger-term, many traditional physical retailers are looking to the University of Queensland.move to a ‘bricks and clicks’ business model and better utilise theinternet as a complimentary sales channel to their store networks.Traditional local retailers are already estimated to be capturing overhalf of online spending by Australians and there is further potentialto leverage existing distribution and supply networks, branding andother advantages over new entrants to capture more of the growth in
18 Asia Pacific Property Digest • Third Quarter 2011 Tokyo: Office Financial Indices • Vacancy rates are around 4%, indicating market equilibrium • Rental trends vary by property, while the overall figure remains flat 140 • Investments by a J-REIT provides a benchmark in the post-quake market 120 Demand 100 In 3Q11, Japan’s economic activity picked up steadily as the constraints caused by the earthquake were mostly resolved. In this environment, vacancy rates fell to 4.1%, Index 80 down 1.6% q-o-q and indicating market equilibrium. The decreased level of around 4% is the lowest since 3Q08. Net absorption totalled 69,000 sqm, up some 25% q-o-q as 60 leasing demand came from consolidation by domestic companies. Tenants are taking 40 up newer, more accessible office space with a higher specification, as Grade A market 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 rents have fallen some 45% from their previous peak, and are now lower than rentalTokyo: Office Rental Value Index Capital Value Index levels in the CBD fringe areas. Arrows indicate 12-month outlook Index base: 4Q07 = 100 A notable forward commitment included Mitsubishi Chemical Holdings and its core Source: Jones Lang LaSalle business companies of Mitsubishi Chemical, Mitsubishi Tanabe Pharma, Mitsubishi Plastics and Mitsubishi Rayon consolidating operations in the Palace Building (GFA: 140,000 sqm; NLA: 43,000 sqm), which is due for completion in the Otemachi/ Marunouchi sub-market in January 2012. Physical Indicators Supply 600 8 No new supply entered the market however project proposals in 3Q11 included a joint redevelopment project in Nihonbashi 2-chome by beneficiary certificate holders 450 6 including Takashimaya and Sumitomo Realty Development. Consisting of six blocks, office space will be provided in Block A (59,000 sqm GFA), Block C (144,000 sqm GFA Thousand sqm including retail use) and Block E (134,500 sqm GFA). Completion of Block E is due by Percent 300 4 FY 2014, while Blocks A and C are expected to complete by FY 2018. 150 2 Asset Performance In 3Q11, rents averaged JPY 27,286 per tsubo per month, or USD 1,286 per sqm 0 0 07 08 09 10 11F 12F per annum, down 0.4% q-o-q or 3.8% y-o-y. Although the overall figure remained flat, Take Up (net) Completions rental trends varied by property. Future Supply Vacancy Rate Investment in 3Q11 included the acquisition by the Mori Hills REIT of two strata titles, Source: Jones Lang LaSalle one (including co-ownership) to the Roppongi Hills Mori Tower from Mori Building for For 2007 to 2010, take-up, completions and vacancy JPY 18.68 billion (USD 242 million) and a NOI cap rate of 4.5% and the other to the rates are year end annual. For 2011, take-up, Ark Mori Building for JPY 17.2 billion (USD 223 million) and a NOI cap rate of 4.5%. completions and vacancy rates are YTD while future supply is for 4Q11. Although the transactions took place between a J-REIT and its sponsor, they provide a benchmark of the post-quake investment market. 12‑Month Outlook According to IHS Global Insight, real GDP is forecast to fall 0.6% in 2011 and then grow 3.5% in 2012 due to reconstruction-related demand. In this environment, new Rental Information supply in 2012 will be at the equivalent of around 130% of the past ten year average. Take-up is expected to be relatively robust, supported by low rents, the forward Rental Value^ JPY 27,286 per tsubo commitments of new supply due in the Marunouchi/Otemachi sub-market, and tenants’ per month preferences for quality and safety in terms of office selection following the earthquake. Stage in Cycle Decline slowing As vacancy rates reflect a market equilibrium, rents are expected to gain momentum No. of Quarters Since 14 Last Peak as reconstruction-related demand kick starts the economy. In line with this, investment yields are expected to fall while capital values are predicted to rise. ^ gross, on NLA 12-Month Outlook Rental Value Capital Value Note: Tokyo Office refers to Tokyo’s 3 Kus Grade A office market.
Asia Pacific Property Digest • Third Quarter 2011 19Osaka: Office• Low rents lead to consolidation and expansion by domestic companies Financial Indices• Current demand alone is insufficient to maintain rental growth• Investment volumes remain suppressed due to limited assets in the market 120 100DemandIn 3Q11, Greater Osaka’s economy saw moderate growth as the impacts of the 80earthquake diminished. In the economic circumstances, vacancy rates fell to 7.0%, Indexdown 0.9% q-o-q, while net absorption increased to 13,000 sqm from a negative 608,000 sqm in the previous quarter. Relocations related to the improvement of business 40continuity planning strategies following the earthquake did not materialise. Leasingdemand was predominately from domestic companies consolidating, upgrading, or 20expanding to Grade A space, taking advantage of low rents which fell to some 55% of 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Osaka: Officetheir previous peak. Rental Value Index Capital Value Index Arrows indicate 12-month outlookMajor relocations included the consolidation of the Osaka branches of Ube Industries Index base: 4Q07 = 100and its 11 group companies in Dojima Avanza. Source: Jones Lang LaSalleSupplyTotal Grade A stock in Osaka remained stable at 1.4 million sqm in 3Q11 as no newsupply has entered the market since 1Q11. Physical IndicatorsAsset Performance 160 8At end-3Q11, rents averaged JPY 11,042 per tsubo per month (USD 520 per sqm perannum), down 0.3% q-o-q or 0.9% y-o-y. Demand alone was insufficient to maintain 120 6the rental growth seen in the previous quarter and net effective rents are seeing a Thousand sqmmore substantial decline as rent-free periods increase. Percent 80 4In 3Q11, no capital investment was confirmed in Osaka’s Grade A office market.Investment volume remains suppressed due to the lack of investment assets available 40 2in the market. 0 012‑Month Outlook 07 08 09 10 11F 12F Take Up (net) CompletionsGoing forward, concerns facing Osaka’s economy include the impact of the electricity Future Supply Vacancy Ratesupply constraints as a result of the earthquake, the slowdown in global economy and Source: Jones Lang LaSalleexchange rate movements. In this environment, Grade A office supply is expected toremain suppressed in 2011 and 2012, and then to see supply equivalent to 220% of For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up,the past five-year average (up to 2012) in 2013. By 2013, with forward commitments completions and vacancy rates are YTD while futureon-going, supply is expected to spur demand to a certain extent. However, on the supply is for 4Q11.other hand, it is also expected to eventually cause the market to soften.As a result, we expect vacancy rates to increase gradually. Rents are likely to remainlargely flat as there is scarce room for further decreases. However, with adjustmentsto incentives, including rent-free periods, net effective rents are expected to fall further,ensuring the market continues to favour tenants. Rental InformationIn the investment market, yields are expected to rise marginally and capital values tofall modestly, notwithstanding the lack of investment-grade assets available on the Rental Value^ JPY 11,042 per tsubo per monthmarket. Stage in Cycle Decline slowing No. of Quarters Since 1 Last Peak ^ gross, on NLA 12-Month Outlook Rental Value Capital ValueNote: Osaka Office refers to Osaka’s 2 Kus Grade A office market.
20 Asia Pacific Property Digest • Third Quarter 2011 Seoul: Office Financial Indices • Seoul office market sees positive net absorption 120 • Effective rents in CBD fall in the face of new supply • Two major portfolio deals close for a total of KRW 660 billion 110 Demand Due to incentives for tenants such as longer rent-free periods, take-up remained strong in 3Q11. Index 100 Some Jaebol groups (Conglomerates) leveraged off the current market situation, 90 using their size and covenant strength to secure attractive deals that enabled them to consolidate from older and arguably out-dated buildings into new buildings in Seoul’s 80 CBD, reflecting their growth. 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Seoul: Office Rental Value Index Capital Value Index For example, SK Engineering Construction signed a lease for approximately Arrows indicate 12-month outlook 65,000 sqm of office space at the newly completed Mirae Asset Jeodong Tower. Index base: 4Q07 = 100 Similarly, the plant division of Daelim Construction, currently located in Yoido, has Source: Jones Lang LaSalle committed to lease the majority of office space at Twin Tree Tower, comprising approximately 42,000 sqm, in the CBD. Gangnam recorded a prime vacancy rate of 1.0% in the quarter, as approximately 13,000 sqm of space was taken up in Gangnam Finance Center in 1H11. Overall Physical Indicators vacancy rates in Gangnam continued to fall, from 3.2% in 2Q11 to 2.0% in 3Q11. 600 9 Conversely, prime and Grade A vacancy in the CBD increased to 14.9% in 3Q11. Supply 400 6 Four major new buildings with a combined GFA of 308,900 sqm were added to the Thousand sqm CBD stock in 3Q11. Approximately half of the total GFA in Mirae Asset Jeodong and Percent 200 3 YG Building was successfully leased. However, Signature Tower, KTG Seodaemun (new supply from 3Q11) and State Tower Namsan, from 2Q11, remained 100% vacant. 0 0 Asset Performance –200 –3 Prime rents in Gangnam and Yoido increased due to low vacancy rates. Rents for 07 08 09 10 11F 12F Take Up (net) Completions Prime space fell 0.4% in the CBD while those for Prime space rose by 0.9% in Yoido Future Supply Vacancy Rate and 1.0% in Gangnam in 3Q11 on a q-o-q basis. Source: Jones Lang LaSalle Rents for Grade A buildings in CBD and Yoido remain unchanged while rent in Supply, completions and vacancy rates are for Prime Gangnam increased by 1.4% q-o-q. In line with the increase in rents, capital values of and Grade A. Prime space in Gangnam and Yoido rose 0.9% and 1.0% q-o-q. However, those in the For 2007 to 2010, take-up, completions and vacancy CBD fell 1.2% q-o-q. rates are year end annual. For 2011, take-up, Lim Kwang Construction Engineering sold its Lim Kwang One and Two buildings to completions and vacancy rates are YTD while future supply is for 4Q11. PS Asset Management for KRW 257 billion. Samsung Investment Trust Management bought approximately two-thirds of the HSBC Building (floors B1, 8-18F), the Samsung Finance Building and Prime Tower from Grundbesitz Global (RREEF) for approximately KRW 402 billion. Rental Information 12-Month Outlook Rental Value^ KRW 149,382 per pyung pm Due to global economic uncertainty, it is difficult to forecast the performance of tenants’ Stage in Cycle Rents stable business. However, rents are expected to stabilise over the coming year. Looking ahead, given the supply pipeline, tenant demand would have to exceed the historical No. of Quarters Since 10 average by a significant amount in order to absorb the space that will be added over Last Peak the next 18 months. Therefore vacancy will remain high and going forward yield ^ Prime net effective, on NLA ranges are expected to widen due to investors’ preference for prime assets. Yields 12-Month Outlook on assets with vacancy risk are expected to soften while yields on well let assets are projected to remain sharp. Rental Value Capital Value Note: Seoul Office refers to Seoul’s Prime and Grade A office markets.
Asia Pacific Property Digest • Third Quarter 2011 21Beijing: Office• Strong demand continues to weaken tenants’ bargaining power Financial Indices• Rental rates continue to experience robust growth 220• Yields remain stable, as no en-bloc deals were recordedDemand 180Despite the volatile global financial market and lower expectations of economic growthworldwide, demand in the Beijing office market continued to be strong as MNCs Index 140experiencing rapid market growth in China continue to demand more office space tohandle business expansions, consolidations or new set-ups. Meanwhile, domestic 100companies, such as SOEs or privately owned companies, continued to show insatiabledemand for self-use buildings. Tenants’ bargaining power was further weakened in 603Q11. Beijing: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Rental Value Index Capital Value IndexIn terms of leasing demand, financial entities, consulting firms, law offices, and Arrows indicate 12-month outlookhigh-tech and manufacturing companies were the leading drivers. With limited vacant Index base: 4Q07 = 100space and record high rents in the market, some companies with plans to expand Source: Jones Lang LaSallechose to renew or expand within their current location, while others were forced torelocate/expand externally. The latter was the case for many companies in the CBD,3rd Embassy and East Chang’an Avenue areas.The overall market vacancy rate remained at an historic low of 8.2% in 3Q11, Physical Indicatorsdown 0.1 percentage points q-o-q. All sub-markets, except 3rd Embassy with onenewly completed office project, experienced declining vacancy rates. The CBD and 1,500 30Zhongguancun recorded the largest vacancy rate declines, dropping 2.3 and 2.8 1,250 25percentage points q-o-q, respectively. 1,000 20 Thousand sqmSupply Percent 750 15Four office projects were completed in 3Q11, offering a total of 200,000 sqm. Phoenix 500 10Place Tower F and Tower H (46,000 sqm) as well as One Indigo (56,000 sqm) werefor lease only, while two towers at Chaoyang Plaza were purchased by domestic 250 5companies for self-use. 0 0 07 08 09 10 11F 12FAsset Performance Take Up (net) Completions Future Supply Vacancy RateWith vacancy rates at record lows, landlords continue to aggressively raise rentsacross the market; the average overall net effective rent increased to RMB 269 per Source: Jones Lang LaSallesqm per month (based on GFA), up by 10.5% q-o-q in 3Q11 and 29.7% year to date. For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up,Capital values continued to appreciate, albeit at a slower pace, rising 10.8% q-o-q, completions and vacancy rates are YTD while futurecompared with a 15.4% q-o-q rise in 2Q11. The deceleration was mainly the result supply is for 4Q11.of limited tradable assets and rising borrowing costs for both investors and self-occupiers. Capital values are now at an all-time high, while yields remain relativelystable at 6.2%.12-Month OutlookDespite the forecast slowdown in global economic growth, Beijing is expected to Rental Informationcontinue to attract new set-ups and experience business growth, driving up officespace demand. Companies’ increasing price-sensitivity to expensive rental costs and Rental Value^ RMB 269 psm pmthe slowing down of office expansion activities are expected to ease the aggressive Stage in Cycle Rents risinggrowth in rents over the coming quarters; while the improving performance of office No. of Quarters Since 7rental income is expected to continue driving capital value growth. Last Trough ^ net effective, on GFA 12-Month Outlook Rental Value Capital ValueNote: Beijing Office refers to Beijing’s overall Grade A office market.
22 Asia Pacific Property Digest • Third Quarter 2011 Shanghai: Office Financial Indices • Expansion and upgrading by MNCs drives Puxi demand • Four new Grade A buildings in the CBD are delivered in 3Q11 • 140 Two office buildings are sold en-bloc 120 Demand Leasing demand and net take-up remained strong in Shanghai’s office market in 3Q11. In Puxi, expansion demand from MNC tenants drove the market for Grade A space Index 100 with both new buildings and upcoming projects enjoying an active leasing market. 80 For example, AkzoNobel pre-leased 15,500 sqm in Eco City, expanding its space by 40% while Omnicom reserved 7,500 sqm in the project, due for completion in 4Q11. In International Commerce Center Phase I, a Premium Grade A building completed 60Shanghai: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 in 2Q11, the commitment rate reached 57% with approximately 40% of space under Rental Value Index Capital Value Index negotiation. In Pudong, the financial sector continued to drive net take-up, with MNC Arrows indicate 12-month outlook banks the most active in Premium space. Two international investment banks took up Index base: 4Q07 = 100 Source: Jones Lang LaSalle 10,400 sqm and 3,900 sqm in Two ifc, evidence that their expansion plans in China were not hampered by global economic concerns. In the decentralized market, Kerry Parkside reached a commitment rate of 75% with most of its remaining space under negotiation. Physical Indicators Supply Four new Grade A CBD buildings were delivered in 3Q11, three of which were in 800 16 Pudong. Taiping Finance Tower in Lujiazui added a GFA of approximately 90,000 sqm and has enjoyed strong leasing with 76% committed. In Zhuyuan, Lujiazui Investment 600 12 Tower (34,020 sqm) and Lujiazui Fund Tower (32,060 sqm) were completed. In Puxi, Yes Commercial Building was completed, adding 65,100 sqm to the Grade A market. Thousand sqm Percent 400 8 Despite the new completions, strong pre-leasing in the new buildings ensured the vacancy rate in Pudong and Puxi only increased slightly to 9.3% and 7.0%, 200 4 respectively. In the decentralized market, five buildings with a total GFA of 312,270 sqm were completed in 3Q11. 0 0 07 08 09 10 11F 12F Asset Performance Take Up (net) Completions Future Supply Vacancy Rate Rents continued rising across Shanghai in 3Q11 as expansion and upgrade demand remained strong and landlords maintained bargaining power. Average Grade A rents Source: Jones Lang LaSalle reached RMB 8.6 per sqm per day, a 2.5% q-o-q and 14.3% y-t-d increase. Premium For 2007 to 2010, take-up, completions and vacancy Grade A rents grew faster than overall rents, rising 3.6% q-o-q and 17.1% y-t-d to rates are year end annual. For 2011, take-up, reach RMB 10.0 per sqm per day. SOHO China purchased Jiarui International Plaza, a completions and vacancy rates are YTD while future supply is for 4Q11. Grade A building in Zhuyuan, for RMB 1.89 billion (RMB 44,000 per sqm). The project, renamed SOHO Century Avenue, is due to be completed in 2Q12. In SWFC, Huabao Investment purchased three floors for approximately RMB 83,000 per sqm. In Puxi, a domestic buyer purchased an office building in the Shanghai Port International Cruise Terminal for around RMB 60,000 per sqm. 12-Month Outlook Rental Information Looking forward, we expect MNCs to continue with expansion plans. In Puxi, only a Rental Value^ RMB 8.6 psm per day limited number of buildings are expected to reach the market before the completion of Phase II of the Kerry Center in 3Q12, and those that are completed will quickly be Stage in Cycle Rents rising filled by demand from MNCs and domestic companies. In Pudong, a large portion of No. of Quarters Since 8 upcoming space will be taken by owner occupiers or developers, therefore landlords Last Trough should maintain bargaining power. Concerns over Europe’s debt crisis, however, could ^ effective, on GFA impact demand in Pudong, which remains highly exposed to the financial industry. 12-Month Outlook Rental Value Capital Value Note: Shanghai Office refers to Shanghai’s overall Grade A office market consisting of Pudong and Puxi.
Asia Pacific Property Digest • Third Quarter 2011 23Guangzhou: Office• Net absorption rises to 160,000 sqm, fuelled by expansions and relocations Financial Indices• Strong growth in rents for new build space helps speed up overall growth• City wide vacancy rates tighten as two-tier market takes shape 160 140DemandIn the overall market, about 160,000 sqm of floor space was absorbed in 3Q11. 120Despite a slower pace of activity (140,000 sqm) in 2Q11, the leasing market has been Indexhealthier over a longer time span, with about 500,000 sqm of floor space absorbed 100this year to September, compared with net absorption of 420,000 sqm recorded for the 80whole of 2010. Citywide, vacancy rates fell by 0.6% from the previous quarter to anaverage of 11.7% at end-3Q11. 60 Guangzhou: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Expansions and relocations to new-build, premium office buildings contributed much Rental Value Index Capital Value Indexof the activity. Agile Property for example, relocated its headquarters from Zhongshan Arrows indicate 12-month outlookCity to 12,000-sqm in Guangzhou IFC, representing the largest deal recorded in the Index base: 4Q07 = 100nine months ending September 2011. In Tianhe CBD, Canon and Toyota Tsusho Source: Jones Lang LaSalleleased 5,600 sqm and 2,800 sqm respectively in Taikoo Hui.SupplyThe two office towers of Taikoo Hui, comprising 163,000 sqm of floor space, completed Physical Indicatorsin 3Q11 and is the only 2011 completion in Tianhe CBD. 800 28Asset PerformanceThe large supply set to be delivered in 1H12 had little impact on rental levels. Grade 600 21A office rents climbed at a faster pace of 3.4% q-o-q in 3Q11, reaching RMB 197 per Thousand sqmsqm per month, after registering modest growth of 0.9% q-o-q in 2Q11. However, Percent 400 14the surge in rents for premium buildings has already discouraged cost-consciousoccupiers from moving to these prime locations. They were left with the option of 200 7moving into older buildings completed since 2005, driving rents up and pushingvacancy rates down in second-tier buildings in all sub-markets. 0 0 07 08 09 10 11F 12FInvestment activity continued to be robust. However, new property sales in non-prime Take Up (net) Completionsprojects accounted for most of the activity as availability of saleable Grade A stock Future Supply Vacancy Ratein the primary market remained limited. As the result of buoyant sales in the primarymarket, capital values grew at 3.5% q-o-q in 3Q11, up from 1.4% q-o-q in 2Q11, to Source: Jones Lang LaSallereach RMB 42,441 per sqm (net). For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up, completions and vacancy rates are YTD while future12-Month Outlook supply is for 4Q11.The growing pessimism about the global economic outlook will likely undermineoccupiers’ confidence in expansions over the next 12 months. Moreover, moreoccupiers have already found themselves priced out of the market, especially the new-build projects in ZJNT. While this will likely exert upward pressure on vacancy ratesin upcoming projects, we do not expect a sharp fall in occupier demand as domesticfirms will likely help underpin activity in the near term. Rental InformationOn the supply front, we believe that the downward pressure on rents due to excessivesupply in 4Q11 will ease somewhat as two projects have pushed back their completion Rental Value^ RMB 197 psm pmdates to 2012 from 2H11. As a result, total supply in 2011 was revised down to about Stage in Cycle Rents falling600,000 sqm from the nearly 1 million sqm we had projected in 2Q11. However, No. of Quarters Since 1competition among landlords is expected to intensify next year, and the leasing market Last Peakwill in turn favor tenants. As a result, rents will endure downward pressure in the next ^ net effective, on NFA12 months. 12-Month Outlook Rental Value Capital ValueNote: Guangzhou Office refers to the overall Grade A office market.
24 Asia Pacific Property Digest • Third Quarter 2011 Hong Kong: Office Financial Indices • Global economic woes weigh on demand 160 • Rents in Central retreat for the first time in two years • Increases in capital values slows as transactions dry up 140 Demand 120 Global economic concerns led to a noticeable drop in demand for office space towards the end of 3Q11. Net absorption in 3Q11 was 1.17 million sq ft (net), although a Index 100 significant portion came from the completion of the self-occupied Central government offices complex in Central. For commercial Grade A office space, net absorption was 80 a more modest 324,500 sq ft (net). Vacancy rates continued to fall across the markets, but were starting to move higher in Central towards quarter end. The overall vacancyHong Kong: Office 60 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 rate stands at 4.4%. Rental Value Index Capital Value Index Although uncertainties about the short-term business outlook caused some occupiers Arrows indicate 12-month outlook Index base: 4Q07 = 100 to put expansion plans on hold, the significant rental gaps that have opened up Source: Jones Lang LaSalle between individual buildings, and the consolidation and upgrading opportunities provided by large tracts of latent space available continued to drive relocations. For example, the Securities and Futures Commission reportedly leased 105,000 sq ft (lettable) in Cheung Kong Center as part of a wider move to consolidate in Central; Aon relocated into 51,000 sq ft (gross) in Times Square in Causeway Bay; Chubb Physical Indicators upgraded into 53,500 sq ft (gross) in Octa Tower in Kowloon Bay; and Citizen 400 8 upgraded into 20,000 sq ft (gross) in Landmark East in Kwun Tong. In the investment market, wider economic uncertainty, a relative tightening of credit 300 6 markets, the absence of new launches and a wide gap between buyers’ and sellers’ expectations led to transaction volumes falling 70% q-o-q. Thousand sqm Percent 200 4 Supply 100 2 No new commercial Grade A office supply was completed in 3Q11 and the supply pipeline for 2011 has been fully realised after the completion date for 414 Kwun Tong Road in Kwun Tong, a redevelopment of the former WKK Building, was delayed from 0 0 07 08 09 10 11F 12F 4Q11 to 1Q12. Take Up (net) Completions Future Supply Vacancy Rate Asset Performance Source: Jones Lang LaSalle In Central, the slow absorption of secondary space resulted in some landlords with For 2007 to 2010, take-up, completions and vacancy significant vacancy at the top end of the market lowering asking rents, leading to a rates are year end annual. For 2011, take-up, 0.9% q-o-q decrease in rents in 3Q11. Outside Central, rents continued rising on completions and vacancy rates are YTD while future supply is for 4Q11. the back of narrowing vacancy rates, although a noticeable drop in momentum was recorded in September. Overall rents still grew by 2.3% q-o-q. Capital values remained stable amid growing uncertainties in the leasing market, with investors pricing in downside risks. Citywide, capital values increased 0.8% q-o-q, slowing significantly from 8.2% q-o-q in 2Q11. 12-Month Outlook Rental Information The Eurozone crisis has put the solvency of banks back into question. With several Rental Value^ HKD 61.6 psf pm banks already announcing plans to pare back their global workforce, demand is likely Stage in Cycle Peak to remain lacklustre over the near term. However, demand from broader services sector should continue, although the growth rate is likely to slow down. No. of Quarters Since 8 Last Trough Over the short term, rents will remain under pressure, especially in Central. Investor ^ net effective, on NFA demand for higher yields will also put downward pressure on capital values. Notwithstanding this, vacancy rates remain low and the 2012 supply pipeline is still 12-Month Outlook significantly below the long-term average. Given this, any contraction in rents will likely be protracted and relatively shallower than seen in 2008. Rental Value Capital Value Note: Hong Kong Office refers to the overall Grade A office market.
