Average occupancy costs in Asia Pacific will grow by an average annual rate of 3.7% to 2015, according to the fourteenth edition of DTZ’s annual ‘Global Occupancy Costs: Offices’ survey, published today. Growth will be driven by above average increases in low cost locations in China and India. For example, occupancy costs per workstation in the southern Indian IT centre of Bengaluru are forecast to increase by an annual average of 9.75% between 2011 and 2015. DTZ Research forecasts that growth in occupancy costs in Asia Pacific will be double the growth expected in EMEA and the US.
Growth in Asia Pacific will be driven by expanding demand from multi-national companies, especially in India and China, and limited Grade A space. Vacancy rates will begin to fall, despite the fact that 2011 will represent a peak year in terms of development in the region. Inflationary pressure is also likely to have an impact. In India, double-digit inflation has led to significant increases in outgoings in the past year.
Kate Medlicott, Associate Director, DTZ Forecasting and Strategy Research and co-author of the report said: “The biggest increase in costs globally from 2011 to 2015 will be seen in the southern Indian IT centre of Bengaluru, Hong Kong, Singapore, Beijing and Chennai, underpinned by solid rental growth. However, the growth in costs in Bengaluru and Chennai
is from a very low base and these markets will continue to offer value to occupiers. Both markets are currently ranked in the bottom 20 of our global ranking, and we expect them to remain there to 2015.”
Fuelled by the economic recovery, Hong Kong entered 2011 as the most expensive office location in the world. Occupancy costs per workstation in Hong Kong’s prime district of Central and Admiralty surged by 31% year-on-year (in local currency) in 2010. This pushed Hong Kong up from second in 2010 to first in 2011, ahead of London’s West End, Geneva, Tokyo and Zurich. The increase in Hong Kong was driven by a surge in prime rents on the back of healthy demand and a shortage of space. David Green-Morgan, Head of Asia Pacific Research at DTZ comments: “Hong Kong is traditionally a volatile and cyclical market, responding very quickly to economic highs and lows. This is reflected in the fact that the prime rent took only one year to recover its ground in the wake of the financial crisis. We forecast that Hong Kong will continue to outpace other markets in the region, with the gap between it and other centres widening as occupancy costs increase by USD 9,190 to reach USD 31,520 by 2015. This will be driven by rental growth on the back of strong occupier demand and tight availability.” Occupiers are also focusing on using prime space more efficiently, for example through the use of flexible working and shared services.”
Within Asia Pacific there is a big difference in costs between the mature and emerging markets. Alongside Hong Kong, other mature markets including Tokyo, Sydney and Singapore are amongst the top 30 most expensive office locations globally. In contrast, emerging markets such as Bengaluru and Chennai are amongst the least expensive globally. The 10 least expensive office locations globally are dominated by tier two cities in mainland China, although many, such as Shenyang, experienced a big increase in occupancy costs during 2010 as a result of extreme competition for a very limited amount of
prime space.
MIPIM
"MIPIM and MIPIM Asia provide unique opportunities for the international real estate community to focus on Asia. The first day of MIPIM 2011 highlighted the extraordinary growth potential of the Asian continent and gave participants an opportunity to find out about what is happening in two key Asian markets – China and Japan.
Although investments in China can be attractive, they require a good understanding of both the economic and political context and local regulations.
The next MIPIM Asia will be held in Hong Kong from 15 to 17 November 2011 and will target real estate professionals in the Asia-Pacific region with a showcase of the region's finest real estate projects.
