Domestics will drive office demand in Asia in 2015, though multinationals will be wary.

Domestic and Asia-regional companies, according to CBRE Asia, will drive leasing markets in APAC in 2015, rapidly expanding in core central business districts and beyond their home markets. Japanese and South Korean businesses will continue to expand in Southeast Asia’s developing markets, while Hong Kong will serve as a stepping stone for Chinese businesses looking to expand deeper into Asia. Companies would be concerned about rising occupancy rates, while landlords will prioritize tenant retention. real estate
Manish Kashyap of CBRE said, “Landlords are finding it difficult to maintain quality tenants as many cities extend core business districts beyond conventional central business districts and there is a general flight to quality movement among tenants. Domestic and Asian-based companies are increasingly establishing themselves as tenants in core areas, displacing many multinationals that have migrated to more cost-effective locations. Landlords who are losing tenants to new developments will need to be more proactive in their commercial negotiations and can communicate with tenants ahead of lease expiration, taking into account the decision-making process. Domestic and Asian-based companies typically make decisions quicker than multinational corporations, which often need lengthy approval procedures for major headquarters transfers.
CBRE urges landlords to restructure existing leases as soon as possible and provide incentives to obtain longer-term leases in order to maintain significant and/or high-quality tenants, while also ensuring that their properties remain appealing through frequent refurbishment, updating, and enhancement work. This strategy is particularly important for landlords of old and dated office buildings in traditional central business districts, such as Guangzhou and Kuala Lumpur, where a large volume of new supply will be completed in 2015.”
For 2015, the following are the main trends in the APAC office sector:
New Delhi, Mumbai, Bangalore, Shenzhen, Shanghai, and Jakarta will account for more than 75 percent of new office supply (73 million sq. ft. NFA, up from 14 million sq. ft. in 2014). Although new production will continue to exceed demand, the market deficit will be narrower than the initial figures indicate.
Tech firms, especially internet-based firms and e-commerce industries, will continue to drive office demand, particularly in markets like China, Taiwan, Tokyo, India, Singapore, Sydney, and Melbourne. The financial sector’s demand will be mixed, as large global banks continue to downsize, while Asia-based corporates in this sector are optimistic.
Most markets in the area will see vacancies rise above the long-term average, providing occupiers with a plethora of prime office space options. Landlords will hold the upper hand in tightly held markets such as Beijing, Hong Kong, Auckland, Bangkok, Tokyo, Manila, and Singapore, but will need to be more flexible when it comes to rental negotiations.
Office rents in the area will continue to rise steadily, but at a slower rate of 3.2 percent, thanks to Tokyo, Bangalore, and Singapore. Meanwhile, laggards in 2015 will be led by Seoul, where rents are expected to fall by 3.5 percent, and Brisbane, Guangzhou, and Shanghai are expected to see negative rental growth.
From 3.7 percent in 2014 to 3.2 percent in 2015, capital value growth is projected to slow. Only Tokyo, Singapore, Auckland, Bangalore, and Manila are projected to see capital value growth of more than 5%.
Most businesses would be concerned about the occupancy rates, with larger occupiers focused on workplace improvements and renewing leases in key locations. In addition to portfolio rationalization initiatives, multinationals will concentrate on long-term strategic steps, such as purchasing rather than leasing space.
Jonathan Hsu, Director of Research for CBRE Asia Pacific markets, also had something to say about it “Due to continued growth in business spending, corporate revenue growth projections, and a strong job market, Asia Pacific will see solid office leasing momentum in 2015, with an unemployment rate ranging from 1% to 7%. The weak global economic recovery, on the other hand, would keep occupiers cost-conscious and risk-averse. When it comes to leasing decisions, we expect multinational companies to carefully balance cost management, space quality, and expansionary requirements, whereas domestic corporations will become more realistic in managing the growth of occupancy costs. Despite the slowing of China’s economic growth, this market will remain the primary focus of corporate expansion, especially given the ongoing growth of the e-commerce sector and preferential policies to promote the creation of cross-border e-commerce.”