Asia Pacific Property Digest • Third Quarter 2011 25Taipei: Office• Vacancy rates see a decrease for the third consecutive quarter Financial Indices• Overall gross rents increase marginally by 0.2% q-o-q 140• Insurers continue to allocate funds to real estate, causing yields to edge down 130DemandIn 3Q11, vacancy rates in four sub-markets fell, causing the overall vacancy rate in 120Taipei’s Grade A office market to edge down by 1.2% to 13.7%, the third consecutive Indexquarter of decline following the cyclical high seen in 4Q10. Due to favourable rental 110packages and the economic turnaround, demand from MNCs for relocation andexpansion in Xinyi District was the main driver of take-up in the quarter. In addition, 100owner occupier and government-related office use expansion dominated absorption in 90the Non-Core CBD. In the meantime, vacancy rates in the Dunhua North and Dunhua 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Taipei: OfficeSouth sub-markets saw a marginal increase due to a lack of transactions. Rental Value Index Capital Value Index Arrows indicate 12-month outlook Index base: 4Q07 = 100Supply Source: Jones Lang LaSalleNo new supply will be added to the Grade A office market over the remainder of 2011as the scheduled Taiwan Life Insurance headquarters building has been delayed to2H12.This 9,000-ping (29,752-sqm) owner-occupied building was expected to be completed Physical Indicatorsthis year, however the exterior construction was delayed and as a result thecompletion date has been postponed. Three buildings located in the Non-Core CBD 120 18are in the pipeline for completion in 2012. In addition to the Taiwan Life Insuranceheadquarters building, the other two buildings are the Songjian Nanjing MRT Joint 80 12Development offering an estimated 4,371 ping and the estimated 11,000-ping Union Thousand sqm 40 6Entertainment Centre, which is the redevelopment of the JiaJia Bowling Centre located Percentat the intersection of Songjian and Mingshen East Road. 0 0Asset Performance –40 –6Taipei’s Grade A office market remained favourable to tenants as corporations wereable to easily negotiate preferable rents in sub-markets with high vacancy rates, such –80 07 08 09 10 11F 12F –12as Xinyi and Dunhua North. As a result, overall rents increased by 0.2% to NTD 2,418 Take Up (net) Completionsper ping per month (USD 24.0 per sqm per month), the sixth consecutive quarter of Future Supply Vacancy Rategrowth. Source: Jones Lang LaSalleIn the second quarter following the implementation of the Luxury Tax, transactions of For 2007 to 2010, take-up, completions and vacancyinvestment-grade commercial property unexpectedly increased by 150% y-o-y to rates are year end annual. For 2011, take-up, completions and vacancy rates are YTD while futureNTD 50.0 billion (USD 1.6 billion). This significant jump was the result of insurers’ supply is for 4Q11.purchases of Real Estate Asset Trusts (REAT). The largest transaction was CathayLife’s purchase of the Shinkong Dunnan REAT for NTD 9.6 billion. Next in line wasthe acquisition of the Cathay Dunnan REAT for NTD 8.5 billion. This saw the capitalvalues of these two properties to increase three and two‑fold respectively, comparedwith transactions over the previous five years. However, rent increases lagged behindcapital values, causing cap rates in the Dunhua South sub‑market to fall to around 2%. Rental Information12-Month Outlook Rental Value^ NTD 2,418 per ping pmThe worsening sovereign debt crisis in the Eurozone and deteriorating economicprospects in the US have made some MNCs uncertain about the outlook for the future, Stage in Cycle Rents risingcausing them to postpone office upgrades or expansion plans. We anticipate that No. of Quarters Since 6MNCs will remain on the sidelines for 3-6 months until at least 1Q12. Last Trough ^ gross achievable, on GFA 12-Month Outlook Rental Value Capital ValueNote: Taipei Office refers to Taipei’s overall Grade A office market.
26 Asia Pacific Property Digest • Third Quarter 2011 Bangkok: Office Financial Indices • No new supply is seen in the quarter • Average gross rents rise 0.5% q-o-q, signaling a potential bottom 110 • No investment transactions are reported in 3Q11 100 Demand In 3Q11, net take-up of Grade A office space in the CBD declined to 4,100 sqm, which accounts for actual physical occupancy rather than leases being signed. Net take-up in Index 90 the quarter came mostly from relocations as tenants took advantage of falling rents to 80 secure better grade office premises. Given an active leasing market during the quarter, net take-up should rebound in 4Q11 70 as tenants take physical occupancy of their new locations. Vacancy rates declined 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Bangkok: Office Rental Value Index Capital Value Index slightly to 22.0% in 3Q11. Arrows indicate 12-month outlook Index base: 4Q07 = 100 Supply Source: Jones Lang LaSalle During the quarter, no new supply was completed and the total stock remained unchanged at 1.3 million sqm. Meanwhile, the outlook for Sathorn Square, a Grade A office building on Sathorn Road that completed in 2Q11, has improved considerably, with approximately 50% of the space now committed. Physical Indicators In 4Q11, Park Ventures, a mixed-use project comprising a Grade A office building 125 25 and hotel on Wireless Road, will be ready for occupation. Thereafter, there will be no new supply of Grade A office space in the CBD until at least 2013. Other Bangkok 100 20 office supply currently under construction is relatively small in scale and in non-CBD locations. Thousand sqm 75 15 Percent Asset Performance 50 10 Rents for Grade A office space in the CBD showed signs of picking up in 3Q11, 25 5 reaching an average of THB 614 (USD 19.7) per sqm per month, a 0.5% increase over the previous quarter. The limited future supply of Grade A office space in the CBD 0 0 and a pick-up in demand helped to boost this figure. In addition, the average rent-free 07 08 09 10 11F 12F period fell slightly to 0.85 months per year. Take Up (net) Completions Future Supply Vacancy Rate The rise in average rents was behind the increase in notional capital values, which were higher by 1.8% q-o-q as yields remained at 7.8%. At the same time, the Source: Jones Lang LaSalle investment market remained quiet and no transactions were recorded in the quarter. For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up, completions and vacancy rates are YTD while future 12-Month Outlook supply is for 4Q11. Net absorption is expected to improve over the remainder of 2011 as pre-committed tenants physically move into new premises. Despite a shakier global economy, fundamentals in the Thai economy remain relatively sound. A sustained pick-up in demand should result in a decline in vacancy rates heading into 2012. Coupled with a lack of new supply in the medium term, rents and capital values are expected to rise over the course of next year. Rental Information Rental Value^ THB 5,792 psm pa Stage in Cycle Trough No. of Quarters Since 17 Last Peak ^ net, on NLA 12-Month Outlook Rental Value Capital Value Note: Bangkok Office refers to Bangkok’s CBD Grade A office market.
Asia Pacific Property Digest • Third Quarter 2011 27Ho Chi Minh City: Office• Cyclical factors lead to a slight slowdown in leasing activity in 3Q11 Financial Indices• Rents decline at a slower rate• 160 The setting up of a legal framework for REITs is in discussion 140DemandLeasing activity slowed slightly in 3Q11, probably due to cyclical factors as historically 120the first and third quarters are usually when leasing transactions are more subdued. IndexNevertheless, net absorption still amounted to 5,910 sqm, mainly contributed by a few 100major leasing transactions in newer buildings such as Bitexco Financial Tower, Vincom 80Center and Kumho Asiana Plaza. Ho Chi Minh City: OfficeAs no new supply came on-stream, vacancy rates continued to fall by another 280 bps 60 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12to reach 29.8% at the end of 3Q11. Rental Value IndexTenants continued to consider upgrading their office space to Grade A buildings. Arrows indicate 12-month outlookDuring 3Q11, MasterCard and Devere Group both moved to Bitexco Financial Tower Index base: 4Q07 = 100 Source: Jones Lang LaSallefrom Saigon Trade Center and Bitexco Building, respectively. In recent quarters,most leasing transactions have come from relocations and/or expansions by existingoccupiers. The most notable transactions observed were by companies in theconsumer products and financial sectors. Physical IndicatorsSupply 120 42Total office stock in HCMC remained constant in 3Q11 at over 209,000 sqm. VincomCenter and Bitexco Financial Tower, both of which were completed in 2H10, currently 100 35account for around 49% of the total Grade A office supply. 80 28Construction activity generally slowed during the quarter, except that undertaken by Thousand sqm 60 21 Percentdevelopers with strong financing. 40 14Asset Performance 20 7Average net effective rents decreased slightly to USD 41.5 per sqm per month. Most 0 0of the decline was caused by the Vincom Center which lowered its rents in return for 07 08 09 10 11F 12F –20 –7higher occupancy rates. Other buildings maintained or increased their rents marginally. Take Up (net) Completions Future Supply Vacancy RateThe rate of rental decline reached 1.5% q-o-q in 3Q11, marking the fifth consecutivequarter of the rent decline slowing since 3Q10. Source: Jones Lang LaSalleSimilar to 2Q11, yields remain in the 12-13% range, although capital values are not For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up,widely reported in the HCMC Grade A office market. completions and vacancy rates are YTD while future supply is for 4Q11.12-Month OutlookDemand is expected to start gaining more momentum towards the end of 2011 andthroughout 2012 as business confidence gradually returns.Rents are expected to bottom out in 4Q11 or during 2012 and to remain relatively flattowards the end of 2012.Notwithstanding the discussion on setting up a legal framework for REITs, the Rental Informationunderdeveloped investment market for Grade A offices may continue to remain quiet Rental Value^ USD 498 per sqm paover the short term. Stage in Cycle Decline slowing No. of Quarters Since 12 Last Peak ^ net effective, on NLA 12-Month Outlook Rental Value Capital Value NANote: Ho Chi Minh City Office refers to the Grade A office market.
28 Asia Pacific Property Digest • Third Quarter 2011 Manila: Office Financial Indices • Negative net absorption due to tenant movements pushes vacancy rates up • Rents continue to climb on the back of robust office demand • 130 Capital values continue in line with rents as yields settle at 11.0-11.2% 120 Demand 110 Tenants relocating from select Grade A developments to other emerging districts, and Index the release of space in existing buildings previously on hold, contributed to a decline in 100 net absorption to –16,200 sqm in the quarter. Consequently, vacancy rates increased to 4.2%, from 3.3% in 2Q11. 90 The majority of take-up in 3Q11 was in Bonifacio Global City (BGC), underscoring its 80 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 growing importance as one of the key business districts in Metro Manila. An estimated 10,700 sqm of office space was pre-committed by a single OO tenant in Science HubManila: Office Rental Value Index Capital Value Index Tower 1 in BGC, suggesting sustained demand from the OO sector. Arrows indicate 12-month outlook Index base: 4Q07 = 100 Source: Jones Lang LaSalle Supply No new developments completed in 3Q11 as the majority of office stock due this year will complete in 4Q11. Notably, however, significant new office construction was seen over the quarter, namely, the W Fifth Avenue, the NAC Tower, the Eco Tower and the Physical Indicators Clipp Center. Meanwhile, proposed projects announced in the quarter included office buildings by 300 12 Filinvest Land, Inc. (FLI) and Ayala Land, Inc. (ALI) in Makati. These new additions 250 10 prompted landlords to lock in leases before tenants gain leverage from the large supply of office space that will enter the market. 200 8 Thousand sqm Percent 150 6 Asset Performance 100 4 Rents continued to increase at a similar pace seen in previous quarters, reaching PHP 9,064 per sqm per annum in 3Q11 from PHP 8,441 per sqm per annum in 2Q11. 50 2 The rise in rents can be traced to the growing demand for office space in newer 0 0 buildings in BGC. Also, landlords have hiked rents to secure a stream of income in 07 08 09 10 11F 12F light of the large volume of future office stock that may cause a rent reduction. Take Up (net) Completions Future Supply Vacancy Rate Similarly, capital values remain on an upward trajectory, posting 4.4% growth q-o-q in 3Q11. Recent office transactions included the sale of an 8,000-sqm property along Source: Jones Lang LaSalle Chino Roces Avenue in Makati City. Meanwhile, investment yields improved, settling For 2007 to 2010, take-up, completions and vacancy between 11.0% and 11.2%. rates are year end annual. For 2011, take-up, completions and vacancy rates are YTD while future supply is for 4Q11. 12-Month Outlook The supply of office space is expected to peak over the next 12 months, with the large volume likely to propel vacancy rates further upward and bring rents down to competitive levels. The OO sector is expected to continue to drive office demand, particularly as OO firms continue to invest in the country. The office sector currently remains unaffected by global market externalities. However, Rental Information the presence of these factors poses a continual threat to the sector and may contribute to its slowdown over the coming months. Rental Value^ PHP 9,064 psm pa Stage in Cycle Rents rising No. of Quarters Since 7 Last Trough ^ net effective, on NLA 12-Month Outlook Rental Value Capital Value Note: Manila Office refers to the Makati and Bonifacio Global City Grade A office market.
Asia Pacific Property Digest • Third Quarter 2011 29Kuala Lumpur: Office• Increasing supply outstrips demand Financial Indices• Tenant favourable market prevails• Many investors remain cautious 110Demand 105The average vacancy rate in the city centre reduced to 14.9% in 3Q11 from 15.7% in Index2Q11 despite the completion of Plaza Dijaya which is yet to be physically occupied. 100The 19-storey building has registered approximately 90% pre-commitments from oiland gas industry companies. 95Net absorption in the city centre improved to approximately 26,413 sqm in 3Q11 after Kuala Lumpur: Officebeing negative in 2Q11. 90 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12The majority of the net absorption was contributed by the relocation and expansion of Rental Value Index Capital Value IndexBank Islam at Menara Bank Islam, located on Jalan Perak. Arrows indicate 12-month outlook Index base: 4Q07 = 100Other notable leasing activity involved the relocation and expansion of Mutiara Source: Jones Lang WoottonGoodyear Development Bhd from Menara Tun Razak to Menara Standard Charteredand the expansion of Bumi Armada Bhd at Menara Perak.Supply Physical IndicatorsFollowing the completion of Plaza Dijaya (13,935 sqm) in the Golden Triangle, the totalexisting supply of prime office space in the city centre increased to 1.854 million sqm. 300 20City centre offices are expected to receive 216,629 sqm of prime office space in 4Q11 240 16given all construction works are progressing as scheduled. Offices expected to becompleted in 4Q11 include Menara Worldwide, Glomac Al-Batha Tower and KLCC Thousand sqm 180 12Tower 3. Percent 120 8Asset PerformanceIn 3Q11 the average net rental increased marginally by 0.6% q-o-q to MYR 613 per 60 4sqm per annum. The landlords of well occupied buildings continued to maintain their 0 0higher rental rate expectations. Despite the ability of some landlords to hold rents in 07 08 09 10 11F 12F3Q11, the huge incoming supply of superior quality buildings will inevitably pressure Take Up (net) Completions Future Supply Vacancy Ratemany landlords, particularly those with high vacancy rates, to offer greater incentivesto attract tenants. Source: Jones Lang WoottonMenara Multi-Purpose, a 17 year old office building situated at Jalan Munshi Abdullah For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up,was sold by Multi-Purpose Holdings Bhd to the Malaysian Chinese Association completions and vacancy rates are YTD while future(MCA), a political party. The 50,298 sqm building was transacted at MYR 375 million, supply is for 4Q11.equivalent to MYR 693 per sq. ft.12-Month OutlookAs new supply continues to enter the market and outpace demand, the vacancy rate isexpected to increase. Landlords of poorly occupied new buildings will inevitably reducetheir asking rents or offer various incentives in order to attract potential tenants. Rental InformationUnderpinned by several factors such as the construction of better quality offices Rental Value^ MYR 613 psm paand rising building costs, capital values are expected to increase but as rental ratesconsolidate, investors are expected to adopt a cautious approach until the market Stage in Cycle Rents risingimproves. No. of Quarters Since 1The government has initiated Invest KL, with the task of bringing foreign MNCs Last Trough ^ net, on NLAto Malaysia. The continuous promotion of Kuala Lumpur as a commercial hub isexpected to further establish the city as one of the Asia Pacific region’s most attractive 12-Month Outlookcommercial cities from which to operate a business. Rental Value Capital ValueNote: Kuala Lumpur Office refers to Kuala Lumpur’s Grade A office market.
30 Asia Pacific Property Digest • Third Quarter 2011 Singapore: Office Financial Indices • Addition of new supply contributes to a rise in vacancy rates • Raffles Place rents continue to grow but at a slower pace • 120 Capital values increase moderately as investors continue to seek opportunities 100 Demand 80 Demand for office space has slowed in 3Q11 as rising economic uncertainties and slowdowns have caused occupiers to delay relocation and/or expansion plans. Index 60 Absorption of space has been slower than expected, with new and older buildings displaying little quarterly change in occupancy. 40 Net absorption of space in Raffles Place increased from 63,000 sqm to 89,000 sqm in 20 3Q11, while the vacancy rate rose from 6.9% to 8.6%. The increase in net absorptionSingapore: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Rental Value Index Capital Value Index and the vacancy rate can be attributed to the addition of about 117,000 sqm of net- lettable area on completion of Asia Square Tower 1. The relocation of tenants from Arrows indicate 12-month outlook Index base: 4Q07 = 100 their existing space to Asia Square has left some older buildings with higher vacancy, Source: Jones Lang LaSalle however it is providing the opportunity for the remaining tenants to expand into the vacated space and for new start-ups to seek good-quality space. Supply Physical Indicators Supply for the quarter increased with the completion of Asia Square Tower 1. Currently a total of about 232,000 sqm of space has been introduced to Raffles Place. By year 300 12 end, the total new supply should rise to more than 260,000 sqm as 1 Raffles Place 250 10 Tower Two is expected to complete without delay in 4Q11. This supply in 2011 will be the highest level in 20 years. 200 8 After that, no new supply will be introduced into the Raffles Place submarket until mid- Thousand sqm 150 6 2012 when Marina Bay Financial Centre Tower Three completes. The building is over Percent 100 4 70% pre-leased, with anchor tenant DBS committed to more than 55,000 sqm. Overall, 50 2 the expansion in supply will provide tenants with maturing leases with more options for relocation and leverage in negotiations with landlords. 0 0 –50 07 08 09 10 11F 12F –2 Asset Performance Take Up (net) Completions Future Supply Vacancy Rate Rents continued to grow slowly in the office market, rising in Raffles Place by 0.5% q-o-q in 3Q11 to SGD 1,058 (USD 806) per sqm per annum. A bleak outlook for the Source: Jones Lang LaSalle future of the global economy and an appreciating SGD in 3Q11 has made occupiers For 2007 to 2010, take-up, completions and vacancy more cautious about capital expenditure and more resistant to high asking rents. rates are year end annual. For 2011, take-up, completions and vacancy rates are YTD while future Capital values increased moderately compared with the previous quarter as local supply is for 4Q11. investors continued to seek buying opportunities in light of the strong SGD and speculation over rising interest rates. However, growth was constrained by negative global economic sentiments. The valuation-based capital value for Raffles Place registered a 2.3% q-o-q increase to SGD 25,883 per sqm for the quarter, causing market yields to compress further. 12-Month Outlook Rental Information The continued economic slowdown is likely to result in little change in demand for Rental Value^ SGD 1,058 psm pa office space as occupiers maintain a wait-and-see approach. Further slowdown in Stage in Cycle Growth slowing the growth of rents and capital values is expected, exacerbated by rising supply and increases in vacancy rates over the next 12 months. Yields should see further No. of Quarters Since 6 Last Trough moderation to a 3%-4% level. ^ net effective, on NLA 12-Month Outlook Rental Value Capital Value Note: Singapore Office refers to Singapore’s CBD Grade A office market in Raffles Place, Shenton Way and Marina Centre.
Asia Pacific Property Digest • Third Quarter 2011 31Jakarta: Office• Limited available space curbs demand growth in the Grade A office market Financial Indices• Rents enjoy double digit growth as vacancy falls to ten year low 180• With significant growth in rents, capital values increase accordingly 160DemandStrong demand in the Jakarta office market, fuelled by the positive economic and 140 Indexbusiness environment, led to a jump in occupancy as seen in the past few quarters.Yet, net absorption in 3Q11 slid to approximately 40,700 sqm, around two-thirds of the 120figure seen in 2Q11 due to limited available space. Leasing activity continued to be 100dominated by tenant upgrades, expansions, relocations and consolidations. Energyand natural resources, banks, telecommunications and financial companies are the 80sectors that are active in the market. As such, vacancy fell to 7.1% in 3Q11 compared 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Jakarta: Officewith 9.9% in 2Q11 as no new supply was delivered over the period. Notable deals Rental Value Index Capital Value Indexincluded Deloitte’s relocation to The Plaza with over 5,000 sqm taken up in the new Arrows indicate 12-month outlook Index base: 4Q07 = 100building. Leasing activity by newly established SMEs also flourished, particularly in the Source: Jones Lang LaSallenewly completed strata-title Equity Tower.SupplyNo new developments entered the market in 3Q11, keeping supply unchanged ataround 1.45 million sqm. As no projects are scheduled over the remainder of 2011, the Physical IndicatorsJakarta office market is perceived as having a limited supply of Grade A office space, 250 25while leasing enquiries are likely to continue. 200 20Asset Performance Thousand sqmDue to solid demand, rents grew at around 13.6% q-o-q in 3Q11, following the 14.6% 150 15 Percentq-o-q increase in the previous quarter. Solid enquiries encouraged landlords to 100 10remain confident about asking new tenants for higher rents, particularly those lookingfor smaller office space. This was predominantly seen in projects with better quality 50 5buildings, such as The Plaza, Sentral Senayan III and One Pacific Place. Overall,average rents climbed to USD 181 per sqm per month. Capital values moved in line 0 0 07 08 09 10 11F 12Fwith rental growth, up by 14.2% q-o-q on the back of declining vacancy rates. With Take Up (net) Completionssome changes in rents and capital values, yields compressed slightly to stabilise at Future Supply Vacancy Rate8.2%. Source: Jones Lang LaSalle12-Month Outlook For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up,The office market is expected to continue enjoying robust demand due to the healthy completions and vacancy rates are YTD while futureeconomy and strong business environment, as reflected in high occupancy rates. supply is for 4Q11.Corporate expansions are likely to trigger more leasing activity as companies upgradeor seek more space in the buildings they currently occupy. Supply over the comingyear is expected to come solely from World Trade Center II. In view of the improvingmarket performance, rents and capital values in the investment-grade market areexpected to rise over the next two years. Rental Information Rental Value^ USD 181 psm pa Stage in Cycle Rents rising No. of Quarters Since 4 Last Trough ^ net effective, on NLA 12-Month Outlook Rental Value Capital ValueNote: Jakarta Office refers to Jakarta’s Investment (Grade A) office market.
