Demand for prime office space in Asian business districts on the rise

Demand for prime office space in Asian business districts on the rise

Demand for office space in the key commercial centers of Asia
continued to increase in the second quarter of 2005, with
improving business prospects resulting in more companies
expanding their headcounts and office space requirements.

Tenants in the services sector, such as banking/finance
companies and professional services firms, were among the most
active in the leasing market.

"The growth in office demand is showing no sign of letting
up," Jane Murray, 's Research for Asia and
Pacific.

"With sustained demand helping to push down vacancy rates over
the past two years, there has been increasing pressure on office
rents to move up in the major cities. Prime buildings have so far
led the rebound but this growth in rents is beginning to show in
the rest of the market, Murray said.

The demand for retail space in key Asian cities continued to
expand as retailers, upbeat about their business prospects, took
up more space. Sustained economic growth and improving labor
market conditions supported steady domestic demand, while
strengthening local economies and the availability of cheaper
airfares fueled the growth in tourism.

The resilience and high yields of the retail sector also
continued to attract investors. Both rents and capital values in
most cities were either stable or increased during the quarter,
as in the previous three months.

Residential sales activity in the major cities remained
healthy on the back of continued consumer optimism and several of
these cities reported rising capital values. However, regulatory
changes in China and higher interest rates in Hong Kong dampened
transaction volumes and prices in Shanghai, Beijing and Hong
Kong, which had seen the strongest growth in both sales and
prices in recent quarters compared with other cities.

In the leasing market, corporate expansions contributed to
further growth in demand. Landlords in Beijing and Shanghai as
well as Hong Kong are among the key beneficiaries, with average
rents rising again in the second quarter.

Positive net absorption, falling vacancy rates, and stable or
rising rents continued to characterize the office markets of key
Asia Pacific cities on the back of the regions strengthening
economies.

With sustained growth in demand pushing down vacancy rates
over the past two years, upward pressure on office rents in the
major cities has been increasing. Demand for prime office space
has been largely coming from companies in the services sector,
such as banks, insurance companies and other finance related
businesses, as well as professional services firms.

Hong Kong has been the biggest beneficiary of the regional
rebound in office demand. The city continued to record double-
digit growth rates in rents as positive business sentiment kept
the leasing market active with companies seeking to expand or
upgrade. The take-up of prime office space continued to outpace
new supply, resulting in a further decline in vacancy rates.

In the region's largest office market, Tokyo, the quick pace
at which various upcoming projects are preleased demonstrate the
solid demand for Grade A office space and reflect the growing
optimism in the economy. The average vacancy rate of Grade A
buildings in the CBD fell for the eighth consecutive quarter and
rents climbed for the second quarter in a row. However, the rest
of the CBD market remained subdued and landlords attempted to
fill vacant space by lowering rents.

In the Singapore CBD Core, the rental upturn is slowly
filtering through from the Grade A to the Grade B market, as the
reduced availability of Grade A space has contributed to an
increase in leasing transactions for better-located Grade B
properties. Medium- to large-space occupiers historically start
their lease renewal/relocation exercise about six to nine months
before their lease expiries, but many are now looking to commit
earlier, some up to 18 months ahead.

With China's economy still booming, Shanghai and Beijing
continued to see robust levels of leasing activity for prime
office space, supporting a further increase in rents.

Strong pre-leasing interest in projects still under
construction highlighted the strength of demand. Despite the
completion of CitiGroup Tower (94,300 sq m) in Central Lujiazui,
the average vacancy rate of Pudong, Shanghai held steady at 7.4
percent, and in Beijing, even with the completion of four
buildings (total: 353,800 sq m), the average vacancy rate fell
further.

The rebound in the region's leasing markets have led to an
increase in investment sales activities, though these are still
concentrated in North Asia (Japan and Korea) due to the
attractive yield-to-cost spread. However, given the falling
yields of office properties in Tokyo, investors are looking for
opportunities in other sectors and in some major regional cities.
--- Jones Lang LaSalle/The Jakarta Post