CBRE Launches Asia Pacific Office Market Outlook 2014 Report
*The Japanese translation of this release was disseminated in Japan on the date above. Please note that the original version of this release was announced in English on February 25.
Hong Kong, February 25, 2014—CBRE today launched its Asia Pacific Office Market Outlook 2014 report, a 36-page document highlighting the key trends for 2014 for the Asia Pacific office market. The report covers a broad range of aspects of regional markets, including investment, capital market, occupier and economic trends.
The global economic recovery is underway, although growth expectations in Asia Pacific are lower. Crucially for Asia Pacific, we expect that the US will not significantly increase interest rates this year and that the US Federal Reserve tapering program will be moderate, meaning limited impact on the Asia Pacific property market in 2014. Although the risk of interest rate hikes is likely to intensify beyond this year.
From an occupier perspective, Dr Henry Chin, Head of Research, Asia Pacific at CBRE said, “Net absorption is expected to grow after nine quarters of decline, backed by the gradual improvement in the global and regional economy and positive employment sentiment. CBRE expects demand for office space to improve by 10% in 2014. In particular, multinationals expanding into Asia will encourage further growth. The impact on rents will be minimal due to the level of new supply but we have clearly passed the current trough.”
From an investment perspective, Dr Chin said, “Meanwhile, low borrowing costs and high liquidity will continue in 2014. However, banks will become more selective in their lending to reflect government cooling measures and soaring property prices. We expect a funding gap to still exist, particularly in Australia and Japan, while Markets in Hong Kong and Taipei have the highest risk of seeing yield decompression.”
Key stats for 2014:
Office demand set to rise, with office net absorption set to increase by 10% in 2014
New supply pipeline is significant, mainly in emerging markets
Rental growth expected to be moderate, with a 2.7% rise expected in 2014
Strong investment demand will be supported by excess liquidity, with capital values expected to strengthen by 2.6% in 2014, slightly slower than the 2.8% seen in 2013
Stronger appetite for higher risk assets: As investors look for better returns investors will move up the risk curve. This will include investments such as decentralized office assets, to capture the narrowing rental gap with core locations; offices in regional cities for higher yields; value added opportunities in core areas; and build to core for long-term investors.
Japan, New Zealand and Singapore investment hotspots: CBRE is predicting Japan, New Zealand and Singapore to be the key investment hotspots for 2014. We expect Japan to see strong activity but foreign investors will continue to encounter strong competition from domestic buyers, while Auckland, New Zealand, is becoming more attractive to investors because of its high yields and decent rental growth, though it is a relatively small market. Singapore is expected to see strong occupier demand and rental growth but yield decompression risk will limit value growth.
Continued adoption of multi-base operations: Many markets will continue to see occupiers, and/or some business lines, move away from CBDs to decentralized areas in search of more cost-effective space. Catalysts of this trend include improving infrastructure; lower rental costs; the high quality of new supply, particularly in business parks; and the development of new technology and software, which is improving connectivity. This trend is most evident in Hong Kong where it has led to the convergence of office rents between primary and secondary locations and has made relocation to decentralized areas less cost-effective for firms.
Improving space efficiency: Improving space utilization through the implementation of alternative workplace strategies (AWS) is a trend that will continue to gain traction in 2014. Occupiers with large size requirements and with a preference to stay in prime locations may choose to adopt AWS as an alternative solution to not only offset high rents with improved efficiency but also to improve their working environments.
Capital outflow is the major downside risk: Business sentiment and the global economic environment are expected to improve during 2014 and should provide a certain degree of support to the commercial property market in Asia Pacific. However, there are a number of downside risks. These include geopolitical risk such as elections and political gridlock in India, Indonesia and Thailand; volatility in the currency market especially in Australia, Japan and emerging Southeast Asia; cooling measures in a number of key markets, especially Hong Kong, Singapore, China, Malaysia and Taiwan; and overpricing, which is the biggest concern among investors as prices in many markets have surged ahead of fundamentals.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.