32 Asia Pacific Property Digest • Third Quarter 2011 Delhi: Office Financial Indices • Demand remains strong in the suburbs of Gurgaon and Noida 120 • Rents show upward movement in all sub-markets except SBD • Capital values increase marginally despite limited investor activity 100 Demand Demand in 3Q11 was adversely affected by the possibility of a global economic slowdown, with net absorption dropping nearly 31% q-o-q overall. Net take-up totalled Index 80 1.23 million sq ft (114,412 sqm), with the majority of demand seen in the Gurgaon 60 and Noida suburban sub-markets. Overall vacancy increased 19.7% in 3Q11. CBD vacancy remained low and moderate churn in existing stock led to zero net absorption. Net absorption in the SBD was moderate with vacancy rates at 13.5% in 3Q11. 40 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Global firms in NCR-Delhi expanded, consolidated or relocated from existing officesDelhi: Office Rental Value Index Capital Value Index within suburban sub-markets. A few notable new lettings in the Gurgaon sub-market Arrows indicate 12-month outlook Index base: 4Q07 = 100 included Canon, leasing 100,000 sq ft (9,290 sqm) in DLF Building 5A and Source: Jones Lang LaSalle MakemyTrip, leasing 80,000 sq ft (7,432 sqm) in SP Infocity. The Noida sub-market Financial Indicators are for CBD. saw Ericsson expanding by approximately 73,000 sq ft (6,785 sqm) in Knowledge Boulevard, and Schneider Electric and Vadel leased 58,000 (5,388 sqm) and 30,000 sq ft (2,787 sqm) in the IGL Business Park respectively. Physical Indicators Supply 160 16 The suburban markets, Gurgaon and Noida, witnessed the completion of 2.1 million sq ft (199,374 sqm) of office space in 3Q11, of which four were IT projects, while two 120 12 were non-IT projects. The CBD and SBD submarkets did not witness any completions during 3Q11. Thousand sqm Percent 80 8 Asset Performance The lack of vacant space in the CBD and active turnover in existing stock contributed 40 4 to rents moving up further, in 3Q11 INR 237-295 per sq ft per month. Rents in the Gurgaon sub-market rose to an average of INR 64 per sq ft per month, while those in 0 0 Noida remained stable due to high vacancy. 07 08 09 10 11F 12F Take Up (net) Completions Capital values continued to appreciate, although the increases remained range‑bound Future Supply Vacancy Rate with marginal growth of 1.9% q-o-q in 3Q11. Investors demonstrated cautious Source: Jones Lang LaSalle optimism as they continued to weigh their risk-return trade-off, mirroring the sluggish Physical Indicators are for overall NCR. signals in global economies. Capital values in the CBD rose marginally by 1.6%. The Gurgaon sub-market saw capital values rise by 4.2% q-o-q due to active investor For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up, demand for leased office assets. Capital values in SBD and the Noida sub-market completions and vacancy rates are YTD while future were stagnant as investor activity was limited. supply is for 4Q11. 12-Month Outlook The CBD is expected to continue to see an increase in rents as vacancy rates remain extremely low. As active turnover continues in existing stock, landlords are expected to continue increasing rents to take advantage of market conditions. Rental Information (CBD) Meanwhile, in the SBD, a declining vacancy rate in 2012 and moderate demand are Rental Value^ INR 237 psf pm expected to underpin rental growth. Rents are expected to be constrained in the suburban sub‑markets due to oversupply, although select precincts may see marginal Stage in Cycle Rents rising appreciation. Capital values are expected to remain stable, with some growth across No. of Quarters Since 5 various sub‑markets. Last Trough Investment sentiment is expected to recover slightly faster than the leasing market ^ gross, on GFA and capital values are predicted to rise faster than rents, which will compress yields in 12-Month Outlook both the CBD and SBD. Yields in the suburban sub-markets are expected to be stable as investment activity may remain modest and in line with the leasing activity seen in Rental Value Capital Value these sub-markets. Note: Delhi Office refers to overall NCR Grade A office market.
Asia Pacific Property Digest • Third Quarter 2011 33Mumbai: Office• Leasing activity slow compared with the previous two quarters Financial Indices• Rental growth slows across all sub-markets 120• Capital values continue to grow faster than rentsDemand 100Uncertainties in the global economy combined with adverse macroeconomic factorssuch as rising interest rates and surging inflation led to a marginal slowdown in leasing Index 80activity in 3Q11. Net take-up was 2.3 million sq ft (213,025 sqm) in 3Q11, over 65% ofwhich was attributed to pre-commitments in buildings that became operational in the 60quarter. In 3Q11, occupiers preferred to lease space in operational buildings ratherthan pre-committing to upcoming ones. Accounting for over 30% of the quarter’s netabsorption, the SBD Central sub-market saw healthy leasing activity, primarily in the 40 Mumbai: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Indiabulls Finance Centre and One Indiabulls Centre. Rental Value Index Capital Value Index Arrows indicate 12-month outlookNotable leasing transactions included RBS’s lease of 70,000 sq ft (6,503 sqm) at Index base: 4Q07 = 100Maker Maxity, the lease by Stylus Business Centre of 40,000 sq ft (3,716 sqm) in R Source: Jones Lang LaSalleTech Park, Future Generali’s lease of 42,000 sq ft (3,902 sqm) in Indiabulls Finance Financial Indicators are for CBD.Centre, Cognizant’s lease of 160,000 sq ft (14,865 sqm) and the lease by NessTechnologies of 56,000 sq ft (5,203 sqm) at Mindspace 1 Buildings 5 and 6. Physical IndicatorsSupplyAbout 3.8 million sq ft (354,493 sqm) of office space across 12 office buildings became 1,600 20operational in 3Q11, which led to a rise in total stock to 70.5 million sq ft (6.5 millionsqm), with an overall vacancy rate of 19.8%. 1,200 15Major completions in Mumbai in 3Q11 included Hindustan Unilever Building, Thousand sqmwith 154,320 sq ft (14,377 sqm) in Churchgate; Crescenzo (Upper Floors), adding Percent 800 10423,000 sq ft (39,298 sqm) in BKC; Times Square, with 1 million sq ft (92,903 sqm) inAndheri (E) and Mindspace 1 Building 2, which added 350,000 sq ft (32,516 sqm) in 400 5Airoli. 0 0Asset Performance 07 08 09 10 11F 12FRental growth slowed across most sub-markets. While the CBD, SBD Central, SBD Take Up (net) Completions Future Supply Vacancy RateNorth, and Thane and Navi Mumbai sub-markets saw stable rents in 3Q11, the SBDBKC, and the Western and Eastern Suburbs sub-markets saw marginal increases of Source: Jones Lang LaSallejust over 1%. Given the looming uncertainty of a double-dip recession in the US and Physical Indicators are for overall Mumbai.European economies, along with other adverse macroeconomic factors, such as hikes For 2007 to 2010, take-up, completions and vacancyin interest rates by the Reserve Bank of India (RBI) and surging inflation, financial rates are year end annual. For 2011, take-up,indicators in the Mumbai office real estate market remained stable. completions and vacancy rates are YTD while future supply is for 4Q11.12-Month OutlookSupply will outweigh demand for office space in the near term. However, absorption isexpected to remain range-bound on the back of healthy pre-commitments in upcomingcompletions. Renewals of leases signed in 2007 and 2008 will form a major portion ofthe demand for office space over the next year. Growth in rents and capital values will Rental Information (CBD)likely be constrained over the short term, particularly in sub-markets with oversupply. Rental Value^ INR 245 psf pm Stage in Cycle Rents rising No. of Quarters Since 5 Last Trough ^ gross, on GFA 12-Month Outlook Rental Value Capital ValueNote: Mumbai Office refers to Mumbai’s overall Grade A office market.
34 Asia Pacific Property Digest • Third Quarter 2011 Bangalore: Office Financial Indices • Demand from the IT/ITeS sector continues to strengthen 120 • Rents remain stable in the CBD and increase in other sub-markets • Capital values increase marginally in the SBD and Whitefield sub-markets 110 Demand 100 Bangalore continued to see healthy transaction activity in 3Q11, especially in large office formats. Total transaction volume of 1.8 million sq ft (167,225 sqm) was Index 90 recorded in 3Q11. The combination of stable demand and restricted supply has been instrumental in bringing the overall vacancy rate down to 12.7% from 13.5% in 2Q11. 80 Vacancy rates across the Special Economic Zones (SEZs) also fell significantly to below 1%. 70Bangalore: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Whitefield witnessed stronger leasing activity than other sub-markets. Leasing deals Rental Value Index Capital Value Index there include HUL’s lease of 400,416 sq ft (37,200 sqm) in Prestige Shantiniketan Arrows indicate 12-month outlook Index base: 4Q07 = 100 and Airbus’s lease of 120,000 sq ft (11,148 sqm) in Xylem. In the SBD, Broadcom Source: Jones Lang LaSalle leased 260,000 sq ft (24,154 sqm) in RMZ Ecospace and NetApp leased 112,029 sq ft Financial Indicators are for CBD. (10,407 sqm) in Embassy Golf Links. Supply Physical Indicators A total of 1.2 million sq ft (111,484 sqm) of office space opened in 3Q11, including JP IT Park, ITPL Society General Block, Kalyani Platina Phase 2, Bagmane World Trade 1,200 16 Center 3 Phase 2 Block A, Bagmane World Trade Center 3 Phase 2 Block B and Prestige Atrium. All these projects, except JP IT Park in Electronics City, completed 900 12 with over 90% occupancy. Thousand sqm Asset Performance Percent 600 8 Average rents for office space in the CBD and Electronics City remained stable due mainly to BFSI sector demand in the former sub-market and low overall demand 300 4 in the latter. In the SBD, rents rose marginally by 2.3% q-o-q due to limited supply and increased demand from IT occupiers due to its proximity to the city’s residential 0 07 08 09 10 11F 12F 0 catchment areas. The Whitefield sub-market also saw a q-o-q increase in rents, up Take Up (net) Completions 3.3%, as it is generally preferred by IT occupiers due to larger floor plate availability Future Supply Vacancy Rate and good-quality buildings. Source: Jones Lang LaSalle Capital values in the CBD remained stable, while those in the SBD and Whitefield rose Physical Indicators are for overall Bangalore. marginally, up 2.3% q-o-q in the SBD, an increase of 19.7% over the last trough in 3Q10, and up 3.8% q-o-q, in Whitefield, an increase of 15% over the trough in 4Q10. For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up, High occupancy rates due to growing demand resulted in the increase in capital values completions and vacancy rates are YTD while future in these sub-markets, although neither sub-market saw any transactions in 3Q11. supply is for 4Q11. 12-Month Outlook With many IT companies looking to pre-lease space to take advantage of favourable commercial terms from developers, Bangalore is expected to see stable demand over the remainder of the year, particularly in Whitefield and SBD sub-markets. Rental Information (CBD) Good pre‑leasing in projects in the SBD, along with expected demand for space in Rental Value^ INR 81 psf pm completed and upcoming projects in Whitefield, will drive net absorption by end‑2011. Rents and capital values are likely to increase across the sub-markets, while yields Stage in Cycle Rents rising are expected to remain stable or compress in 2011 due to the perceived lower risk. No. of Quarters Since 4 The CBD and SBD sub-markets are predicted to favour landlords over the remainder Last Trough of 2011 due to growing demand and limited supply, whereas the Whitefield and ^ gross, on GFA Electronics City sub‑markets will likely favour tenants in 2012. 12-Month Outlook Rental Value Capital Value Note: Bangalore Office refers to Bangalore’s overall Grade A office market.
Asia Pacific Property Digest • Third Quarter 2011 35Chennai: Office• Despite cautious sentiment, gross leasing volumes are healthy Financial Indices• Rents increase in the CBD and SBD sub-markets 120• Capital values continue to rise in line with declining vacancy ratesDemand 100Despite concern over the global economy the Chennai office market recorded grossleasing volumes over 1 million sq ft (92,903 sqm). However, this was lower than Indexthe nearly 1.6 million sq ft recorded in 2Q11. The Chennai office market enjoys a 80diversified occupier base, with telecommunication firms and IT/ITES companiescontributing nearly one-third each, along with a 16.0% share from manufacturingindustries, and 13.0% from service-based industries. Telecommunication giants 60accounted for 37.0% of these transactions, with Verizon leasing 140,000 sq ft (13,006 Chennai: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12sqm) in RMZ Millenia Campus 5 and Alcatel-Lucent leasing 120,000 sq ft (11,148 sqm) Rental Value Index Capital Value Indexin TVH Agnitio Phase 1. Nokia leased space in RMZ Millenia Campus 5 and Atheros Arrows indicate 12-month outlook Index base: 4Q07 = 100Qualcomm in TVH Agnitio Phase 1. Several IT/ITES leased space, including Source: Jones Lang LaSalleHewlett Packard taking 150,000 sq ft (13,935 sqm) in Ramanujan IT City Hardy Financial Indicators are for CBD.Tower Block C and Aricent, LT Infotech, Vertex BPO, HCL Technologies, SiemensInformation Systems and Object Frontier Software also took space. Net absorptiontotalled 889,597 sq ft leading to a vacancy rate decline from 29.3% in 2Q11 to 27.6%in 3Q11, largely due to thin supply over the remainder of 2011, as the completion of Physical Indicatorsmost projects was delayed to 2012. 800 32Supply 600 24Prestige Palladium, comprising 180,000 sq ft and located along Greams Road in theCBD sub-market, was the only completion in 3Q11. Apollo Hospitals leased 19,800 sq ft Thousand sqm Percentof office space in the non IT building at a gross rent of INR 65-70 per sq ft per month. 400 16Asset Performance 200 8Rents rose 1.6% q-o-q in the CBD sub-market due mainly to certain projects leasingoffice space at rents above the market average. Bannari Amman Sugars Building 0 0along RK Salai leased space at INR 90-95 per sq ft per month, and Prestige Palladium 07 08 09 10 11F 12Fand Express Towers Hotel Block offered rents at INR 65-70 per sq ft per month. The Take Up (net) Completions Future Supply Vacancy RateSBD sub-market recorded a 2.6% q-o-q increase in rents and vacancy rates fell below20%. Source: Jones Lang LaSalle Physical Indicators are for overall Chennai.Capital values continued to appreciate, up by 1.8% q-o-q. Initial yields for officeproperty remained at 10-11% across the city. Kalpathi Investments, a Chennai-based For 2007 to 2010, take-up, completions and vacancyinvestment firm, acquired Rantech IT Park, which has a leasable area of 165,000 sq ft rates are year end annual. For 2011, take-up, completions and vacancy rates are YTD while futureand is located in the IT corridor at Sholinganallur. Similar transactions are expected in supply is for 4Q11.the coming quarters along the IT corridor in Chennai, as developers continue to offerproperties for purchase. The lower floors of non-IT office property continue to attractinterest in outright strata-title transactions from retailers.12-Month Outlook Rental Information (CBD)Leasing levels should remain firm, despite uncertainties, as companies continue toshow cautious optimism. The relaxation of policies, especially with respect to the Rental Value^ INR 62 psf pmoccupancy of IT projects by non-IT companies, and the development of infrastructure Stage in Cycle Rents risingwill offer more opportunities for a diverse occupier base to relocate and expand at No. of Quarters Since 3lower costs and offering increased connectivity. The growth in rents and capital values Last Troughover the near term will likely be limited to selected projects and locations where ^ gross, on GFAleasing remains healthy. 12-Month Outlook Rental Value Capital ValueNote: Chennai Office refers to Chennai’s overall Grade A office market.
36 Asia Pacific Property Digest • Third Quarter 2011 Sydney: Office Financial Indices • Backfill space increases vacancy as new supply completes • Rents rise as new lease deals in premium space set higher benchmarks • 120 Investment activity picks up, driven by offshore buyers 110 Demand 100 Leasing demand remains positive. Net absorption of 19,800 sqm was recorded in 3Q11. Relocation and consolidation within the CBD drove the majority of major tenant Index 90 movements this quarter. The largest of these was Clayton Utz taking 23,390 sqm in the newly completed 1 Bligh Street development, vacating 1 O’Connell Street. Net 80 absorption over the past 12 months in the Sydney CBD was 83,800 sqm. 70 Financial market volatility and associated uncertainty has not had a demonstrable 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Sydney: Office effect on vacancy, yet. Total vacancy increased to 8.4% in 3Q11, up from 8.0% in Rental Value Index Capital Value Index 2Q11. This was largely due to the inclusion of the newly developed 1 Bligh Street and Arrows indicate 12-month outlook Index base: 4Q07 = 100 its 18,970 sqm of available space. The backfill space vacated by Clayton Utz in their Source: Jones Lang LaSalle move from 1 O’Connell Street was a major contributor. Supply New supply in 3Q11 was limited to the completion of DEXUS and CBUS Properties 1 Physical Indicators Bligh Street (42,360 sqm). Three major projects were under construction at the end of 3Q11. 150 12 Westfield’s 85 Castlereagh Street project is scheduled to complete early in 1Q12 with 100 8 35,030 sqm of office space of which approximately 8,330 sqm remains available for lease. Nearby, 161 Castlereagh Street/242 Pitt Street will complete in 2013 with ANZ Bank and Freehills as major tenants. This will facilitate the expected refurbishment Thousand sqm 50 4 Percent and repositioning of ANZ Bank’s current headquarters at 20 Martin Place, recently 0 0 purchased from ANZ by Pembroke Real Estate (USA) for circa AUD 95 million. The last project under construction is the new 19,800 sqm tower at 8 Chifley Square for –50 –4 which no formal leasing announcements have been made. –100 –8 07 08 09 10 11F 12F Asset Performance Take Up (gross) Completions Future Supply Vacancy Rate In line with leasing deals concluded in recent months, prime gross effective rents increased 4.5% in 3Q11, strongly influenced by the premium range upper end Source: Jones Lang LaSalle recording sharp growth, having remained steady for over two years. Vacancy in For 2007 to 2010, take-up, completions and vacancy premium grade stock has steadily tightened in recent quarters. rates are year end annual. For 2011, take-up, completions and vacancy rates are YTD while future Investment activity increased in 3Q11. Nine major office sales were recorded in 3Q11, supply is for 4Q11. totalling AUD 980.4 million. Continuing the theme evident in Sydney office transactions in recent years, many of the sales this quarter were to offshore groups or involved offshore capital. The largest sale this quarter was the AUD 395.0 million purchase of Suncorp Place, 259 George Street by Memocorp Australia Pty Ltd. Average equivalent investment yields were unchanged at 6.25% to 7.50% for prime grade stock and 7.25% to 8.25% for secondary grade stock in 3Q11. The prime grade Rental Information capital value indicator continues to increase, up 4.8% for the quarter and 6.8% in the year, in line with the increase in market rents. Rental Value^ AUD 597 psm pa Stage in Cycle Rents rising 12-Month Outlook No. of Quarters Since 8 Net absorption in 2012 is expected to slow from the strong pace recorded in 2010 Last Trough and 2011. However, it is still expected to exceed net supply and result in a gradually ^ gross effective, on NLA declining vacancy rate by the end of 2012. Lower vacancy is expected to support further steady growth in effective rents and a slight tightening of yields. 12-Month Outlook Rental Value Capital Value Note: Sydney Office refers to the Sydney CBD office market (all grades).
Asia Pacific Property Digest • Third Quarter 2011 37Melbourne: Office• Vacancy is currently 5.9%, below the 40 year average of 9.9% Financial Indices• Prime gross effective rents remain unchanged in 3Q11 120• Prime equivalent yields now range from 6.50%‑7.75% 110DemandLeasing activity was relatively subdued in 3Q11. Over the quarter, positive net 100absorption of 2,600 sqm was recorded. Despite the modest level of absorption over Indexthe quarter, the result was relatively positive given the uncertainty surrounding the 90global economic outlook. A lack of large contiguous space options is also preventingfurther take-up and a number of outstanding tenant requirements remain in the market. 80Major leasing deals during 3Q11 include Griffith Hack (3,200 sqm) at 161 Collins Melbourne: Office 70Street, TRUenergy (3,100 sqm) at 507-581 Flinders Street and American Express 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Rental Value Index Capital Value Index(3,000 sqm) at 333 Collins Street. Headline vacancy tightened in 3Q11 to 5.9%. Arrows indicate 12-month outlookVacancy in prime grade stock is at 3.9% while the secondary market is higher at 8.5%. Index base: 4Q07 = 100 Source: Jones Lang LaSalleSupplyNew supply in 2011 will be limited to the refurbishment at 321 Exhibition Street(31,000 sqm), expected to complete in 4Q11. Two other refurbishments are expectedto complete in early 2012. These are 555 Bourke Street (17,300 sqm) and 357 Collins Physical IndicatorsStreet (30,000 sqm). 200 8There are a further nine projects totalling 208,600 sqm under construction. Includingthe project refurbishments, total stock under construction comes to 286,800 sqm. 150 6Of this space, 77% is already pre-committed. Major pre-commitments include: BHP(12,000 sqm) at 171 Collins Street, Melbourne Water (12,200 sqm) at 990 LaTrobe Thousand sqm PercentStreet, Australian Taxation Office (35,300 sqm) and Marsh Mercer (26,000 sqm) at 100 4Building 1 2, Collins Square and National Australia Bank (61,000 sqm) at700 Bourke Street. 50 2Asset Performance 0 0Many businesses are employing a ‘wait and see’ strategy with regards to their 07 08 09 10 11F 12Flong‑term business decisions. As a result, there has been a temporary pause in rental Take Up (net) Completions Future Supply Vacancy Rategrowth. Prime gross effective rents remained unchanged from the previous quarter atAUD 413 per sqm per annum. Source: Jones Lang LaSalle For 2007 to 2010, take-up, completions and vacancyPrime equivalent investment yields tightened at the upper end by 25 bps and now rates are year end annual. For 2011, take-up,range from 6.50% to 7.75%, in line with the long term average yield spread. completions and vacancy rates are YTD while future supply is for 4Q11.12-Month OutlookLead indicators for the office market are mixed. The ANZ Job Advertisement Seriesshows job ads have fallen for five of the past six months. Uncertainty surrounding theeconomic outlook is likely to trim demand for office space in the short-term. However,we believe the economic upturn has been delayed, not cancelled. According to theReserve Bank of Australia, year-end GDP growth for 2012 and 2013 is forecast at Rental Information3.75%. Should the economy evolve in-line with the RBA’s central forecast, we expectstrong employment growth and renewed leasing activity to emerge. Rental Value^ AUD 413 psm pa Stage in Cycle Rents rising No. of Quarters Since 9 Last Trough ^ gross effective, on NLA 12-Month Outlook Rental Value Capital ValueNote: Melbourne Office refers to the Melbourne CBD office market (all grades).
38 Asia Pacific Property Digest • Third Quarter 2011 Brisbane: Office Financial Indices • Net absorption in 3Q11 is 29,500 sqm 120 • Vacancy rises marginally to 6.9% • Prime effective rents and yields remain largely unchanged 100 Demand Net absorption of 29,500 sqm was recorded in 3Q11. Strong tenant demand from the resources sector continued this quarter. Net absorption was boosted by Rio Tinto Index 80 taking their 29,000 sqm pre-commitment in 123 Albert Street. Net absorption over the 60 past 12 months in the Brisbane CBD has been strong at 69,800 sqm. The overall CBD vacancy rate increased marginally by 0.2% to 6.9%. Since reaching 40 its peak in 2Q10 at 10.6%, Brisbane’s CBD vacancy rate has fallen by 3.6%. A lack ofBrisbane: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 new supply additions and strong tenant demand has led to the fall in the CBD vacancy Rental Value Index Capital Value Index rate over this period. Prime vacancy increased during the quarter by 0.7% to 3.7% due Arrows indicate 12-month outlook Index base: 4Q07 = 100 to the completion of 123 Albert Street. Secondary vacancy fell to 9.6% Source: Jones Lang LaSalle Supply 3Q11 saw 38,000 sqm of prime space added due to the completion of Dexus’ 123 Albert Street development. This is the first major supply addition for the Brisbane Physical Indicators CBD office market since the refurbishment of the Transit Centre completed in 1Q10. 240 12 At the end of 3Q11 three new projects were under construction totalling 110,000 sqm of space. These projects are: GPT’s 111 Eagle Street development (64,000 sqm, 40% 200 10 pre-leased or under offer) scheduled for completion in 2Q12; Grocon’s 55 Elizabeth Street development (fully pre-leased to the Australian Tax Office); and Leighton 160 8 Properties 145 Ann Street development (27,950 sqm, 70% pre-leased or under offer) Thousand sqm and due for completion in 4Q13. Percent 120 6 80 4 Asset Performance 40 2 Prime gross effective rents continued to stabilise over 3Q11 and remained unchanged at AUD 457 per sqm per annum. This is the third consecutive quarter that effective 0 0 07 08 09 10 11F 12F rents have largely remained unchanged. The average level of leasing incentives Take Up (net) Completions increased slightly to 30 months’ rent free for a 10-year lease. Secondary gross Future Supply Vacancy Rate effective rents increased 2.3% percent to AUD 330 per sqm per annum. The continued Source: Jones Lang LaSalle lack of immediately available prime contiguous space options has increased demand For 2007 to 2010, take-up, completions and vacancy for secondary grade space. rates are year end annual. For 2011, take-up, completions and vacancy rates are YTD while future Five major sales (≥ AUD 5.0 million) totalling AUD 202.3 million were recorded in supply is for 4Q11. 3Q11. This included the Suncorp Centre at 306-310 Ann Street, which sold for AUD 63 million to Armada Funds Management, 229 Elizabeth Street which sold for AUD 46 million to the Roman Catholic Archdiocese of Brisbane, and 86-100 Edward Street which sold for AUD 46 million to Cangrowers Australia. Both prime and secondary investment yields remained unchanged at between 7.25% and 8.00%, and 8.25% and 9.50%, respectively. Rental Information 12-Month Outlook Rental Value^ AUD 457 psm pa The Brisbane CBD office market is expected to continue its recovery. While the Stage in Cycle Rents stable resources sector has been a strong driver of tenant demand in Brisbane’s CBD office market, we believe that Queensland is on the cusp of a broader economic recovery No. of Quarters Since 3 Last Peak that will benefit other sectors. Demand is forecast to remain strong over the next 12 months with the potential for further rental growth in prime and secondary assets. ^ gross effective, on NLA 12-Month Outlook Rental Value Capital Value Note: Brisbane Office refers to the Brisbane CBD office market (all grades).
Asia Pacific Property Digest • Third Quarter 2011 39Adelaide: Office• Vacancy increases, despite positive net absorption Financial Indices• New supply is set to peak in 2012 and 2013• 140 Investment activity remains subdued with investors exercising caution 130Demand 120Leasing enquiry has slowed over the quarter, as tenants are delaying plans ofexpansion or relocation until caution over wider economic influences lessens and Index 110confidence returns to the market. 100Net absorption for 3Q11 was 1,100 sqm. For the 12 months to 3Q11 new stock and 90demand for prime grade space drove net absorption for prime assets to 28,100 sqm,while negative net absorption of 18,700 sqm was recorded in secondary grade space. 80 Adelaide: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Despite positive net absorption over the quarter, total vacancy increased to 7.2% Rental Value Index Capital Value Indexin 3Q11 from 7.0% in 2Q11. This was largely due to tenants taking less space in Arrows indicate 12-month outlooknew tenancies, sub-lease space being put back on the market and the closure of an Index base: 4Q07 = 100international college. Source: Jones Lang LaSalleSupplyNew supply in 3Q11 included the completion of the South Australian Police Headquartersat 100 Angas Street. However, the impact of the new space (18,000 sqm) was limited Physical Indicatorsdue to the fact that the police backfill space was taken out of stock for refurbishment. 100 10Further new supply in the pipeline includes City Central Tower 8 (36,215 sqm), LightSquare Office Building (2,000 sqm) and offices for Consolidated Power Properties 80 8(1,751 sqm). These projects are nearly fully leased and due for completion in 2012. In 60 62013, a speculative office development at 58-76 Franklin Street (26,900 sqm) and the Thousand sqmRundle Place office component (22,000 sqm) will complete. Vacancy is expected to Percent 40 4remain tight in the short term until potential backfill space from new developments isoffered to the market. 20 2 0 0Asset Performance –20 –2Rents for prime grade stock remained unchanged at AUD 358 per sqm per annum, 07 08 09 10 11F 12Fas lower levels of tenant enquiry were monitored over the quarter. Annual growth Take Up (net) Completions Future Supply Vacancy Ratefor prime gross effective rents over the 12 months to September 2011 was 7.6%.Secondary gross effective rents performed strongly in 3Q11, increasing by 4.9% for Source: Jones Lang LaSallethe quarter and 9.3% for the past 12 months. For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up,Limited supply of office stock is available for sale on the market, demonstrated by only completions and vacancy rates are YTD while futureone sale transacting in 3Q11. This was a direct transaction with the developer, totalling supply is for 4Q11.AUD 34.0 million. The Adelaide investment market is currently dominated by privateinvestors and syndicators with interest from offshore funds.Average equivalent investment yields were unchanged at 7.50% to 9.75% for primegrade stock and yields for secondary grade stock tightened by 25 bps at the lower endto 9.00% to 10.50% in 3Q11. The Adelaide CBD prime grade capital value indicatorcontinues to increase, up 1.0% for the quarter and 8.2% for the year due to increases Rental Informationin rental levels in the last year. Rental Value^ AUD 358 psm pa12-Month Outlook Stage in Cycle Rents risingTenant enquiry is expected to remain steady for the remainder of 2011. Along with No. of Quarters Since 9subdued levels of tenant demand, vacancy is expected to remain around current Last Troughlevels for the next 12 months before increasing as new supply is added and backfill ^ gross effective, on NLAspace is released to the market. Yields are forecast to tighten next year as consumer 12-Month Outlookconfidence returns to market. Rental Value Capital ValueNote: Adelaide Office refers to the Adelaide CBD office market (all grades).
40 Asia Pacific Property Digest • Third Quarter 2011 Auckland: Office Financial Indices • Vacancy levels peak as occupier conditions strengthen • Prime rental growth expected, albeit moderate 110 • Stable lending conditions are underpinning yields to hold at current levels 100 Demand 90 Occupier conditions strengthened over the first half of 2011, as economic activity and business confidence improved. This lift has transitioned into the office sector with the Index 80 overall Auckland office vacancy rate declining from 13.7% in 2H10, to 13.1% in 1H11. While occupier conditions are healthier than a year ago, there is a two-speed recovery 70 occurring with the prime sector recalibrating faster than the secondary sector. The prime vacancy rate (A B grade) declined to 13.3%, with minimal A-grade options 60Auckland: Office 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 over 1,000 sqm. The secondary vacancy rate (C, D E grade) increased to 15.2% Rental Value Index Capital Value Index from 14.1% in 2H10. Arrows indicate 12-month outlook Index base: 4Q07 = 100 Source: Jones Lang LaSalle Supply The latest increase in supply is due to the practical completion of Auckland Britomart’s East Building, which comprises 27,300 sqm of high quality, low rise office accommodation. The building houses Ernst and Young, Westpac Bank and Southern Cross Health Society. However, there are no more major developments forecast Physical Indicators for the traditional CBD Core Frame area for the next five years. The proposed 5 60 15 green star ASB development undertaken by KIPT, which consists of 18,000 sqm in the Viaduct Harbour Precinct in Wynyard Quarter, is the only pre-committed major development scheduled for the next five years. Building has commenced and 40 10 completion is expected in 2013. The neutral supply outlook will enable the market Thousand sqm to focus on consolidating occupiers into existing space, reducing vacancy rates and Percent 20 5 tensioning market conditions. 0 0 Asset Performance For the first time since mid-2008, stability in face rents at the top-end has been –20 07 08 09 10 11F 12F –5 achieved in the Auckland CBD office sector. Average face rents remained static over Take Up (net) Completions 1H11 at the premium end of the market, with average premium rents remaining at Future Supply Vacancy Rate NZD 408 psm, ranging between NZD 340 psm to NZD 475 psm. The average net effective rent for Premium and A-grade buildings currently averages around NZD 359 Source: Jones Lang LaSalle psm per annum. It is evident that investors have become much more active over For 2007 to 2010, take-up, completions and vacancy 1H11, however, they remain cautious and will only pursue assets that have the right rates are year end annual. For 2011, take-up, fundamentals for passive or add-value purchasing. Lending conditions have remained completions and vacancy rates are YTD while future supply is for 4Q11. relatively stable over the last six to 12 months, which is keeping yields steady. This is indicated by Average Prime Core initial investment yields remaining at 8.63% in 2Q11, having remained stable over the last 24 months. 12-Month Outlook Rising occupier demand for prime space in tandem with the neutral five-year supply pipeline in the Auckland CBD is likely to result in the vacancy rate declining over the Rental Information short-term. Stronger economic conditions and employment growth is likely over the Rental Value^ NZD 359 psm pa remainder of 2011, which could result in take up of vacant space overflowing into the secondary sector. It is likely that premium office net face rents will experience a lift Stage in Cycle Decline slowing over the remainder of 2011 and into 2012, as demand for prime office space rises. No. of Quarters Since 12 Suitable options for Auckland CBD prime space is likely to steadily diminish over the Last Peak next 12 months, which will lead to a reduction in tenant incentives. ^ net face, on NLA 12-Month Outlook Rental Value Capital Value Note: Auckland office refers to CBD, Symonds Street and Viaduct Harbour.
Asia Pacific Property Digest • Third Quarter 2011 41Beijing: Retail• Fashion retailers accelerate their expansion plans Financial Indices• Several shopping malls are undergoing repositioning 160• Net effective rents continue to experience growthDemand 140As competition among shopping malls becomes fierce, several shopping malls in theCBD, Wangfujing and Xidan commercial areas began upgrading their tenant mixes Index 120and shopping environments in a bid to strengthen their competitiveness. Many luxuryand fast fashion brands are taking the place of underperforming brands. 100Luxury brands expanded rapidly in 3Q11. For example, FENDI, MAXCo andGiuseppe Zanotti will open in China World Shopping Mall Phase I, squeezing out 80a number of poorly performing retailers; JOYCE, a luxury retailer from Hong Kong, 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Rental Value Index Capital Value Indexopened in China World Shopping Mall Phase III with a GFA of 2,000 sqm; DIOR and Arrows indicate 12-month outlookDIOR Homme began fitting out in Shinkong Place; and Moncler opened its fourth store Index base: 4Q07 = 100in China in Village North, where MIUMIU, Marni and other luxury brands are expected Source: Jones Lang LaSalleto arrive soon.Fashion retailers accelerated their pace of expansion, while new brands continued torush into the market. HM, GAP, ZARA, Stradivarius and Massimo Dutti are quicklyreplacing other fashion brands to become the most popular retailers. Furthermore, Physical Indicatorsshopping malls are introducing new brands to attract consumers. For example, Oysho, 800a Spanish brand, opened its first store in Beijing in Solana, where American Eagle alsoplans to launch its first China store. 600Meanwhile, FB, electrical equipment and cosmetics chain stores, along with other Beijing: Retailretailers, were also active. In this category are such operators as Singaporean Thousand sqmrestaurant Seven Nana, Watsons and Costa, which is part of the Whitbread Group. 400Apple is also expanding its market share through direct and authorised stores, and anew Apple experience store just opened in Shine City. 200SupplyIn 3Q11, Shine City opened near the South Third Ring Road. Positioned as a 0 07 08 09 10 11F 12Fcommunity shopping centre, it has a total GFA of 50,000 sqm, and has successfully Completions Future Supplyattracted UNIQLO, Vanguard and Xingmei Movie. Meanwhile, Longfor Starry Street Source: Jones Lang LaSalleand Living Mall opened in Haidian District. For 2007 to 2010, completions are year end annual. For 2011, completions are YTD while future supply isAsset Performance for 4Q11.In 3Q11, average net effective retail rents reached RMB 679 per sqm per month(based on NLA), a 1.7% increase q-o-q and an 11.8% rise y-o-y. As many shoppingmalls began repositioning, the overall vacancy rate in the market was pushed up,reaching an average of 11.5%, an increase of 0.7% q-o-q.12-Month OutlookJones Lang LaSalle predicts that demand will maintain its momentum in the final Rental Informationquarter of 2011. Due to the repositioning of shopping malls and fierce competition forlimited retail space, rents will continue to rise. Guoson, Phoenix Shopping Centre, Rental Value^ RMB 679 psm pmGongsan Plaza, Seasons Place Phase II and XinAo Shopping Centre will all open Stage in Cycle Rents risingbefore the end of the year, adding about 400,000 sqm of new space to the market. No. of Quarters Since 7 Last Trough ^ net effective, on NLA 12-Month Outlook Rental Value Capital ValueNote: Beijing Retail refers to Beijing’s Urban retail market.
42 Asia Pacific Property Digest • Third Quarter 2011 Shanghai: Retail Financial Indices • Strong leasing demand keeps vacancy rates low • Average ground floor rents in the prime retail market remain flat 150 • Channel One, a mature shopping mall, sells 140 Demand 130 Leasing activities remained strong as retail sales increased slightly in 3Q11. Shanghai Commerce Centre’s retail sales index remained stable in July and August, but retail Index 120 sales increased in September as department stores and shopping malls offered large 110 discounts during the Mid-Autumn Festival. Across Shanghai, mid-range fashion and 100 FB retailers were the main drivers of leasing demand. For example, Brazilian shoe 90 brand Melissa opened stores in Xintiandi Style and Grand Gateway. On Nanjing 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 East Road, Plaza 353 and Hongyi Plaza continued to attract more upscale tenants. Rental Value Index Capital Value Index In Plaza 353, Hollister is replacing an existing tenant with an expiring lease, while Arrows indicate 12-month outlook Hongyi Plaza has leased 1,000 sqm to Gap. Raffles City’s upgrade and reshuffling Index base: 4Q07 = 100 Source: Jones Lang LaSalle is nearly complete; the Japanese fashion retailers Cross and Beberose both entered Shanghai by securing 100 sqm spaces in Raffles City. FB retailers also remained active in 3Q11. The Hangzhou restaurant chain Grandma’s Kitchen expanded quickly in Shanghai, leasing space in Channel One, CRC Times Square, Hongkou Cloud Nine and New Road. Physical Indicators Supply 600 Henderson Metropolitan held a soft-opening in September, adding 35,000 sqm to 500 the prime market. The commitment rate reached 85% with anchor tenants includingShanghai: Retail Apple, Sasa and Azul by Moussy. The project also has many FB tenants, filling a gap 400 in the market along East Nanjing Road. In the decentralised market, Minhang Cloud Thousand sqm 300 Nine, Kerry Parkside and Tianshan Parkson department store opened with near 100% occupancy, contributing 165,000 sqm to decentralised stock. Minhang Cloud Nine 200 relieves pent-up demand for mid-range retail in Shanghai’s highly-populated southwest 100 and has seen heavy foot traffic – well above average for a newly opened mall. 0 Asset Performance 07 08 09 10 11F 12F Completions Future Supply Average ground floor rents in the prime retail market remained basically unchanged at RMB 50.2 per sqm per day, an increase of 0.5% q-o-q. Income growth continues to Source: Jones Lang LaSalle come from upper floors and from higher turnover, rather than from higher ground floor For 2007 to 2010, completions are year end annual. rents. Decentralised ground floor rents increased 1.7% q-o-q to RMB 25.1 per sqm For 2011, completions are YTD while future supply is per day. The decentalised Channel One shopping mall was sold for RMB 1.46 billion for 4Q11 and 2012. to Hong Kong New World Development, representing the first time a mature shopping mall with low vacancy has been transacted in Shanghai. 12-Month Outlook Expansion by fashion brands and FB will continue to contribute to leasing demand in the near future, as evidenced by expansion plans for retailers such as Gap and American Eagle. A number of retail companies have also been actively expanding Rental Information corporate offices in Shanghai, suggesting further expansion of their store networks Rental Value^ RMB 50.2 psm per day in Shanghai and across China is likely. While little space is currently available for expansion, nearly 650,000 sqm of retail space is projected to be delivered by the end Stage in Cycle Rents rising of 2012. Recent reductions in the national income tax rate for low and middle income No. of Quarters Since 4 earners are expected to boost consumption and retail sales. A proposed reduction in Last Trough luxury tax, still under discussion, could also provide a boost in sales for ground floor ^ net, on NLA tenants in Shanghai’s prime area. 12-Month Outlook Rental Value Capital Value Note: Shanghai Retail refers to Shanghai’s overall Prime retail market.
Asia Pacific Property Digest • Third Quarter 2011 43Guangzhou: Retail• Retail sales growth in Guangzhou increases steadily Financial Indices• Tenant-mix upgrades by Tianhe shopping centres drives leasing activity 130• Prime rents and capital values rise on stronger occupier and investor demandDemand 120Guangzhou’s retail sales continued to post double-digit growth in the first eight monthsof the year to August, up 16.4% y-o-y. The growth rate decelerated modestly by 0.1% Index 110compared with the first seven months.While demand for retail space in most prime shopping centres was solid, a few failed 100to lure new tenants into vacant space due to management problems. As a result,overall vacancy rates edged up 0.1% to an average of 3.6% at end-3Q11. 90 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12In the Tianhe CBD, operators of existing shopping centres continued to refine their Rental Value Index Capital Value Indextenant mix by adding foreign retailers, driving leasing activity in the district. For Arrows indicate 12-month outlookexample, three notable leases were concluded at OneLink Walk in Tianhe, including Index base: 4Q07 = 100 Source: Jones Lang LaSalleSwiss watchmaker Tissot’s leasing approximately 160 sqm; international fashion chainMango leasing 300 sqm; and Frances Fashion TV leasing 75 sqm. Other noteworthyexamples included international skincare and cosmetics retailer Origins opening itsfirst Guangzhou store (100 sqm) at Grandview Plaza and a pre-lease by Americanfashion chain DKNY in Tee Mall. Physical IndicatorsFB retailers continued to be active in taking up new space during the quarter. 500Examples included American yogurt chain Yogurt Tyme, which leased about 180 sqmof space at Grandview Plaza; the opening of a Lavazza coffee shop in Phase II of Guangzhou: Retail 400Seasons Mall and An Nan Vietnamese Restaurant’s pre-lease of space in Phase II ofthe Mall of the World. Thousand sqm 300Supply 200No new prime shopping centres came on stream during the quarter, leaving totalprime retail floor space delivered in the first nine months of the year unchanged at 100120,000 sqm. 0A number of new shopping centres are expected to complete in 4Q11, likely delivering 07 08 09 10 11F 12F287,000 sqm of prime retail space by end-2011. Beyond 2011, about 664,250 sqm of Completions Future Supplyspace is expected to arrive on the market over the next five years. Source: Jones Lang LaSalle For 2007 to 2010, completions are year end annual.Asset Performance For 2011, completions are YTD while future supply isBuoyed by solid leasing demand and retail sales growth prospects in Guangzhou, for 4Q11 and 2012.average effective rents in the prime Guangzhou retail market rose 2.7% q-o-q in 3Q11.Without en-bloc properties being put up for sale, increased investment activity wasconfined largely to strata-title assets. Steady rental growth and expectations of assetappreciation helped to lift capital values by 3.4% q-o-q in the quarter.12-Month OutlookTotal prime retail stock is expected to expand by about 20% over the remainder of Rental Informationthe year from the end of 3Q11. About 70% of the new supply over the next 12 months Rental Value^ RMB 786 psm pmwill be concentrated in the Tianhe CBD and Zhujiang New Town (ZJNT). Although the Stage in Cycle Rents risinglarge amount of new supply is likely to drive vacancy rates higher, strong pre-leasingactivity in upcoming iconic schemes, such as Happy Valley and Phase I of Mall of the No. of Quarters Since 9 Last TroughWorld is likely to ease upward pressure on vacancy rates. ^ net, on NFAWe are optimistic that rents in the prime Guangzhou retail market will continue toregister moderate growth in line with our projection in 2Q11. 12-Month Outlook Rental Value Capital ValueNote: Guangzhou Retail refers to Guangzhou’s Prime retail market.
44 Asia Pacific Property Digest • Third Quarter 2011 Chengdu: Retail Financial Indices • Suning Plaza opens in 3Q11 140 • Strong leasing activity pushes up average effective rents in New South Area • Competition likely to be fierce as a result of significant supply 130 Demand 120 Chengdu’s retail market continued to perform strongly in 3Q11, with accumulated retail sales reaching USD 28.9 billion over the first eight months of the year, up 18.2% y-o-y. Index 110 This strong performance and new supply led to brisk leasing activity in the quarter, with absorption reaching 275,938 sqm, the highest level seen since 4Q07. 100 FB chains were among the most active tenants. For example, Chongqing Cygnet 90 and Papparoti, a domestic bakery chain, opened stores in GTC Galleria in the 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 quarter, while Golden Jaguar, a domestic high-end buffet brand, opened its first Rental Value Index Capital Value Index store in southwest China in Suning Plaza. International jewellery and watch brands Arrows indicate 12-month outlook Index base: 4Q07 = 100 are also confident about the Chengdu market, with CHAUMET opening its first store Source: Jones Lang LaSalle in Chengdu in Maison Mode, and IWC and GEORG JENSEN leasing space in the recently opened Far Eastern Department Store in the city centre. Fast fashion brands ZARA and HM, which entered Chengdu in 2010, have already opened two and three stores respectively in the city. They are also actively seeking space in forthcoming properties for further expansion. Zara took 3,000 sqm in the R Deluxe Shopping Physical Indicators Center which is rumored to be the Zara flagship store in China and it may bring in 800 other lines, such as Zara Home, in addition to its core Zara apparel lines. SupplyChengdu: Retail 600 Suning Plaza mall was delivered to the market in 3Q11, adding 120,000 sqm to total stock. Another two new retail properties, Uno Mall, which opened in 4Q10, and the Thousand sqm 400 Far Eastern Department Store, opened in 3Q11, were included, raising total prime retail stock to 760,000 sqm. Despite reaching the roof-sealing point in September, the opening of Raffles City was postponed to 1H12. 200 Asset Performance 0 07 08 09 10 11F 12F The performance of new supply, together with brisk leasing activity, pushed rents up in Completions Future Supply Chengdu’s prime retail market. The average net prime rent for G/F shops in shopping Source: Jones Lang LaSalle centres rose slightly to RMB 423 per sqm per month, up 0.1% q-o-q but a drop of 0.8% y-o-y. Suning Appliances, the flagship store in Suning Plaza, has enjoyed strong For 2007 to 2010, completions are year end annual. For 2011, completions are YTD while future supply is performance since opening in January 2011. Robust growth in the retail market led to for 4Q11. a rise in rents in the New South Area sub-market, with prices for FB leases on GTC Galleria’s 4/F increasing 30%-40% compared to the levels seen when the mall opened in 4Q10. Even so, rents in the New South Area are still lower when compared with retail properties in the CBD. 12-Month Outlook The market will see significant supply over the next three quarters. In addition to MixC in the East Second Ring Road area, properties developed by notable developers will Rental Information be concentrated in the southern part of the city, among them the Ito-Yokado New Rental Value^ RMB 423 psm pm South Area Store, the Wangfujing Shopping Centre, Raffles City and Nine Square, Stage in Cycle Rents rising most of which are positioned at the mid- to high-end level. On the one hand, this new supply provides more choice for retailers seeking to expand while, on the other, it is No. of Quarters Since 4 Last Peak bound to intensify competition, especially in the southern area of Chengdu. ^ net, on NLA 12-Month Outlook Rental Value Capital Value Note: Chengdu Retail refers to Chengdu’s Prime retail market.
Asia Pacific Property Digest • Third Quarter 2011 45Hong Kong: Retail Financial Indices 220 200• Buoyant retail sales, with strong support from tourism growth 180• International retailers continue to drive high-profile lettings 160• Index Both capital value and rental growth accelerate 140 120Demand 100The recent correction in global stock markets did not have a noticeable negative 80impact on Hong Kong’s retail market, with total retail sales growing a further 27.5% 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 RV Index (Street Shop)y-o-y in 3Q11, bringing the y-t-d growth to 25.4%. Similarly, visitor arrivals increased CV Index (Street Shop)19.0% y-o-y in 3Q11, bringing the y-t-d growth to 16.2%. The share of Mainland RV Index (Premium Prime Shopping Centres) RV Index (Overall Prime Shopping Centres)Chinese visitors rose from 65.7% in 1H11 to 69.3% over the same period. Total visitor Arrows indicate 12-month outlookarrivals broke the four-million mark in August, a new record high for a single month. Index base: 4Q07 = 100 Source: Jones Lang LaSalleThere was no apparent slowdown in leasing demand. Luxury brands, in particular, Physical Indicatorsremained optimistic and continued with expansion plans. For example, Longchampleased 7,974 sq ft over three floors in Silvercord shopping centre in Tsimshatsui for 200HKD 7.5 million per month. After opening its first Hong Kong store (15,000 sq ft)in Central’s ifc mall and pre-leasing 20,000 sq ft in the upcoming Hysan Place in 150Causeway Bay, Apple leased another 32,800 sq ft in Toy House in Tsimshatsui for Thousand sqmHKD 11 million per month. American clothing retailer GAP pre-leased 7,000 sq ft in 100Hysan Place, while also committing to 15,000 sq ft spanning over three floors in theMPM shopping centre in Mongkok for approximately HKD 3.2 million per month. 50In the largest investment transaction ever recorded in Hong Kong, Swire Propertiessold the entire Festival Walk commercial development to Singapore institutional 0 07 08 09 10 11F 12F Hong Kong: Retailinvestor Temasek Holdings Mapletree Investments for HKD 18.8 billion. The Completions Future Supplydevelopment includes a 980,000 sq ft shopping mall. Source: Jones Lang LaSalleLane Crawford won a seven-year management contract for Queensway Plaza from For 2007 to 2010, completions are year end annual.the Government Property Agency by agreeing to pay a lump sum up front of HKD 202 For 2011, completions are YTD while future supply is for 4Q11.million and a monthly rental of HKD 6 million, or 70% of the premises’ gross monthlyincome, whichever is higher. Rental Information (Prime Street Shops) Rental Value^ HKD 413.8 psf pmSupply Stage in Cycle Rents risingNo prime retail scheme completed in 3Q11. No. of Quarters Since 10 Last Trough ^ net, on GFAAsset Performance Rental InformationTightened credit availability and a cloudy economic outlook combined subdued (Premium Prime Shopping Centres)investment market sentiment. However, investors remained relatively positive Rental Value^ HKD 225.4 psf pmabout Hong Kong’s retail market, supporting capital value growth. Despite the fall in Stage in Cycle Rents risingtransaction volume, high street shops continued to transact at high prices and capital No. of Quarters Since 10value growth accelerated over 1H11. Last Trough ^ net, on LFAPrime retail rental growth also accelerated slightly from 2Q11, supported by minimalspace availability and sustained levels of leasing demand from reputable brands. Rental Information (Overall Prime Shopping Centres) Rental Value^ HKD 114.2 psf pm12-Month Outlook Stage in Cycle Rents risingThe city’s economic fundamentals remained generally sound in 3Q11, despite the No. of Quarters Since 8increasingly gloomy outlook for global financial markets. However, key economic Last Troughindicators suggest a potential slowdown in economic growth in Hong Kong in 2012. ^ net, on LFAThis may translate into softer local consumption, particularly if the labour market 12-Month Outlookshows signs of contraction. A reduction in wealth stemming from stock market Rental Value Capital Valuecorrections may also affect consumer confidence in the short-term. Inbound tourism, Prime Street Shops Prime Street Shopshowever, is expected to remain a pillar for Hong Kong’s retail market, providing solid Premium Primesupport for prime retail rents. Shopping Centres Overall Prime Shopping CentresNote: Hong Kong Retail refers to Hong Kong’s overall Prime and High Street retail markets.
46 Asia Pacific Property Digest • Third Quarter 2011 Bangkok: Retail Financial Indices • Renovation of Central Ladprao completes • Occupancy rates remain stable, rents are up slightly • 110 Capital values increase, yields remain steady 105 Demand 100 In 3Q11, net take-up in the retail market expanded due to the re-opening of Central Ladprao. Kidzania leased 8,000 sqm in Siam Paragon, one of the notable new Index 95 openings during the quarter. Uniqlo also opened its first outlet in Bangkok to much 90 fanfare at Central World and expects to eventually open another store in Central 85 Ladprao. 80 Vacancy rates remained at 7.4%, but the large supply in the pipeline suggests 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 that rates will rise in the short term as new projects complete and tenants move in Rental Value Index Capital Value Index gradually. Arrows indicate 12-month outlook Index base: 4Q07 = 100 Source: Jones Lang LaSalle Supply Two malls, The Nine (11,000 sqm) and The Portico (3,190 sqm), completed and became operational in 3Q11, adding 14,190 sqm to the total stock. TCC’s Asiatique (30,000 sqm) and Raimon Land’s The Vue (4,100 sqm) are Physical Indicators progressing and are expected to complete on schedule in 4Q11. The grand opening of the “airport-themed” Terminal 21 is also approaching, although contractors for Central 400 Rama IX will need to rush to complete on time for the scheduled November opening. These four projects will add a total of 109,100 sqm to the total stock by the end of the 300 year.Bangkok: Retail The renovation of Central Ladprao is complete, with the mall offering 41,000 sqm of Thousand sqm 200 retail space, an increase in the space available prior to the renovation. Zen @ Central World is still undergoing refurbishment following the fire and is now scheduled to re- 100 open in 4Q11. Asset Performance 0 07 08 09 10 11F 12F Rents continued to climb in 3Q11 and the average net figure is now THB 20,380 per Completions Future Supply sqm per year, a 0.08% increase q-o-q. Rents are expected to rise further as demand from both retailer expansion and rising consumption continues to grow. Source: Jones Lang LaSalle For 2007 to 2010, completions are year end annual. Notional capital values rose from THB 157,263 to THB 157,314, up by 0.03% q-o-q For 2011, completions are YTD while future supply is and 1.02% y-o-y, on the back of both better rents and stronger demand for retail for 4Q11. assets. Tesco Lotus has announced that it will launch a property fund that will hold 15 hypermarkets worth around THB 14 billion. 12-Month Outlook Thailand’s political issues appear to be more settled, boosting the confidence of both residents and foreigners. The expansion of modern retail formats will continue to drive Rental Information net absorption, increasing new supply at year-end and in 2012. Capital values should Rental Value^ THB 20,380 psm pa continue to rise in line with rising rents. Stage in Cycle Rents rising No. of Quarters Since 10 Last Trough ^ net, on NLA 12-Month Outlook Rental Value Capital Value Note: Bangkok Retail refers to Bangkok’s Prime retail market.
Asia Pacific Property Digest • Third Quarter 2011 47Kuala Lumpur: Retail• The city centre’s average vacancy rate will decline in the short term Financial Indices• Rental values remain stable• Strong investor appetite for Malaysian retail assets continue 130Demand 120In the city centre, the average vacany rate increased by 0.4% to 11.6%. At SuriaKLCC, part of Parkson’s space was closed for renovations and this contributed to the Index 110higher vacancy rate in the city centre. 100In the suburbs, the average vacancy rate decreased by 1.0% to 8.1%. Aeon Jusco,having undergone refurbishment, reopened at 1 Utama Shopping Centre in August 2011. 90Empire Shopping Gallery has been temporarily closed due to a gas leak which 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12resulted in an explosion in September 2011. Business is expected to resume in Rental Value Index Capital Value IndexNovember 2011 and the centre remained as part of the monitored stock. Arrows indicate 12-month outlook Index base: 4Q07 = 100In the city centre, Pavilion Kuala Lumpur unveiled its newest concept, Tokyo Street. Source: Jones Lang WoottonThe Japanese inspired precinct features an array of Japanese retailers includingAction City and Daiso. At Suria KLCC, Aigner vacated and French Sole and Moschinocommenced operations in the recently completed Ramlee Extension of Suria KLCC.New Balance and Rockport opened at Fahrenheit 88. In the suburbs, Enspired Physical IndicatorsConcept Store commenced operations at e@Curve, whilst MBO Cinemas andStarbucks commenced operations at Subang Parade. 400 Kuala Lumpur: RetailSupply 300In the city centre, no new completions were recorded in 3Q11 and no furthercompletions are due for the remainder of 2011. Thousand sqm 200In the suburbs, Publika@Dutamas (formerly known as Solaris Dutamas) inMont’ Kiara was completed. The five storey retail podium forms part of a 17 acreintegrated development with office, retail and condominium components. The niche 100neighbourhood retail centre with a unique concept of fusing art and culture with urbanshopping and dining is home to notable retailers including Ben’s Independent Grocer(BIG), British India and MPH Bookstores. 0 07 08 09 10 11F 12F Completions Future SupplyAsset Performance Source: Jones Lang WoottonIn both the city centre and the suburbs, rental values were stable whilst capital values For 2007 to 2010, completions are year end annual.increased marginally. Despite a lack of prime en-bloc transactions in 3Q11, good For 2011, completions are YTD while future supply is for 4Q11.investor appetite for prime retail centres continued in 3Q11.12-Month OutlookIn the city centre, the average vacancy rate is anticipated to improve upon completionof tenants’ fit-outs and refurbishments; mostly taking place at Suria KLCC. Prime retailcentres, in particular, are forecast to enjoy low vacancy rates as a result of sustaineddemand and limited supply in the development pipeline. In contrast, recent improvementsin the average vacancy rate in the suburbs are expected to be short-lived due to abundant Rental Informationfuture supply in the development pipeline in the next 12 months. Rental Value^ MYR 3,450 psm paRental values are expected to increase steadily over the next 12 months and investor Stage in Cycle Rents stableappetite for Malaysian retail assets is expected to remain robust, spurring on further No. of Quarters Since 5increases in capital values as many owners are only willing to sell if their price expectations Last Troughare met. ^ net, on NLA 12-Month Outlook Rental Value Capital ValueNote: Kuala Lumpur Retail refers to Kuala Lumpur’s Prime shopping centre market.
48 Asia Pacific Property Digest • Third Quarter 2011 Singapore: Retail Financial Indices • Strong performance in tourism continues to drive retailer demand • Rents remain stable despite weaker economic activity 110 • Capital values grow 2.1% as the market prices in longer term potential Demand 100 The performance of Singapore’s retail market softened in 3Q11. Across the island, rents in all sub-markets dipped, although sustained interest from investors continued Index to support the increase in capital values up across all submarkets. 90 In July 2011, seasonally adjusted retail sales increased by 10.7% y-o-y. Excluding motor vehicles, retail sales remained at 10.7% y-o-y as motor vehicular sales 80 remained stable – suggesting that consumer confidence could be softening in the near 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 term. Measured at current prices, all retail segments, except optical goods and books, Rental Value Index Capital Value Index posted higher sales over the same period a year ago, underpinning retailer demand. Arrows indicate 12-month outlook Index base: 4Q07 = 100 This can be seen from the strong response to the turnout at the HM flagship store at Source: Jones Lang LaSalle Orchard building in late August. However, uncertainty about the economy caused by the deteriorating debt situation in the Eurozone has brought about renewed fears and the impact of this will be apparent in the data for the upcoming months. In the latest data from the Singapore Tourism Board, tourism statistics remained Physical Indicators positive in 3Q11, with visitor arrivals reaching 2.45 million for July and August, reflecting growth of 17.2% y-o-y. 250 Supply 200Singapore: Retail In 3Q11, there was only one completion, with the retail component of Asia Square Tower One adding 3,345 sqm to the Marina sub-market. There were no completions in 150 Thousand sqm the Prime or Suburban sub-markets. 100 Over the remainder of the year, Scotts Square (6,600 sqm) in the Orchard sub-market is due for completion while, in the Suburban sub-market, the refurbished Katong Mall 50 (19,200 sqm), the retail component of the PSA building (7,200 sqm) and Rochester Mall (5,600 sqm) will add new retail space. 0 07 08 09 10 11F 12F Asset Performance Completions Future Supply Rents for retail space in the Marina sub-market fell as it continued to face downward Source: Jones Lang LaSalle pressure with more retail space coming on stream in the form of Asia Square Tower 1. For 2007 to 2010, completions are year end annual. Rents in the Suburban sub-market also declined slightly, down by 0.4% q-o-q in a For 2011, completions are YTD while future supply is for 4Q11. temporary dip following six consecutive quarters of growth. Rents in the Prime sub- market were stable at the previous quarter’s levels. Investment activity was muted in 2Q11. There were 33.3% fewer transactions in the quarter and the total value of these transactions fell by 21.6% q-o-q, suggesting a widening gap between sellers’ and buyers’ expectations. Average capital values across all sub-markets increased. Valuation based capital values in the Prime and Suburban sub-markets rose by 1.6% and 2.3% q-o-q Rental Information respectively, while those in the Marina sub-market inched up slightly by 0.6%. Rental Value^ SGD 4,231 psm pa 12-Month Outlook Stage in Cycle Rents stable With the change in the economic outlook and lower consumer confidence in 2H11, No. of Quarters Since 6 rents in the Marina and Suburban sub-markets should see limited increases. As the Last Trough Prime sub-market continues to reinvent itself, the effects of increasing demand for ^ net effective, on NLA retail space will be offset by the upcoming increase in supply and weaker economic 12-Month Outlook conditions. Rents in the Prime sub-market are not expected to show growth over the next 12 months. Rental Value Capital Value Note: Singapore Retail refers to Singapore’s Prime, Suburban and Marina retail markets
Asia Pacific Property Digest • Third Quarter 2011 49Jakarta: Retail• Demand remains healthy on the back of growing consumption and lifestyle Financial Indices• Leasing deals are dominated by small-to-medium-size stores 110• Rental picks up further as landlords introduce new rates more progressivelyDemand 105Demand in the retail market remained healthy in 3Q11, despite a slight slowdownin take-up due to limited available space, particularly larger options. Quarterly net Index 100take-up slipped to around 21,000 sqm, yet occupancy rate in the market improved.While leasing transactions were dominated by small-to-medium-size shops filling 95newly completed malls, notable deals included the lease by Pongs Do It Best ofapproximately 4,000 sqm of space in Mal Kelapa Gading. The market is benefitting 90from a growing middle class and continuing to attract foreign investors, including 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Galleries Lafayette, which plans to open its first store in Pacific Place within the next Rental Value Index Capital Value Indexyear. With positive absorption, vacancy rates contracted to 6.7% from 8.4% in 2Q11. Arrows indicate 12-month outlook Index base: 4Q07 = 100 Source: Jones Lang LaSalleSupplyThe market remained quiet as no new prime retail developments were delivered in thequarter, keeping supply in 3Q11 stable at around 1.3 million sqm. The market is notexpecting any additional supply over the remainder of 2011 and only two prime retailprojects – Kota Kasablanka and Ciputra World – are slated to complete in 2012. Physical Indicators 200Asset PerformanceLimited supply and healthy demand led to an increase in rents in several major 150shopping malls, with prices rising by 1.8% q-o-q compared with the 0.6% q-o-q Jakarta: Retailincrease seen in 2Q11. In line with the positive leasing environment and the growth in Thousand sqmrents, capital values rose accordingly. However, with modest adjustment to rents and 100capital values, yields remained stable at around 11%. 5012-Month OutlookThe Jakarta prime retail market should continue to see positive trends on the back ofrobust consumption and improving lifestyles, particularly in the growing middle class. 0 07 08 09 10 11F 12FPotential high demand over the next few years is indicated by positive absorption in Completions Future Supplyproposed retail developments. Several large retailers have taken up large spaces in Source: Jones Lang LaSalleKota Kasablanka, while Ciputra World has been fully leased to the Korean retailerLotte, which plans to occupy most of the space and to sublet the remainder to other For 2007 to 2010, completions are year end annual. For 2011, completions are as YTD while future supplyretailers. Hypermarkets, department stores, entertainment outlets and fashion stores is for 4Q11.are likely to continue being active in the market. Rental growth is expected to continue,reaching a peak within the next two years before slowing down. Capital values shouldgrow hand in hand with rents given the solid market fundamentals. Rental Information Rental Value^ IDR 4,668,058 psm pa Stage in Cycle Rents rising No. of Quarters Since 2 Last Trough ^ net effective, on NLA 12-Month Outlook Rental Value Capital ValueNote: Jakarta Retail refers to Jakarta’s upper class retail market.
50 Asia Pacific Property Digest • Third Quarter 2011 Delhi: Retail Financial Indices • Absorption in 3Q11 is the highest seen in the past 15 quarters • Strong performance is seen in selected retail projects • 110 Rents and capital values strengthen across all sub-markets 100 Demand 90 With sustained consumer confidence translating into an increase in footfalls and positive business sentiment, retailers continued to expand in 3Q11, however with a Index 80 renewed emphasis on strategic growth. Retail expansions were restricted to retail 70 malls with good performance history or newer developments that operate on a pure 60 lease model, offering flexible, revenue share lease structures and also excellent visibility, branding and design with an active, professional management team. 50 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 With robust pre-leasing activity observed in previous quarters in retail projects that Rental Value Index Capital Value Index opened in 3Q11, coupled with moderate to healthy leasing activity in existing stock, net Arrows indicate 12-month outlook Index base: 4Q07 = 100 absorption was 653,250 (60,688 sqm) sq ft for 3Q11. This was the highest absorption Source: Jones Lang LaSalle recorded over the last 15 quarters in the NCR retail market. Overall, vacancy reduced Financial Indicators are for Prime South. to 29.6%, slightly lower than the 30.3% recorded in 2Q11. Pre-commitments in new completions were in the range of 30-45%. The majority of demand was recorded in the Suburbs sub-markets. Physical Indicators A few notable leases include: Clarks leasing 3,500 sq ft (325 sqm) in DLF Courtyard, and Excess Café leasing 4,411 sq ft (410 sqm) in South Court – both in Prime South 500 sub-market. In Pacific Mall in the Prime Others sub-market, Titan and Catalogue leased 1,500 (139 sqm) and 1,300 sq ft (121 sqm), respectively. 400Delhi: Retail Supply Thousand sqm 300 There were two completions in 3Q11 – both in the Suburbs sub-market as MGF 200 Metropolis - 600,000 sq ft (55,742 sqm) and Gurgaon Dreamz - 125,000 sq ft (11,613 sqm) became operational. The occupation rate was in the range of 30-45% in 100 these projects. 0 Asset Performance 07 08 09 10 11F 12F Overall, rents rose marginally in 3Q11. Rental growth was sustained in Prime South, Completions Future Supply albeit at a slower pace as vacancy remained low in malls with good performance. Source: Jones Lang LaSalle Marginal improvement in rents in Prime Others continued for the second consecutive Physical Indicators are for all micro-markets. quarter as the completions over the previous two quarters continued to enjoy good leasing activity. A slight improvement was recorded in the Suburbs sub-market after five For 2007 to 2010, completions are year end annual. For 2011, completions are YTD while future supply is successive quarters of rent stagnation. for 4Q11. Over the past five quarters, capital values have grown in line with rents, which have kept yields near constant across all the sub-markets. The trend continued in 3Q11, keeping yields at 10.7%. 12-Month Outlook Retailer’s strategic expansion plans were sustained and the stream of tenant queries Rental Information (Prime South) is expected to continue over the coming quarters. Both large-format and vanilla Rental Value^ INR 240 psf pm retailers are expected to chase deals in projects currently under construction that Stage in Cycle Rents rising provide good branding and business potential. However, activity will be concentrated in well performing malls that attract higher footfalls and achieve a healthy footfall- No. of Quarters Since 3 Last Trough to-sales conversion ratio. Transactions are expected to follow the trend towards a revenue-sharing model rather than straightforward leasing deals. ^ gross, on GFA The Prime South sub-market and new developments in the Prime Others sub-market 12-Month Outlook are expected to continue to see good demand, pushing rents up. However, the large supply expected in the Prime Others and the Suburbs sub-markets is expected to Rental Value Capital Value continue to dampen rental growth. Note: Delhi Retail refers to Delhi’s overall retail market.
Asia Pacific Property Digest • Third Quarter 2011 51Mumbai: Retail• Demand continues in well managed malls in strategic locations Financial Indices• Rents increase in all sub-markets except Prime North sub-market 110• Capital values see marginal improvement across all sub-markets 100DemandOverall retail demand has improved in recent quarters due to robust economic 90fundamentals, optimistic business sentiment and good consumer spending. However, Indexthe polarisation of demand continues as selected malls with better catchment 80areas, better designs and superior mall management practices are able to attract 70more retailers. Total net absorption of 256,902 sq ft (23,867 sqm) was realisedin 3Q11, more than 95% of which was concentrated in the Suburbs sub-market. 60Robust pre‑leasing activity was seen in selected malls that are expected to become 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12operational in the next two years. Rental Value Index Capital Value Index Arrows indicate 12-month outlookSeveral retail brands from Reliance and the Future Group have expanded significantly Index base: 4Q07 = 100in recent quarters. In 3Q11, Reliance Timeout took up 29,700 sq ft (2,759 sqm) in Source: Jones Lang LaSalleInfiniti Mall, Malad, and 12,500 sq ft (1,161 sqm) in Market City, Kurla. In addition, Financial Indicators are for Prime South.Reliance Trendz leased 22,000 sq ft (2,044 sqm) in Viva City Mall in Thane andReliance Digital leased 10,500 sq ft (975 sqm) in Market City in Kurla, respectively. Allthese malls are located in the Suburbs sub-market. Physical IndicatorsSupply 400No new completion was seen in the quarter. However, there is 0.9 million sq ft of mallspace in the advanced stage of construction and expected to become operational by 300 Mumbai: Retailend-2011. Thousand sqmAsset Performance 200Overall rents increased 3.1% q-o-q in 3Q11. The highest increase in rents wereobserved in the Suburbs sub-market because of the concentration of demand. The 100Suburbs sub-market saw a rental increase by 4.4% q-o-q in 3Q11. The Prime Southsub-market saw a rise of 0.9%. Rents in the Prime North sub-market were stable at 02Q11 levels because of continued sluggish demand from retailers as malls in this 07 08 09 10 11F 12Fsub-market lack quality. This sub-market also continued to face tough competition from Completions Future Supplyhigh streets. Source: Jones Lang LaSalleOverall capital values increased moderately by about 3.5% q-o-q in 3Q11. The rate of Physical Indicators are for all micro-markets.increase was highest in the Suburbs sub-market (4.7% q-o-q), followed by the Prime For 2007 to 2010, completions are year end annual.South (1.8% q-o-q) and Prime North (0.4% q-o-q) sub-markets. Yields were stable in For 2011, completions are YTD while future supply isall sub-markets except Prime North, which recorded a 10 bps compression. for 4Q11.12-Month OutlookDemand in terms of net absorption is expected to strengthen further over theremainder of 2011 and in 2012 due to the quality of supply in the pipeline. Majorretailers in India, such as the Future Group, Reliance and Tata, are likely to continuewith their expansion plans. International luxury brands are expected to open more Rental Information (Prime South)stores in malls in the Suburbs sub-market, despite being present largely in the Prime Rental Value^ INR 230 psf pmSouth sub-market. For instance, Zara has opened an outlet in Infiniti mall in the MaladSuburbs. Rents and capital values are likely to increase gradually in all sub-markets, Stage in Cycle Rents risingalbeit at differing degrees. No. of Quarters Since 2 Last Trough ^ gross, on GFA; Prime South Mumbai 12-Month Outlook Rental Value Capital ValueNote: Mumbai Retail refers to Mumbai’s Prime retail market.
52 Asia Pacific Property Digest • Third Quarter 2011 Bangalore: Retail Financial Indices • Demand is weak in 3Q11 110 • Rents are stable across all sub-markets • Capital values remain stable across all sub-markets 100 Demand Demand for space in malls in Bangalore remained weak in 3Q11. However, large‑format retailers, such as Reliance and the Future Group, expanded in the city’s high streets. Index 90 Net absorption in 3Q11 was 585,000 sq ft (54,348 sqm) in 3Q11. The high streets in 80 Indiranagar, Koramangala, Whitefield, BEL Road and Old Madras Road accounted for 116,646 sq ft (10,836 sqm) of leasing activity. Overall vacancy rates increased 70 from 4.9% in 2Q11 to 7.9% in 3Q11 due to the completion of the Park Square Mall in 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Whitefield and Soul Space Arena along the Outer Ring Road, each with an average Rental Value Index Capital Value Index occupancy rate of about 66%. Arrows indicate 12-month outlook Index base: 4Q07 = 100 Key transactions in 3Q11 included Reliance Digital’s lease of 21,000 sq ft (1,951 sqm) Source: Jones Lang LaSalle in the high street on Residency Road and Inmark’s lease of 14,000 sq ft (1,301 sqm) Financial Indicators are for Prime City. on the high street on Infantry Road in the Prime City sub-market. Tanishq leased 10,000 sq ft (929 sqm) in Jayanagar and Hyundai leased 5,400 sq ft (502 sqm) on Airport Road, both in the Secondary sub-market, while, in the Suburbs sub-market, Physical Indicators Bodycraft leased 7,200 sq ft (669 sqm) in Whitefield. 250 Supply 200 The Park Square Mall by Ascendas completed in Whitefield in 3Q11, addingBangalore: Retail 450,000 sq ft (41,806 sqm) to the market and Soul Space Arena along the Outer Ring Road added a 250,000 sq ft (23,226 sqm). The Park Square Mall commenced 150 Thousand sqm operations with a healthy occupancy rate due to good pre-commitments in previous quarters, and anchor tenants include Spar Hypermarket and Inox. 100 Asset Performance 50 Rents in the Prime and Secondary sub-markets remained stable at 2Q11 levels in 0 3Q11, while those in the Suburbs sub-market rose marginally by 3.7% q-o-q due 07 08 09 10 11F 12F to the completion of the Park Square Mall by Ascendas, where rents are above the Completions Future Supply sub‑market’s average. Source: Jones Lang LaSalle Capital values in malls in the Prime City and Secondary sub-market also remained Physical Indicators are for all micro-markets. stable, although they increased by 4.4% q-o-q in malls in the Suburbs sub-market as For 2007 to 2010, completions are year end annual. these spaces commenced operations with healthy occupancy rates. For 2011, completions are YTD while future supply is for 4Q11. 12-Month Outlook With some 54% of the expected supply in 2H11 already pre-committed, net absorption is forecast to increase to 2.3 million sq ft (213,677 sqm) of the total annual supply of 3.3 million sq ft (306,580 sqm) by end-2011. With low leasing activity, Bangalore is unlikely to see a significant increase in demand for at least another six months. We do not expect demand to keep pace with supply and vacancy rates are forecast to Rental Information (Prime City) increase from 7.2% in 3Q11 to 7.7% at end-2011. Despite this, we expect rents to Rental Value^ INR 178 psf pm recover across all sub-markets by the end of the year as new, good-quality malls come Stage in Cycle Decline slowing on stream. No. of Quarters Since 11 Last Peak ^ gross, on GFA 12-Month Outlook Rental Value Capital Value Note: Bangalore Retail refers to Bangalore’s overall retail market.
Asia Pacific Property Digest • Third Quarter 2011 53Chennai: Retail• Strong performance in high street locations as demand remains robust Financial Indices• Rents remain stable in the city 120• No major sales transactions are recorded in the retail mall sector 110DemandChennai’s retail market saw weak absorption in 3Q11, despite the completion of the 100Spectrum Mall. However, strong leasing activity in high street locations was recorded, Indexsignifying ongoing strong retailer interest in the city. Net take-up was 100,800 sq ft 90(9,364 sqm) in 3Q11, over 40% of which was attributed to pre-commitments inSpectrum Mall. 80Notable leasing transactions included Big Bazaar’s lease of 33,000 sq ft (3,066 sqm) 70in the Spectrum Mall. Bata leased 2,000 sq ft (186 sqm) in both Spectrum Mall and 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Express Avenue Mall. The Fame multiplex leased 58,000 sq ft (5,388 sqm) in the Rental Value Index Capital Value Index Arrows indicate 12-month outlookChandra Mall. Index base: 4Q07 = 100 Source: Jones Lang LaSalleSupply Financial Indicators are for Prime City.The 150,000-sq-ft Spectrum Mall in Perambur opened in 3Q11 with only 27.0%commitment. The mall is in one of the key areas in the northern part of Chennai,Perambur and its completion is likely to attract a higher footfall from among the local Physical Indicatorspopulation in the near future. 120The lack of well-established high streets in Chennai’s suburbs, unlike city centre, isexpected to be the key driver to the success of malls. The residential populations ofAyanavaram, Tondiarpet and Royapuram are the typical target segments for retailers 90 Chennai: Retailin Spectrum Mall. The lack of quality mall space has remained a challenge in Chennai Thousand sqmand has constrained the pace of growth of the organised retail market in the city. 60However, with good-quality malls in the pipeline, the city is set for a rapid makeover inthe near future. 30Asset PerformanceFinancial indicators, including rents, in the Chennai retail market remained stable. 0 07 08 09 10 11F 12FHowever, the newly completed malls in the city centre commanded a premium over Completions Future Supplyaverage rents in the market. The high rents and capital values quoted in prime mallswithin the city limits, along with the relatively lower financial indicators in malls in Source: Jones Lang LaSallethe Secondary and Suburban sub-markets, averaged out to keep rents stable in the Physical Indicators are for all micro-markets.quarter. For 2007 to 2010, completions are year end annual.Capital values also remained stable in 3Q11 as no major sales transactions have been For 2011, completions are YTD while future supply is for 4Q11.recorded in the retail mall sector over the past few quarters. Emerging retail markets inIndia, such as Chennai, have thrived primarily on the sale model, unlike such maturecities such as Mumbai and NCR-Delhi, where the lease model is as popular as thesale model.12-Month Outlook Rental Information (CBD)Chennai’s retail market is expected to see a massive influx of retail supply overthe coming quarters. The explosion in residential and commercial developments Rental Value^ INR 87 psf pmin suburban areas is likely to make them an attractive retail destination. Although Stage in Cycle Rents risingabsorption is expected to be healthy at least until 2012, low pre-commitment levels in No. of Quarters Since 7upcoming supply are expected to push vacancy rates up by end-2011. The oversupply Last Peakthat has prevailed in Chennai’s office market has emerged as an innovative ^ gross, on GFAopportunity for the city’s retail segment as a few developers are contemplatingconverting their upcoming office premises into retail. This trend is expected to increase 12-Month Outlookretailer penetration in the city and the suburbs in particular. Rental Value Capital ValueNote: Chennai Retail refers to Chennai’s overall retail market.
54 Asia Pacific Property Digest • Third Quarter 2011 Australia: Sub-Regional Shopping Centres Financial Indices • Tenant demand remains subdued in line with a cautious retail environment • Rental growth stalls in 3Q11 and rents up just 0.6% over the past year 120 • Yields are stable, with one asset selling for AUD 29 million Demand 110 The general retail environment remains subdued, although there has been moderate improvement in recent months. National retail turnover growth was positive in July Index 100 and August and turnover is 2.1% higher over the year to August 2011. The Westpac/ Melbourne Institute consumer confidence index also rose by a surprisingly strong 8.1% in September to 96.9 points. 90 Tenant demand for retail property generally remains very soft. However, there is 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Rental Value Index considerable difference in performance between prime sub-regional centres and those in weaker catchments or without dominant anchor tenants. Our six-monthly vacancy Arrows indicate 12-month outlook Index base: 4Q07 = 100 survey was not conducted in the quarter, but average sub-regional vacancy across all Source: Jones Lang LaSalle markets was 3.3% in June 2011. Supply No sub-regional construction projects completed for the second consecutive quarter. Physical Indicators However, three projects totalling 59,000 sqm completed in 1Q11. There remain five projects totalling 29,200 sqm under construction and scheduled to complete before 25 the end of the year, including the new 16,500 sqm Pakenham Marketplace centre in Melbourne and three extension projects in both South East Queensland and Sydney. A further 43,500 sqm of space is under construction and due in 2012, including twoAustralia: Regional 20 projects totalling 10,000 sqm that commenced in 3Q11. Thousand sqm 15 Asset Performance 10 The average specialty store rent across all monitored markets was unchanged in 3Q11 and just 0.6% higher over the year to 3Q11. This represents a marked slowing 5 compared to 2.5% growth achieved over 2010. Rents grew moderately in Melbourne and Perth, but were offset by a decline in Adelaide rents. 0 07 08 09 10 11F 12F Just one sub regional asset sold in the quarter, and only five assets totalling Completions Future Supply AUD 394.5 million have sold in 2011 to date. Mirvac sold Ballina Central Shopping Source: Jones Lang LaSalle Centre for AUD 29 million to a private investor at an initial yield of 8.30%. The Physical Indicators are for Sydney sub-regional only. yield range for sub-regional assets nationally was unchanged in 3Q11 for the sixth consecutive quarter at between 6.50% and 9.00%. For 2007 to 2010, completions are year end annual. For 2011, completions are YTD while future supply is for 4Q11. 12-Month Outlook Global economic uncertainty is likely to keep retail turnover and tenant demand subdued in the short-term, but we expect conditions to improve in 2012. Vacancy is likely to be relatively stable and rental growth is likely to remain limited in coming quarters, but with a return to growth next year. Investment demand is expected to remain solid, when opportunities arise. Sub-regional yields appear attractive for Rental Information active core-plus investors if value can be added through re-leasing or medium-term Rental Value^ AUD 989 psm pa development activities. Stage in Cycle Rents stable No. of Quarters Since 8 Last Trough ^ net, on GFA 12-Month Outlook Rental Value Capital Value NA Note: Australia Sub-Regional Shopping Centres refers to sub-regional shopping centres in Australia’s major metropolitan markets.
Asia Pacific Property Digest • Third Quarter 2011 55Auckland: Retail• Retail development gathering momentum in suburban precincts Financial Indices• Prime assets experience rental growth• Investors focus on property with good growth prospects and low risk profile 110Demand 100Recent retail spending data shows consumers have become increasingly confidentover 2011. Total value of retail sales increased 0.9% in the June quarter. This is a relief Index 90to many retailers and landlords alike, with consumer confidence improving, resultingin heightened discretionary spending levels. This has ensured that the Auckland 80CBD and Suburban retail vacancy rate remained relatively steady over 1H11, up onlyslightly to 5.0%. Closer analysis reveals when comparing the vacancy rates between 702H10 and 1H11, the CBD vacancy rate rose marginally (3.6% to 4.7%), but remained 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Rental Value Index Capital Value Indexstable in suburban areas (6.5% to 6.4% in Newmarket and flat at 4.1% in Takapuna). Arrows indicate 12-month outlook Index base: 4Q07 = 100Supply Source: Jones Lang LaSalleAuckland’s total retail stock increased over 1H11 with the completion of a six-level carpark building in Britomart with street-level retail use. Les Mills occupiesapproximately 2,000 sqm of the 3,000 sqm for a term of 20 years. Also in Britomart,the completion of the East Building provided just over 1,600 sqm of new street levelretail space. Activity is also being witnessed in the suburban areas, with approximately Physical Indicators50,000 sqm plus currently under construction in the wider Auckland region. A new 10,00025,000 sqm retail development is under construction in the Silverdale town centre.It consists of anchor tenants The Warehouse and Countdown supermarket, along 8,000 Auckland: Retailwith a number of smaller strip retail premises. A development is also proposed in theTakapuna precinct called ‘McKenzie’, which is expected to start construction in the 6,000early stages of 2012. sqm 4,000Asset PerformancePrime CBD Auckland retail rents rose marginally over 1H11, with Prime rents now 2,000ranging between NZD 1,500 and NZD 2,200 psm. Due to the increase in occupierdemand in suburban locations, Prime Suburban rents increased to an average 0 07 08 09 10 11F 12FNZD 1,175 psm over 1H11. This is the first increase in Prime Suburban rents since Completions Future Supplythe peak in the last cycle of NZD 1,375 psm was reached in late 2007. The retailinvestment sector remains buoyant with average Auckland Prime CBD investment Source: Jones Lang LaSalleyields firming to 7.50% over 1H11. Some investors are breaking through these levels For 2007 to 2010, completions are year end annual.to secure sought after assets. Analysis of the latest asset sale transaction volumes For 2011, completions are YTD while future supply is for 4Q11.shows that over NZD 660 million of large quantum retail assets have sold over thelast 18 months, representing around 40% of the total asset sales above NZD 5 millionacross office, retail and industrial sectors.12-Month OutlookEmployment demand and housing market activity have displayed signs of a steadyrecovery over 2011, which has driven a rebound in consumer confidence. We expectthis is likely to flow through to continued improvement in retail spending over the next Rental Information12 months. Vacancy is likely to remain fairly stable at or near current low levels over Rental Value^ NZD 1,850 psm pathe next three years. Prime CBD rents are expected to remain high as retailers are left Stage in Cycle Rents risingwith minimal options, which is likely to keep the investment market buoyant. No. of Quarters Since 12 Last Peak ^ net, on NLA 12-Month Outlook Rental Value Capital ValueNote: Auckland Retail refers to CBD, Newmarket and Takapuna strip and shopping centre retail.
56 Asia Pacific Property Digest • Third Quarter 2011 Beijing: Residential Financial Indices • Leasing demand is strong from MNCs in the pharmaceutical sector 220 • Transactions of high-end and luxury apartments increase 18.4% q-o-q • Transaction prices decrease 3.4% q-o-q to RMB 40,078 per sqm 180 Demand Leasing demand for serviced apartments continued to increase in 3Q11, especially Index 140 from the pharmaceutical and automobile sectors. The continued strong demand pulled down the average vacancy rate to 7.5%, leaving only 604 units of serviced apartments 100 available in the market. Leasing activity in the luxury apartment market was also very robust and mostly came from tenants forced to relocate to more affordable locations as rents in some apartment complexes now exceed the housing allowances of some 60 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 companies. Rental Value Index Capital Value Index After two consecutive quarters of decreases, transactions of high-end and luxury Arrows indicate 12-month outlook Index base: 4Q07 = 100 apartments increased 18.4% q-o-q. Driving the rise are cash-rich homebuyers who are Source: Jones Lang LaSalle purchasing better quality housing to improve their living conditions and as a store of wealth. With inflation still high and few alternative investment options, housing is still the preferred place to invest. Supply Physical Indicators East Gate Plaza closed in 3Q11 and will be strata-title sold in 2012; the closure caused 12,000 the existing serviced apartment stock to fall to 8,095 units. No.5 Vanke Park was completed in 3Q11, introducing 869 units of luxury apartments to the leasing market. 9,000 Eight high-end apartment projects launched into the sales market, totalling 3,319 units, an increase of 50.0% compared to 2Q11. Only one villa launched new units to the sales market, adding 93 detached villas. Units 6,000 Asset Performance 3,000 Serviced apartment rentals grew the fastest, reflecting the shortage of supply. Some serviced apartment projects experienced rental increases of more than 20% y-o-y. The rentals of luxury villas grew slowest, illustrating the limited demand for these projects. 0 07 08 09 10 11F 12F Rental growth for luxury apartments slowed to 3.7% q-o-q, down from a 4.4% q-o-q Completions Future Supply increase in 2Q11. With rents slowing, landlords are cutting back on amenities, such as Source: Jones Lang LaSalle providing new furniture to new tenants. For 2007 to 2010, completions are year end annual. The capital values of high-end and luxury apartments decreased 3.4% q-o-q andBeijing: Residential For 2011, completions are YTD while future supply is 7.6% y-o-y to RMB 40,078 per sqm, falling from a peak of RMB 43,395 per sqm in for 4Q11. 3Q10. The capital values of high-end and luxury villas has fluctuated over the last four quarters because of this market’s sensitivity to changes in one or two projects. The decrease in the average capital value of villas to RMB 39,047 per sqm was mainly due to no transactions occurring in the most expensive project, which had eight units transact at RMB 89,136 per sqm in 2Q11. 12-Month Outlook Rental Information With leasing demand expected to decelerate in 2012 and more new supply forecast Rental Value^ RMB 109.7 psm pm to launch in the market, rental growth is predicted to slow in 2012. The new supply of high-end and luxury apartments is expected to increase in 2012, and luxury apartment Stage in Cycle Rents rising projects with prime locations should experience price stability. However, high-end No. of Quarters Since 7 apartment projects located outside of the Fourth Ring Road are expected to start Last Trough discounting in the face of increasing competition. As prices come down, more potential ^ gross, on GFA buyers will choose to purchase housing, which will push up transactions to levels higher than that of 2011. 12-Month Outlook Rental Value Capital Value Note: Beijing Residential refers to Beijing’s Luxury and High-End residential market.
Asia Pacific Property Digest • Third Quarter 2011 57Shanghai: Residential• Shanghai tightens enforcement of existing purchase restrictions Financial Indices• High-end prices flat in the primary market; fall in the secondary market 140• Strong leasing demand leads to a further drop in serviced apartment vacanciesDemand 120In July, Shanghai implemented stricter enforcement of existing purchase restrictions Indexfor non-local buyers, further suppressing demand. Non-local buyers may now onlybuy homes if they are able to provide proof of tax or social insurance payments for 12 100of the previous 24 months; paying back taxes all at once will no longer suffice. Withtightening policies remaining in place and potential buyers waiting for prices to fall,sales volume of commodity housing in the primary market decreased 2% m-o-m in 80July, 25% m-o-m in August and 2% m-o-m in September. In the high-end segment, 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12sales totaled 194 units in 3Q11, only slightly higher than the record-low seen in 2Q11. Rental Value Index Capital Value IndexNo units were transacted in 3Q11 in projects such as Dynasty on the Bund, Bund Arrows indicate 12-month outlook Index base: 4Q07 = 100House, City Apartment and Artdeco Mansion II. Source: Jones Lang LaSalleLeasing momentum in the high-end market remained strong in 3Q11. Leasing demandfor short stays increased, driven by abundant business exhibitions in Shanghai.Meanwhile, demand for medium to long stays continued to grow as expatriates anddomestic employees were relocated to Shanghai to facilitate business expansion Physical Indicatorsplans. The strong leasing demand led to a further decline in serviced apartmentvacancy rates, falling from 12.1% in 2Q11 to 10.9% in 3Q11. 10,000Supply 8,000There was a surge in new supply of high-end apartments, with 784 units in four high-end projects launching for sale in 3Q11. Star River Phase II in Pudong New District 6,000 Unitsput 209 units onto the market; The Bound of Bund in Huangpu District released 98 4,000new units; Hai Po Fu Di on the Xuhui riverfront launched 111 residential units and 168commercial-titled residential units. The Palace in Xuhui District launched phase I with 2,000198 units. No new serviced apartments were completed in 3Q11. 0Asset Performance 07 08 09 10 11F 12FDespite stricter home purchase restrictions and pessimistic market sentiment, Completions Future Supplysales prices of high-end apartments in Shanghai’s primary market remained largely Source: Jones Lang LaSalleunchanged in 3Q11 as no developers offered discounts for projects in downtown Shanghai: Residential For 2007 to 2010, completions are year end annual.areas. In the secondary market, however, some individual sellers began lowering For 2011, completions are YTD while future supply isasking prices to attract buyers. As a result, average capital values of high-end for 4Q11.apartments in the secondary market decreased slightly by 1% q-o-q to RMB 55,488per sqm. In the leasing market, rising demand coupled with falling vacancies enhancedlandlords’ confidence, resulting in a 4.0% q-o-q increase in serviced apartment rentsand 3.1% q-o-q growth in non-serviced apartments rents in 3Q11.12-Month OutlookTightening measures are expected to remain for the remainder of 2011 and well into Rental Information2012, barring rapid deterioration in the economic outlook. In the high-end primarysales market, developers will likely hold prices as they regard the high-end projects as Rental Value^ RMB 123.1 psm pmirreplaceable due to limited developable land in downtown Shanghai. However, in the Stage in Cycle Rents risingsecondary market, a minor price correction is expected as the market shifts to favour No. of Quarters Since 7buyers. In the leasing market, rental growth may moderate during the short-term as Last Troughglobal economic uncertainty could slow MNCs’ business expansion plans in China. ^ gross, on GFA 12-Month Outlook Rental Value Capital ValueNote: Shanghai Residential refers to Shaghai’s High-End residential market.
58 Asia Pacific Property Digest • Third Quarter 2011 Hong Kong: Residential Financial Indices • Sales volume drop alongside global stock market corrections • No fire sales to date due mainly to low holding costs • 180 Prices edge down marginally as investment demand weakens 160 Demand 140 In 3Q11, housing sales slowed to their lowest levels since 1Q09 as both buyers and Index 120 sellers took a wait-and-see approach amid turbulent financial markets and uncertainty 100 about the global economy. Higher interest rates for new mortgages among local lenders as a result of tightened liquidity also limited demand. As such, the number 80 of residential sale and purchase agreements fell by 59.3% y-o-y and 41.1% q-o-q in 60 3Q11 to 15,516 units. 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Following the strong momentum in 2Q11, sales of new homes decreased roughly in Rental Value Index Capital Value Index line with the overall market decline and developers slowed the pace of new project Arrows indicate 12-month outlook Index base: 4Q07 = 100 marketing due to weaker demand. Consequently, only three new projects went on sale Source: Jones Lang LaSalle during the quarter. Kerry Properties launched Soho 189 in Sheung Wan (146 units) while Sun Hung Kai Properties launched i.UniQ Grand in Shau Kei Wan (79 units). Over 95% of the units in both projects sold. In Tseung Kwan O, Cheung Kong sold about 500 of a total of 1,168 units in La Splendeur. Physical Indicators The government sold six residential sites in 3Q11, fetching a total of HKD 19.1 billion. However, sites with more development restrictions, such as the one in Shatin 1,000 (STTL 525) and that in Tseung Kwan O (TKOTL 113), were less sought after by developers. Meanwhile, preliminary data suggested that sales of properties priced at 800 or above HKD 50 million were down 60% q-o-q in 3Q11 to 47 units. 600 Concerned about the global economic outlook, MNCs held back on some expansion plans, transferring fewer foreign executives to the city during the quarter. Leasing Units 400 activity was mainly driven by rent-saving exercises as expatriates under personal leases were on the rise. 200 Supply 0 A total of 6,612 residential units completed in the first eight months of 2011, 134 07 08 09 10 11F 12F of which were luxury units. One of the larger high-end schemes was New World Completions Future Supply Development’s The Signature in Tai Hang, comprising 66 apartments. Source: Jones Lang LaSalleHong Kong: Residential For 2007 to 2010, completions are year end annual. Asset Performance For 2011, completions are YTD while future supply is for 4Q11. After rising 16.2% in 1H11, capital values for luxury residential properties edged down 0.6% q-o-q in 3Q11, due mainly to softened demand amid stock market corrections. The trend of corporate tenants shifting from company leases to personal leases has led to reduced demand for top-end properties, resulting in slower rental growth of 1.2% q-o-q for 3Q11. 12-Month Outlook The gloomy economic environment is expected to extend into 4Q11 and 2012 should Rental Information there be no solid and effective plans for the European sovereign debt crisis. We Rental Value^ HKD 39.8 psf pm expect investment demand will continue to be soft for the rest of 2011, although Stage in Cycle Rents rising low holding costs will remain a valid weapon to help existing landlords defend their holding positions. Nevertheless, in a market with reducing demand, capital values are No. of Quarters Since 10 Last Trough expected to trend down further, but low holding costs and a shortage of new supply will avoid a free-fall scenario. Generally, we do not see strong disposal pressure. ^ net, on GFA This position may change if current market turbulence develops into a surge in 12-Month Outlook unemployment and/or the stock market slump starts to affect investors’ liquidity. Rental Value Capital Value Note: Hong Kong Residential refers to the Luxury residential market.
Asia Pacific Property Digest • Third Quarter 2011 59Macau: Residential• Gaming revenues for the first nine months up 46.0% y-o-y Financial Indices• Home sales plunge 44.5% in June-July as the SSD takes its toll• Prices show resilience, rents soar 8.1% q-o-q 140Demand 120Macau’s economy continued to expand strongly in 2Q11, with GDP posting real annual Indexgrowth of 24.0%. Moreover, figures released in October by the Gaming Inspection 100and Coordination Bureau indicated that the upward momentum continued over thefirst three quarters of 2011, despite turbulence in the financial market and fears over 80a slowdown in China’s economy. Gaming revenues in the January-September periodgrew 46.0% y-o-y to MOP 194.35 billion. 60 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Although the city’s economy remained relatively solid, housing market sentiment Rental Value Index Capital Value Indexwas dampened by the Special Stamp Duty (SSD) introduced in June. As a result, Arrows indicate 12-month outlookthe number of residential property transactions registered in June-July fell 44.5% Index base: 4Q07 = 100compared to the preceding two month period to 3,246 units, according to the DSEC. Source: Jones Lang LaSalleHowever, the figure was up 18.0% on a y-o-y basis.As most investors retreated, activity was supported largely by local owner-occupiers.For example, of the 40 units for sale at The Bayview, a high-end project, 25 were soldto end-users within one week of release. The flats are located on mid and upper floors, Physical Indicatorsand fetched prices of between HKD 3,100 and HKD 3,600 per sq ft. Located close to 4,000the future Light Railway Station and landing point of the HK-Zhuhai-Macau Bridge, theproject comprises five residential towers offering 942 flats (1,581-1,603 sq ft, gross). 3,000In the leasing market, faster rental growth was fuelled by an increased expatriateworker population. According to DSEC figures, the number of foreign workers in Julygrew 2.2% over June to 87,127 and by 20.7% compared with July last year. Units 2,000Supply 1,000There were no new completions in 3Q11. Looking ahead, about 655 units arescheduled for completion in 4Q11. Eight projects are located on the Macau Peninsula,providing 459 units, while 196 units will be supplied at a project in Taipa. 0 07 08 09 10 11F 12F Completions Future SupplyAsset Performance Source: Jones Lang LaSalleCapital values of high-end residential property remained resilient, with the average For 2007 to 2010, completions are year end annual.holding steady at HKD 4,442 per sq ft (gross). However, the leasing market Macau: Residential For 2011, completions are YTD while future supply isexperienced significantly higher rental growth. While average rents increased only for 4Q11.1.0% in 2Q11, rents rose 8.1% in 3Q11. As such, market yields improved by 20 bps toan average of 2.3% per annum.12-Month OutlookThe sales market will likely remain sluggish throughout 4Q11 if the European debtcrisis continues to weigh on the financial markets. In the primary market, developersare also likely to push back project launches in the coming quarter. Thus, we expect Rental Informationsales volumes to improve only after the Chinese New Year in late-February. Rental Value^ HKD 8.54 psf pmHowever, we are optimistic that pricing levels will hold firm over the coming 12 monthsfor two reasons. First, local owner-occupiers will be a dominant force in the sales Stage in Cycle Rents risingmarket because they are less exposed to financial market risks and benefit from the No. of Quarters Since 9area’s strong economic fundamentals. Second, robust rental growth driven by an Last Troughincreasing expatriate population will help keep home values stable, given that a low ^ net, on GFAinterest rate environment persists. 12-Month Outlook Rental Value Capital ValueNote: Macau Residential refers to the High-end residential market.
60 Asia Pacific Property Digest • Third Quarter 2011 Bangkok: Residential Financial Indices • Less new supply enters the market, while take-up remains steady • Rents increase slightly in 3Q11 due to improved occupancy rates 110 • Capital values are flat, yields increase marginally 100 Demand Demand remained stagnant in 3Q11 as buyers waited for new tax incentives for Index 90 first-home purchases from the new government. Announced in late-September, the incentives apply to first-time purchases of condominiums priced below THB 5 million 80 and therefore should not have much impact on the sale of Luxury and High-End condominiums in Bangkok’s CBD. 70 In contrast, the leasing market was active in the quarter as many expatriate contracts 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Rental Value Index Capital Value Index were renewed. Arrows indicate 12-month outlook Although global economic conditions continued to influence demand for Bangkok’s Index base: 4Q07 = 100 high-end condominiums, Thai buyers remained the major source of demand for new Source: Jones Lang LaSalle units, both for self-occupancy and investment purposes. Supply Three projects completed in 3Q11, namely the luxury 30-year-leasehold Oriental Physical Indicators Residences, which was delayed from the previous quarter and is now ready for 4,000 transfer, adding 44 units to the market; Saladaeng Residence (132 units) on Sathorn Road; and Aequa (153 units) on Sukhumvit 49. The addition of 329 units to the existing stock took the total in 3Q11 to 21,749 units. 3,000 By the end of 2011, additional supply of 2,179 units from five more projects is due for completion. The projects are Collezio (95 units), The Address Sukhumvit 28 (246 units), Quattro (446 units), Sukhothai Residence (196 units) and Bright Sukhumvit 24 Units 2,000 (292 units). 1,000 No new high-end condominium projects were launched in 3Q11. Nevertheless, several prime sites in the CBD remain ready for development and more projects are expected to be launched in the near future. 0 07 08 09 10 11F 12F Completions Future Supply Asset Performance Source: Jones Lang LaSalle Effective rents have increased by 0.4% q-o-q from THB 4,174 to 4,192 per sqm, with leasing activity supported by the arrival of foreign workers and the renewal ofBangkok: Residential For 2007 to 2010, completions are year end annual. For 2011, completions are YTD while future supply is expatriate contracts. With rising rental demand and fewer new completions, rents have for 4Q11. moved into the upward phase of the cycle. Capital values remained flat at THB 100,862 per sqm as no new transactions were recorded in the quarter and interest rates continued to rise. Yields picked up slightly in the quarter, rising by 10 bps to 4.2%. 12-Month Outlook A stable political environment and tax incentives from the government should help Rental Information boost demand among renters and end-user buyers. Investment demand may continue Rental Value^ THB 4,192 psm pa to be under pressure as yields are less attractive than in the past. At the same time, Stage in Cycle Decline slowing the amount of new supply being completed is falling compared to previous years and, therefore, rents and capital values should hold up. No. of Quarters Since 1 Last Trough ^ net effective, on NLA 12-Month Outlook Rental Value Capital Value Note: Bangkok Residential refers to Bangkok’s Central High-end luxury residential market.
Asia Pacific Property Digest • Third Quarter 2011 61Kuala Lumpur: Residential• Developers test the market with higher prices Financial Indices• Downward pressure on rentals continues 120• Capital values remain stable during 3Q11Demand 110In 3Q11, no new high end condominiums were officially launched. Index 100There are however a number of developers who are testing the market with higherprices and they have started to selectively open their units for registration andbookings before officially launching their projects to the public. 90There has been a noticeable move by developers to build smaller units, which aremore affordable in absolute terms and more attractive to investors seeking rental 80 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12returns. Rental Value Index Capital Value Index Arrows indicate 12-month outlookThe remaining unsold units (excluding penthouses) in the market are generally Index base: 4Q07 = 100the larger size units (3,500 sq.ft and above) or the less desirable units within a Source: Jones Lang Woottoncondominium block.SupplySupply increased from 18,683 units to 19,983 units with the completion of 1,300 in Physical IndicatorsDamansara Heights, Mont’ Kiara and Sri Hartamas. 6,000Twins @ Damansara Heights by Panareno Sdn. Bhd. (a joint-venture betweenLion Group, Koh Brothers, The Heeton Group and AIG Group) was completed in 5,000Damansara Heights. This freehold development comprises 318 units in two blocks of36 storeys. 4,000Two freehold developments, 11@Mont’ Kiara developed by Sunrise Bhd and Kiara Units 3,0009 developed by Mitrajaya Holdings were completed. 11@Mont’ Kiara comprises 380units in five blocks of 37 storeys and Kiara 9 comprises 192 units in one block of 41 2,000storeys. 1,000In Sri Hartamas, two blocks within Plaza Damas were completed. This freehold sevenstorey development by Mayland comprises 410 small studio units. 0 07 08 09 10 11F 12F Completions Future SupplyAsset Performance Source: Jones Lang Wootton Kuala Lumpur: ResidentialGenerally capital values remained stable at an average of MYR 6,684 per sqm in 3Q11. For 2007 to 2010, completions are year end annual. For 2011, completions are YTD while future supply isAfter a steady declining trend since 2Q10, the average rental value remained stable for 4Q11.at MYR 345 per sqm per annum. The decline in rentals was due to the large existingsupply and limited demand which pressurised some owners to reduce rental rates.Despite consolidation in 3Q11, further reductions could occur in the future.With stable capital values and rental rates, the average yield for high-endcondominiums remained stable at 5.2% in 3Q11.12-Month Outlook Rental InformationDue to the similarities between many high end condominiums, developers areexpected to be more innovative and creative to differentiate their projects. Some have Rental Value^ MYR 403 psm paindicated futuristic architectural design and some have tied up with reputable ‘brands’ Stage in Cycle Rents fallingto either design/furnish and/or manage their projects. No. of Quarters Since 12Occupancy rates are expected to reduce further in the short term due to the growing Last Peaksupply and demand imbalance. Thus, a tenant favourable market is expected to ^ gross, on NLAprevail in the short term as prospective tenants will have an increasingly wide range of 12-Month Outlookchoice of vacant units. Capital values may increase very marginally in the short termwhilst rental rates compress further. Rental Value Capital ValueNote: Kuala Lumpur Residential refers to Kuala Lumpur’s Prime residential market.
62 Asia Pacific Property Digest • Third Quarter 2011 Manila: Residential Financial Indices • Positive sentiment in the luxury market encourages new launches 140 • Rents climb 5.0% as leasing demand from expatriates is sustained • Rising investor interest drives capital values higher 130 Demand 120 Demand in the residential market remained positive in 3Q11 despite recent global developments. Leasing demand in the luxury housing market continued to be buoyed Index 110 by housing requirements for expatriates, primarily from offshoring and outsourcing 100 (OO) firms. However, vacancy rates rose slightly as recent completions are not yet 90 fully let and more units in existing developments were made available to the leasing market. 80 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 The market was also relatively active in terms of sales in existing developments, with Rental Value Index Capital Value Index increased demand coming from MNCs and OO firms seeking to house expatriate Arrows indicate 12-month outlook Index base: 4Q07 = 100 employees. The upbeat sentiment in the market was also evident in the sales of Source: Jones Lang LaSalle upcoming projects and developers continued to report growth in sales of condominium units. In the high-end market, developer Ayala Land reported a 15.0% take-up over two weeks for its newly launched Park Terraces (Tower 3). Supporting the positive performance of the residential market were stable interest Physical Indicators rates as Bangko Sentral ng Pilipinas refrained from raising policy rates, which form the basis of lending rates by commercial banks. 8,000 Supply 6,000 One residential development in Bonifacio Global City (BGC) completed in 3Q11, adding around 244 units to the total stock. Much of the new supply for 2011 is expected to complete in 4Q11. Units 4,000 New launches in 3Q11 included Park Terraces – Tower 3 by Ayala Land Premier, as well as the branded Trump Tower to be developed by Century Properties. Meanwhile, 2,000 property developer Federal Land, in a joint venture with the Japanese company Orix Corporation, is expected to launch a high-end condominium component in its mixed- 0 use development in BGC in the next few months. 07 08 09 10 11F 12F Completions Future Supply Asset Performance Source: Jones Lang LaSalle Rents in the luxury condominium market continued to rise in 3Q11, reaching PHP For 2007 to 2010, completions are year end annual. 7,620 per sqm per annum, supported by sustained leasing demand from expatriates.Manila: Residential For 2011, completions are YTD while future supply is for 4Q11. Meanwhile, activity increased in the investment market in 3Q11, propping up capital values at an average of PHP 110,000 per sqm. With rents and capital values growing at a similar pace, investment yields hovered at 6.9%. 12-Month Outlook Although many analysts have downgraded growth forecasts for the Philippines for 2011 and 2012, the revised forecasts are still expected to support growth in the Rental Information residential market. A growing concern, however, is the continued sluggish performance of the US economy and the eurozone debt crisis, which may have a negative impact Rental Value^ PHP 7,620 psm pa on overseas Filipinos’ remittances. This may, in turn, affect residential demand, Stage in Cycle Rents rising especially in the mid-end market. No. of Quarters Since 8 The volume of new supply expected over the next 12 months is estimated to be Last Trough around 4,500 units, a substantial figure that will likely put downward pressure on rents ^ net effective, on NLA and capital values, limiting their growth. 12-Month Outlook Rental Value Capital Value Note: Manila Residential refers to the Makati CBD and Fringe Residential Condominium Market.
Asia Pacific Property Digest • Third Quarter 2011 63Singapore: Residential• Supply pressure remains in the prime districts as 1,182 units complete Financial Indices• Sales volume falls as demand weakens 110• Rents for both luxury and prime residential properties fall 100DemandPreliminary estimates of the sales volume1 in the prime districts reached 613 units2 in 90 Index3Q11, compared with the 1,272 units recorded in 2Q11, which, although more caveats 80are likely to be lodged, is unlikely to be surpassed. 70New launches also stalled, with no new projects launched in the prime districts in3Q11. Data from the Urban Redevelopment Authority shows that just 256 new units 60were launched in July and August in the Core Central Region, which incorporates the 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 RV Index (Luxury)prime postal districts of 9, 10 and 11. All of these units were at previously launched RV Index (Prime) CV Index (Prime) CV Index (Luxury)properties, the majority of them (180 units) at D’Leedon. A further 23 units were Arrows indicate 12-month outlooklaunched at The Boutiq on Killiney Road, where demand has been strong with 93% of Index base: 4Q07 = 100the units already taken up, and 25 units were launched at Buckley Classique, where Source: Jones Lang LaSallethe sales rate is currently at 90%.SupplySupply pressure continued as an estimated 1,182 units completed in 3Q11, an Physical Indicatorsincrease of 14.6% q-o-q. The main contributor to this increase was Soleil@Sinaranin Novena, where 417 units completed. Wheelock Properties’ Scotts Square 4,000development along Scotts Road also completed in 3Q11, adding a further 338 units tosupply. Other projects granted TOP in 3Q11 included Newton Edge (104 units), Ritz 3,000Carlton Residences (58 units), The Lumos (53 units) and Residences at Emerald Hill(40 units). Units 2,000Asset PerformanceAverage rents for luxury prime property in 3Q11 decreased by 2.1% q-o-q to SGD 564 1,000per sqm per annum, while the figure for typical prime property also decreased, downby 0.4% q-o-q to SGD 453 per sqm per annum. This drop in rents was driven bythe continued influx of supply in the prime markets, combined with a fall in demand. 0 07 08 09 10 11F 12FCurrent uncertainties in global financial conditions have led to many large financial Completions Future Supplyorganisations initiating a hiring freeze, which has had a negative effect on demand. Source: Jones Lang LaSallePeople are no longer maximising their housing budgets and are instead choosing Singapore: Residential For 2007 to 2010, completions are year end annual.less expensive properties and/or downsizing their existing properties to reduce For 2011, completions are YTD while future supply isaccommodation costs. for 4Q11.In 3Q11, the average resale capital value for luxury prime properties remained stablefor the sixth consecutive quarter at SGD 26,910 per sqm per annum. Resale capitalvalues for typical prime properties also remained flat at SGD 14,962 per sqm perannum.12-Month OutlookUncertainty surrounding the global economy is expected to have an impact on demand Rental Informationfor residential property as businesses put a freeze on recruitment and people look to Rental Value^ SGD 564 psm padownsize in order to reduce housing costs. As such, we do not anticipate any furthergrowth in rents or capital values over the remainder of this year. Stage in Cycle Rents falling No. of Quarters Since 1 Last Peak ^ net effective, on GFA 12-Month Outlook1 Total sales volume includes new sales, sub-sales and resale transactions2 Based on caveats lodged retrieved from the Urban Redevelopment Authority (URA) Real Estate Information System Rental Value Capital Value (REALIS) on 30 September 2011Note: Singapore Residential refers to Singapore’s Prime and Luxury residential markets.
64 Asia Pacific Property Digest • Third Quarter 2011 Tokyo: Industrial Container Throughput • Production, exports and retail sales are recovering to pre-quake levels 1.2 • Rental growth becomes positive amid solid demand following quake • Foreign capital investors increase interests in the sector 1.1 Demand In 3Q11, production, exports and retail sales continued to increase as they generally 1.0 TEUs (Million) recovered to pre-quake levels with the resolution of most supply-side constraints. In this environment, leasing activity accelerated over the quarter as demand for modern 0.9 logistics facilities was solid, having recovered after temporarily stalling after the quake. Demand came primarily from internet, mail order and telemarketing sales enterprises, 0.8 and third party logistics (3PL) players that sublease property to these enterprises. Sales in the sector have increased two-fold over the past ten years. 0.7 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 Leasing transactions made public in the quarter included DHL Supply Chain’s take-up TEUs shipped per quarter of 35,000 sqm at GLP Urayasu III (GFA: 69,000 sqm) in August and 3PL service Source: Bureau of Port and Harbour, Tokyo Metropolitan Government provider Trancom’s commitment in the Kita-Kanto Logistics Centre (GFA: 24,000 sqm) in Saitama commencing in October. Supply Freight Traffic Volume No new supply entered the Tokyo Bay area in 3Q11. However, supply in the inland area was relatively ample with the completion of the Kuki Logistics Centre 26 (GFA: 24,000 sqm) and the Yashio Logistics Centre (GFA: 23,000 sqm) in Saitama, and D Project Kita-Hachioji B (GFA: 19,000 sqm) in Tokyo. 24 Groundbreakings in the quarter included Logi Port Kita Kashiwa (GFA: 127,000 sqm), a development by LaSalle Investment Management (LIM) in Chiba, due in October 2012. Metric tons (Million) 22 20 Asset Performance In 3Q11, rents averaged JPY 5,792 per tsubo per month, or USD 273 per sqm per 18 annum, an increase of 0.2% q-o-q, and the first time growth has been seen in 15 quarters. 16 In 3Q11, the investment market saw foreign capital inflow increase as investors 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 Freight Volume expect sustainable demand for modern logistics facilities, with LIM acquiring two Source: Bureau of Port and Harbour, facilities currently operating in the Tokyo Bay area. Global Logistics Properties and the Tokyo Metropolitan Government Canadian Pension Plan Investment Board formed the Japan Development Fund to develop and hold institutional-quality, modern logistics facilities. With USD 500 million of equity over a projected three-year investment horizon, the Fund is open-ended, with a long-term focus on building multi-tenant and build-to-suit facilities, mainly in the Greater Tokyo and Osaka areas. 12-Month Outlook Production and private consumption are expected to increase as reconstruction efforts kick in, while exports are predicted to rise in line with overseas demand. However, Rental Information persistent concerns over the eurozone crisis could lead to a slowdown in overall Rental Value^ JPY 5,792 per tsubo activity. per month In this environment, the Tokyo Bay area is expected to see suppressed supply in Stage in Cycle Rents rising the foreseeable future, due largely to the scarcity of land available for development,Tokyo: Industrial No. of Quarters Since 1 although demand is expected to remain robust as companies seek effective Last Trough distribution. Given this, the market is likely to remain tight and we expect rents to ^ gross, on NLA continue to rise. As rental growth gains momentum, investment yields should fall and capital values are likely to rise gradually. 12-Month Outlook Rental Value Capital Value NA Note: Tokyo Industrial refers to Tokyo’s Industrial Logistics market. In collaboration with Ichigo Real Estate Service Co, Ltd
Asia Pacific Property Digest • Third Quarter 2011 65Beijing: Industrial• The large amount of new supply in 3Q11 is quickly absorbed Exports• Continued robust demand drives vacancy rates down to 1.2%• Rental growth accelerates due to strong demand and limited supply 18 16Demand 14In 3Q11, the Beijing logistics market continued to experience strong demand, mainly 12 USD (Billion)from retailers, e-commerce firms, and third party logistics (3PL) companies. The 10majority of the demand came from e-commerce firms. As e-commerce businesses 8expand at a faster pace and sales volumes rise rapidly, warehouse space is 6increasingly required for storing, transferring and delivering goods. Net take-up 4reached 129,928 sqm, mostly attributed to two newly completed projects achieving 2100% pre-commitment rates in Daxing and Beijing Airport Logistics Park (BALP). Most 0warehouses are fully leased, leaving only a few warehouses with space still available. 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11Consequently, the overall market vacancy dropped to 1.2%, a decrease of 0.5% q-o-q. Total Value of Exports Source: General Administration of CustomsSupplyTwo projects entered the market, namely GLP Park Daxing and GLP Park BeijingAirport B-5 in Shunyi District, adding 125,229 sqm of new supply and pushing the totalmarket stock to 1,292,549 sqm. The two new projects were preleased by companiesfrom e-commerce, retail and third party logistics (3PL) sectors. Though a significant Utilised F.D.I.amount of new supply entered the market in 3Q11 (exceeding the amount that was 25launched in all of 2010), net absorption has been moving faster than new supply canbe completed, leaving little vacant space in the market. 20Asset Performance 15 Billion RMBDriven by robust demand, limited available space, rising development costs andincreasing capital values, the average net effective rent hit RMB 0.97 per sqm per day, 10growing 5.3% q-o-q and 15.1% y-o-y. 5The average capital value of logistics properties stood at RMB 4,219, rising 6.0% q-o-q.Rising land values and limited warehouse supply are contributing to the increase 0in capital values while market yields remained relatively stable as capital value 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11appreciation stayed in line with rental growth. Utilised FDI per quarter Source: Beijing Municipal Commission of Commerce12-Month OutlookIn 4Q11, Shoufa Logistics Center Phase II located in Fangshan District is slatedto enter the market bringing 25,000 sqm of new supply, but this developmenthardly alleviates the supply constraints. Thus, several e-commerce giants, such asDangdang, Taobao and New Egg have announced, or are considering building theirown logistics centres in the near future.Leasing demand is expected to remain strong through the rest of the year and into2012. A large number of firms are seeking suitable space to establish or expandoperations. In addition, more tenants are choosing to prelease space much furtherin advance than before. Vacancy is anticipated to drop further in 4Q11 due to supply Rental Informationconstraints and pent-up demand. Rental Value^ RMB 29.4 psm pmRents are expected to continue their growing momentum next quarter due to strong Stage in Cycle Rents risingpreleasing demand and the high absorption rates of new projects. Capital values Beijing: Industrial No. of Quarters Since 7are forecast to continue to appreciate at a rapid pace due to rising land values and Last Troughincreasing rents. ^ net effective, on GFA 12-Month Outlook Rental Value Capital ValueNote: Beijing Industrial refers to Beijing’s Industrial Logistics market.
66 Asia Pacific Property Digest • Third Quarter 2011 Shanghai: Industrial Container Throughput • Two new non-bonded warehouses are completed • Rental growth slows in non-bonded and bonded markets 10.0 • Shanghai has only limited land supply for logistics projects 9.0 8.0 Demand 7.0 In the non-bonded logistics market, demand remained strong in West Shanghai TEUs (Million) as logistics and e-commerce companies continued to seek space for distribution 6.0 centres. However, a lack of vacant space has meant they have had to look in other 5.0 submarkets. Due to Pudong’s high costs and inferior location – far from manufacturing 4.0 and population centres – companies do not consider it as an attractive alternative to 3.0 the West Shanghai submarket. Instead, most companies view cities along Shanghai’s western border such as Kunshun and Taicang to be the best alternative locations. As a 2.0 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 result, demand in Pudong’s non-bonded market remains limited to logistics companies TEUs shipped per quarter handling exports and imports through Pudong’s airport and port infrastructure. For Source: Government Statistics Bureau example, Expeditors International and Deppon Express both leased 10,000 sqm in GLP Park PVG this quarter. The non-bonded vacancy rate increased from 7.4% in 2Q11 to 9.4% in 3Q11 due to the completion of GLP Park PVG. In the bonded market, a logistics company leased 6,000 sqm in Phoenix Bonded Logistics Centre in Waigaoqiao, pushing the bonded vacancy rate down 0.6 percentage points to 22.0%. Freight Traffic Volume The bonded market in Lingang continued to remain quiet with little demand for space and a high vacancy rate. 260 240 Supply In the non-bonded market, two new projects with a total of 133,908 sqm of space 220 Metric Tons (Million) were completed in 3Q11. In West Shanghai, Vailog Songjiang Logistics Park Phase 200 III added 37,890 sqm of space to the market. The project was filled by pre-leasing demand in 1Q11, reflecting the high demand for space in supply-constrained West 180 Shanghai. In Pudong, GLP Park PVG was completed this quarter, adding 96,018 sqm of space to the market. The bonded market remained inactive with no new supply 160 delivered in 3Q11. 140 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 Asset Performance Freight Volume Driven by strong demand and the tight market in West Shanghai, average non-bonded Source: Government Statistics Bureau rents rose by 1.6% q-o-q to RMB 1.12 per sqm per day. Rental growth slowed from last quarter because the limited demand and large amount of vacant space in Pudong prevented rents there from rising. Bonded rents remained flat at RMB 1.06 per sqm per day. Bonded rents in Waigaoqiao remain substantially higher than in Lingang, where vacancy is high and demand for space weak. 12-Month Outlook In the non-bonded market, upcoming supply in West Shanghai will be quickly absorbed and the vacancy rate will remain near zero. It has become more difficult in Rental Information recent quarters for developers to receive government approval for logistics projects, which contribute less in tax revenue and economic activity than other land-use types. Rental Value^ RMB 1.10 per sqm per day To prove that developments will benefit an area, developers will need to show the government that they have signed on an important tenant as a partner or that they Stage in Cycle Rents rising will provide a distinguishing feature such as cold storage. Moving forward, the amountShanghai: Industrial No. of Quarters Since 5 of land available in Shanghai to build relatively low-value logistics warehouses will Last Trough continue to shrink, and companies will increasingly need to consider alternative sites in ^ gross, on GFA cities in neighbouring Jiangsu Province. 12-Month Outlook Rental Value Capital Value Note: Shanghai Industrial refers to Shanghai’s Industrial Logistics market.
Asia Pacific Property Digest • Third Quarter 2011 67Guangzhou: Industrial• Leasing demand from the automotive industry continues to expand F.D.I. Contracts• Business parks are increasingly the preferred destination for RD centres• Overall rental growth slows as more warehouse supply puts pressure on rents 350 325Demand 300Leasing activity in 3Q11 was spurred on by the announcement from Nissan that it will 275invest RMB 3.6 billion over the next few years in expanding production capacity at its Number 250Guangzhou engine plant. Four suppliers for Honda, Toyota and Nissan have already 225established manufacturing plants in the Sino-Singapore Guangzhou Knowledge City(SSGKC) in Luogang district. Elsewhere, Shunjie Logistics and Domtar Corporation 200have pre-leased 40,000 sqm and 20,000 sqm of space respectively in GLP Park in 175Xintang, which is near Guangzhou Honda’s Xintang manufacturing base. 150 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11In the business park sector, more space was occupied by new RD centres built FDI contracts signed per quarterfor the car manufacturing, technology and banking sectors. For example, F.tech, aJapanese car parts manufacturer, set up an RD centre in SSGKC during the quarter. Source: Guangzhou Municipal Bureau of StatisticsIn addition, Tianhe Software Park said that it had acquired two land parcels in theGaotang sub-park to develop an RD facility for Bluedon, an Internet security firm,and ATM manufacturer Kingteller. These two domestic companies plan to run theirown RD centres in the location by occupying 7,650 sqm and 15,731 sqm of land, Utilised F.D.I.respectively. 12Supply 10A warehouse property in GLP Park Xintang was delivered in 3Q11, adding some20,000 sqm of floor space to the total stock. The rest of the space in the logistics park, 8amounting to some 90,000 sqm, is scheduled for completion by end-2011. Billion RMB 6There were no completions in the business park sector during the quarter. 4Asset Performance 2While demand for warehouse space continued to rise gradually, overall rents remainedfairly stable, up a modest 0.6% over 2Q11 to an average of RMB 29 per sqm per 0 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11month (gross) in 3Q11. This was due to the fact that the rental market for warehouse Utilised FDI per quarterproperty is entering a slower growth cycle after seeing strong growth over the past fewquarters and to the increased supply from neighbouring cities that has eased upward Source: Guangzhou Municipal Bureau of Statisticspressure on rents.In the business park sector, although activity remained focused on investment andthe development of self-built office schemes, rents rose a healthy 3.1% q-o-q to anaverage of RMB 653 per annum as of 3Q11.12-Month OutlookDespite a gloomier global economic outlook, China’s domestic consumption isbelieved to be able to absorb some of the shock from the worldwide downturn, giventhat Guangdong Province has a stronger retail market than the rest of the country. As Rental Informationsuch, we believe that demand for distribution centres from foreign manufacturers willcontinue to strengthen, fuelling rental growth over the next 12 months. Rental Value^ RMB 653 psm pa Stage in Cycle Rents rising Guangzhou: IndustrialAs with local manufacturers, foreign manufacturers are also expected to invest more inRD in order to develop products for local markets. Therefore, Guangzhou’s business No. of Quarters Since 10parks, benefitting from their proximity to the manufacturing base in south China, will Last Troughincreasingly become a preferred destination for RD centres. ^ net, on GFA 12-Month Outlook Rental Value Capital Value NANote: Guangzhou Industrial refers to Guangzhou’s Warehouse and Business Parks markets.
68 Asia Pacific Property Digest • Third Quarter 2011 Hong Kong: Industrial Financial Indices • Recovery in regional supply chains offset by an export market slowdown • Low vacancy rates drive rents higher 150 • Investment activity drops as investors head for the sidelines 140 Demand 130 The recovery of regional supply chains, which had been disrupted by the natural disasters in Japan earlier in the year, helped Hong Kong’s external trading sector Index 120 110 expand by 6.7% y-o-y in 3Q11. However, with key export markets in Europe and the US again on the brink of recession and trade growth moderating throughout the 100 quarter, growth was lower than the 9.1% recorded in 2Q11. 90 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 The slowdown in the growth of export trade was reflected in the leasing market, where Rental Value Index Capital Value Index a moderate drop in demand was observed from export-oriented 3PL operators as they put expansion plans on hold. This was, however, offset by growing demand from Arrows indicate 12-month outlook Index base: 4Q07 = 100 retailors and local distributors, which benefitted from the strong performance of Source: Jones Lang LaSalle Hong Kong’s retail market, where sales grew by 29.0% y-o-y in July-August. Notable new lettings driven by retailor expansion included: Lane Crawford leasing 32,000 sq ft in Tuen Mun Distribution Centre in Tuen Mun; IKEA expanding by an additional 60,000 sq ft in ATL Logistics Centre in Kwai Chung; and Kerry Logistics Physical Indicators leasing 120,000 sq ft in Jumbo Plaza in Sheung Shui. 250 There were no notable transactions involving purely warehouse properties in the quarter. With capital values looking increasingly overpriced at more than 20% above 200 previous record highs and amid uncertainties emerging in global trade markets, investors headed for the sidelines. Thousand sqm 150 Supply 100 Two smaller warehouse developments were completed in 3Q11, namely Chinachem’s 114,527-sq-ft facility on Lok Yip Road in Fanling and Nanyan Brothers Tobacco 50 Company’s 118,157-sq-ft facility at 13 Ping Tong Street South in Yuen Long, which was fully retained for self-use. 0 07 08 09 10 11F 12F Completions Future Supply Asset Performance The slowdown in demand had little impact on rents as landlords continued to push for Source: Jones Lang LaSalle new highs on the back of improving occupancy levels. By end-3Q11, rents were at an For 2007 to 2010, completions are year end annual. average of HKD 8.2 per sq ft per month, up 3.9% q-o-q. For 2011, completions are YTD while future supply is for 4Q11. Capital values also continued to rise, albeit at a moderating rate, growing by 3.9% q-o-q. Growth was, however, driven largely by valuations in the absence of transactions. 12-Month Outlook Recent downgrades in the city’s economic outlook are expected to curtail demand. Tenants downsizing on natural lease expiry and the build-up and return of secondary Rental Information space will also cause vacancy rates to rise. Rental Value^ HKD 8.2 psf pm Although rents are expected to climb to their record highs in 4Q11 because of tight Stage in Cycle Peak vacancies, increasing vacancy pressure will likely lead to a 10-15% rental correctionHong Kong: Industrial in 2012. No. of Quarters Since 7 Last Trough The buyer-seller standoff over pricing will keep investment volumes low. Investors will ^ net, on GFA also demand higher yields to justify higher borrowing costs and negative rental growth. Capital values are still expected to hold firm in 4Q11, but will likely decline by 15-20% 12-Month Outlook in 2012. Rental Value Capital Value Note: Hong Kong Industrial refers to Hong Kong’s Industrial Warehouse market.
Asia Pacific Property Digest • Third Quarter 2011 69Singapore: Industrial• Leasing demand softens Financial Indices• Effective rents remain unchanged amidst sluggish market sentiment 180• Capital values of high tech space increases due to sales activity 160Demand 140According to the August data released by the Economic Development Board, 120Singapore’s manufacturing output expanded by 21.7% y-o-y, by 13.1% y-o-y on Index 100a three-month moving average basis and by 3.9% m-o-m (seasonally adjusted)in August 2011. Biomedical manufacturing was the greatest contributor to these 80increases, with output surging by 145.8% y-o-y in August due to a large increase 60in output from the pharmaceuticals segment and the production of a mix of higher 40value-added active pharmaceutical ingredients. Output from the precision engineering 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12cluster climbed by 4.1% y-o-y in August largely attributed to the machinery and Rental Value Index Capital Value Indexsystems segment, which saw increased production of semiconductor-related and Arrows indicate 12-month outlook Index base: 4Q07 = 100process control equipment and rising mechanical engineering works. Source: Jones Lang LaSalleLeasing demand in the business park market remained good, but was weaker than in2Q11. Year-to-date net absorption reached around 108,000 sqm from 74,000 sqm in2Q11, causing the average vacancy rate to decline to 20.7% from the 23.4% reportedin 2Q11. Physical IndicatorsSupply 250 25No business park space was delivered in 3Q11, making the only business park 200 20completed so far this year Biopolis Phase Three at Biopolis Drive, developed byCrescendas. 150 15 Thousand sqm PercentIn 2012, Infinite Studios @ Mediapolis, a one-north project on Portsdown Road, will 100 10complete, adding a total GFA of 24,000 sqm. Other business parks due for completion 50 5next year include One @ Changi City and UE BizHub East. 0 0Asset Performance –50 –5Effective rents for high-tech space have remained stable in 3Q11 amidst weaker 07 08 09 10 11F 12F Take Up (net) Completionsmarket sentiment and fewer leasing deals island-wide. Future Supply Vacancy RateAverage capital values for high-tech space reached SGD 5,597 per sqm because Source: Jones Lang LaSalleof a change in focus by investors, who have been shifting their attention away from For 2007 to 2010, take-up, completions and vacancythe residential market. As a result, yields in 3Q11 compressed by 70 bps to 5.9%. rates are year end annual. For 2011, take-up,Industrial REITs continued to acquire yield-accretive properties. For example, the completions and vacancy rates are YTD while futureAscendas REIT purchased the Nordic European Centre at International Business Park supply is for 4Q11.(IBP) for SGD 121.55 million.12-Month OutlookThe on-going global economic turmoil is expected to affect Singapore’s leasing marketand rents for high-tech space are expected to remain flat over the next 12 months.High-tech properties with good quality building specifications and tenants with good Rental Informationcovenant strength are likely to continue to attract investors, creating opportunities forindustrial investments beyond the current period of economic uncertainty. Rental Value^ SGD 332 psm pa Stage in Cycle Rents stable Singapore: Industrial No. of Quarters Since 12 Last Peak ^ net effective, on NLA 12-Month Outlook Rental Value Capital ValueNote: Singapore Industrial refers to Singapore’s Island-wide Business Park market.
70 Asia Pacific Property Digest • Third Quarter 2011 Sydney: Industrial Financial Indices • Tenant demand remains positive, led by leasing of existing vacancy 110 • Rents grow modestly in the quarter as supply remains subdued • Investment activity is steady, while yields remain stable 100 Demand Gross take-up of 141,900 sqm was recorded in 3Q11. Take-up has steadily increased each quarter in 2011. However, take-up levels remain down on 2010 due to the lack of Index 90 large pre-lease deals that were the primary driver of activity in 2010. 80 Leasing activity in 3Q11 was driven by a broad base of businesses in the transport and logistics, retail trade and wholesale trade sectors. 70 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Supply Rental Value Index Capital Value Index Arrows indicate 12-month outlook In 3Q11 183,300 sqm of new projects completed, all in western Sydney. This represents Index base: 4Q07 = 100 a pick up on previous quarters this year. New supply additions in 2011 have eclipsed Source: Jones Lang LaSalle the extremely low level delivered in 2010. There has been 296,400 sqm of new stock added so far in 2011 and a further 174,900 sqm is scheduled to complete in 4Q11. New supply largely continues to be demand-led. Nearly all projects that completed in 3Q11 were fully pre-committed and were purpose built for the likes of Kmart Physical Indicators (51,660 sqm), Volkswagen (33,810 sqm), DHL (30,600 sqm), DHL (20,600 sqm) and 1,000 Cassons (17,400 sqm). 800 Asset Performance Growth in industrial net face rents for existing stock remained modest in 3Q11. The Thousand sqm 600 strongest growth has been recorded in the Outer Central West at 4.8% in the year to 3Q11. Other sub-precincts to record growth were the Outer North West (2.6%), South 400 Sydney (1.6%) and Inner West (1.0%). Both the Outer South West and North recorded small declines in average prime rents of -0.5% and -0.3%. Rents for existing space 200 are being supported by limited supply and occupiers opting for ‘stay put’ options given current macroeconomic uncertainties. 0 07 08 09 10 11F 12F Take Up (gross) Completions There has been little evidence of renewed appetite from developers for land. Average Future Supply land values have been flat in most Sydney precincts and downward adjustment may emerge if demand for development sites remains weak. Source: Jones Lang LaSalle For 2007 to 2010, completions and take up are year Eight sales were recorded in the Sydney industrial market in 3Q11, totalling AUD 220.7 end annual. For 2011, completions and take up are million. Yields have been stable for around a year. Three noteworthy sales in 3Q11 YTD while future supply is for 4Q11. drove this result. The St Leonards Corporate Centre at 39 Herbert Street, St Leonards changed hands for AUD 86.7 million. Orchard Funds Management sold the facility to Altis Property Partners. Also in 3Q11, Mirvac sold a 50% share in two Hoxton Park developments to Aviva Investors for a combined AUD 96.9 million. 12-Month Outlook Tenant demand is expected to remain steady over the next 12 months. New supply will Rental Information be driven by projects already under construction or new pre-lease deals. There is little evidence of a surge in speculative development emerging in the near term. Face rents Rental Value^ AUD 107 psm pa for existing stock are expected to record moderate positive growth, while prime grade Stage in Cycle Rents rising yields are expected to remain flat or tighten moderately at the lower end of the range.Sydney: Industrial No. of Quarters Since 5 Last Trough ^ net, on GFA 12-Month Outlook Rental Value Capital Value Note: Sydney Industrial refers to all grades of the Sydney industrial market.
Asia Pacific Property Digest • Third Quarter 2011 71Melbourne: Industrial• There is ample upcoming supply with 335,000 sqm under construction Financial Indices• Rents remain stable 110• Five major transactions occur in the quarter totalling AUD 39.9 millionDemand 105The lead indicators for the industrial sector remain mixed. Container trade throughthe Port of Melbourne recorded year-end growth of 10.4% in August 2011. Container Index 100throughput totalled 233,000 TEUs (20-foot equivalent units) in the month of August,marking a new national record. Strengthening trade volumes are helping to support 95demand for industrial space, however, this is being offset by weaker retail turnovergrowth. Housing investment remains high in Victoria relative to the other states; 90however total housing approvals have fallen 4.9% (seasonally adjusted) in the three 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12months to August 2011 compared to the previous three month period. There were only Rental Value Indextwo leasing deals within existing stock in 3Q11 totalling 15,300 sqm and a further two Arrows indicate 12-month outlook Index base: 4Q07 = 100design and construct deals totalling 14,000 sqm. Tenants are finding very few suitable Source: Jones Lang LaSalleoptions within existing space which has led to the latest development cycle.SupplyThree major projects reached practical completion in 3Q11, totalling 74,300 sqm.These projects were: the Pacific Brands Distribution Warehouse at Permas Way, Physical IndicatorsTruganina (43,000 sqm); the extension of the Omega Chemicals facility (14,000 sqm) 1,000at the Angliss Industrial Estate, Laverton North; and the speculative facility at2-10 Foundation Road, Laverton North (17,350 sqm). 800Approximately 330,000 sqm of new supply is under construction across 16 projects Thousand sqm 600that are scheduled to complete to by the end of 2012. Despite the relative leasingsuccess of recent speculative developments, the bulk of space under construction is 400pre-committed (80%). 200Asset PerformanceRents were unchanged in 3Q11 across all markets with the prime net existing rents 0 07 08 09 10 11F 12Fremaining at AUD 69 per sqm per annum (West), AUD 66 per sqm per annum (North), Take Up (gross) CompletionsAUD 80 per sqm per annum (South East) and AUD 121 per sqm per annum (City Fringe). Future SupplyLand values for an average standard services allotment (2,000 sqm) during the quarter Source: Jones Lang LaSallewere mostly unchanged. Land values are currently assessed at AUD 170 sqm in For 2007 to 2010, completions and take up are yearLaverton North, AUD 185 sqm in Campbellfield, and AUD 250 sqm in Dandenong. end annual. For 2011, completions and take up are YTD while future supply is for 4Q11.Prime investment yields were unchanged in 3Q11 and range from 7.75% to 8.75%(West), 8.25% to 9.25% (North), 7.75% to 8.50% (South East) and 7.50% to 8.50% inthe City Fringe. There were five major transactions in 3Q11, totalling AUD 39.9 million.Prime investment yields were unchanged in 2Q11 and range from 7.75% to 8.75%(West), 8.25% to 9.25% (North), 7.75% to 8.50% (South East) and 7.50% to 8.50%in the City Fringe. Investment activity in the Melbourne Industrial market is beginningto gain momentum. In 2Q11, there was AUD 176.8 million of transactions includingportfolio acquisitions. Rental Information Rental Value^ AUD 69 psm pa12-Month Outlook Stage in Cycle Rents stable Melbourne: IndustrialWhilst the outlook has softened over the past quarter, growing container trade through No. of Quarters Since 5the Port of Melbourne and relatively strong housing investment will continue to support Last Troughthe industrial sector. Downside risks remain elevated with consumption and spending ^ net, on GFAgrowth being eroded by weak consumer confidence. We believe the economic upturnhas been delayed, rather than cancelled and should the economy return to trend 12-Month Outlookgrowth, we would expect renewed confidence and spending growth to return to morenormal levels. Rental Value Capital Value NANote: Melbourne Industrial refers to all grades of the Melbourne industrial market.
72 Asia Pacific Property Digest • Third Quarter 2011 Brisbane: Industrial Financial Indices • Gross take-up up to 85,900 sqm 120 • Supply additions total 54,900 sqm in the quarter • Both prime and secondary rents increase slightly 110 Demand 100 Gross take-up (over 3,000 sqm) of 85,900 sqm was recorded in 3Q11. This follows a weak quarter of activity in 2Q11 where only 65,200 sqm of take up was recorded. Index 90 Nevertheless, conditions are difficult and tenants remain cautious due to recent global economic volatility. Leasing activity was boosted by three deals: Australia Container 80 Freight Services leased 11,000 sqm at 1-5 Bishop Drive, Port of Brisbane; Axima Pty Ltd leased 10,690 sqm at 1094 Lytton Road, Murarrie; and Visy Logistics leased 70 8,890 sqm at 48 Randolph Street, Rocklea. 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 Rental Value Index Capital Value Index Arrows indicate 12-month outlook Supply Index base: 4Q07 = 100 Source: Jones Lang LaSalle Supply additions have generally picked up in 2011, but still remain low compared to pre-GFC levels. Five projects (≥ 3,000 sqm) completed in 3Q11, with new supply additions totalling 54,900 sqm. Year to date, new supply additions total 143,200 sqm, an increase of 80% on the same period last year. This compares to the trough of the market in 2010 when supply additions totalled just 154,000 sqm. Projects completed Physical Indicators in the quarter included a 21,270 sqm warehouse for Grace Group at 450 Sherbrooke 600 Road, Willawong, and an 18,000 sqm warehouse for Energex at Lot 21, Schneider Road, Eagle Farm. 400 Asset Performance Thousand sqm Prime Brisbane industrial rents increased slightly across all precincts in 1Q11. Prime rents now average AUD 124 per sqm per annum in the Trade Coast, AUD 120 per 200 sqm per annum in Northern Brisbane and AUD 114 per sqm per annum in Southern Brisbane. Secondary rents remained relatively stable over the quarter, with Southern Brisbane and Trade Coast recording modest increases. 0 Brisbane industrial land values (2,000 sqm lots) stabilised over the quarter following 07 08 09 10 11F 12F Take Up (gross) Completions falls in 2Q11. Yatala (Southern Brisbane) was the only exception, with a small decline. Future Supply Average land values for 2,000 sqm serviced lots now range from AUD 210 per sqm in Source: Jones Lang LaSalle Yatala to AUD 400 per sqm in Eagle Farm (Trade Coast). Brisbane industrial rents are now on average 27% below their peak in 1Q08. For 2007 to 2010, completions and take up are year end annual. For 2011, completions and take up are Prime investment yields remained unchanged for the second consecutive quarter in YTD while future supply is for 4Q11. 3Q11. Yields for Prime grade assets now range between 7.75% and 8.50% (Southern); 8.00% and 8.75% (Northern); and 7.75% and 8.50% (Trade Coast). Secondary yields remained unchanged in 3Q11. Three major transactions ( AUD 5.0 million) totalling AUD 17.1 million were recorded in 3Q11. This figure does not include the sale of a 150,000 sqm parcel of land at Swanbank Enterprise Park, Ipswich. In 3Q11 a 7,000 sqm warehouse on 20 Radius Drive, Larapinta sold for AUD 11.0 million, and a 23,000 sqm parcel of land at Rental Information 776 Boundary Road, Richlands sold for AUD 6.1 million. Rental Value^ AUD 114 psm pa 12-Month Outlook Stage in Cycle Rents risingAdelaide: Industrial Brisbane’s industrial market has taken longer to recover than originally anticipated No. of Quarters Since 7 Last Trough as global economic volatility keeps tenants cautious and further delays recovery. Nevertheless, the fundamentals of industrial property demand should improve over the ^ net, on GFA next 12 months. With limited space under construction and few existing prime grade 12-Month Outlook assets vacancy is likely to fall further and see moderate upward pressure on rents. Rental Value Capital Value Note: Brisbane Industrial refers to all grades of the Brisbane industrial market.
Asia Pacific Property Digest • Third Quarter 2011 73About Jones Lang LaSalle ResearchJones Lang LaSalle Research is a multi-disciplinary professional group with core competencies ineconomics, real estate market analysis and investment strategy. The group is able to draw on anextensive range and depth of experience from the Firm’s network of offices, operating across more than700 cities worldwide. Our aim is to provide high-level analytical research services to assist practicaldecision-making in all aspects of real estate.The Asia Pacific Research team produces a range of outputs to assist clients of the Firm with theirdecision making, including comprehensive market monitoring and analysis across major institutionalgrade real estate markets in the region; forecasts of key real estate indicators; consultancy projects;thought leading research papers on topical issues as well as regular publications.We deliver a range of global, regional and local publications including:1. Real Estate Daily – Providing daily updates on the real estate markets across Asia Pacific allowing clients to keep their finger on the pulse.2. Asia Pacific Property Digest – A quarterly compendium of recent market trends and issues3. White Papers – In depth thought leadership reports on a range of topical issues relating to the real estate market.4. Global Market Perspective – A monthly thought leadership report which provides insight on global market conditions and issues.www.research.joneslanglasalle.comwww.joneslanglasalle.com
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