H1 2020 REVIEW AND FIVE-YEAR OUTLOOK EXECUTIVE SNAPSHOT
6
ASIA PACIFIC OFFICE MARKETS H1 2020 REVIEW AND FIVE-YEAR OUTLOOK EXECUTIVE SNAPSHOT COLLIERS RADAR OFFICE SECTOR | ASIA PACIFIC | 18 AUGUST 2020 Rakesh Kunhiraman Senior Director | Research | Asia +65 6531 8569 [email protected] Andrew Haskins Executive Director | Research | Asia +852 2822 0511 [email protected] Anneke Thompson National Director | Research | Australia +61 3 9940 7241 [email protected] Chris Dibble National Director | Colliers Partnerships, Research & Communications | New Zealand +64 9 357 8638 [email protected]
Transcript of H1 2020 REVIEW AND FIVE-YEAR OUTLOOK EXECUTIVE SNAPSHOT
ASIA PACIFIC OFFICE MARKETSH1 2020 REVIEW AND FIVE-YEAR OUTLOOK
EXECUTIVE SNAPSHOT
COLLIERS RADAR OFFICE SECTOR | ASIA PACIFIC | 18 AUGUST 2020
Rakesh KunhiramanSenior Director | Research | Asia
+65 6531 [email protected]
Andrew HaskinsExecutive Director | Research | Asia
+852 2822 [email protected]
Anneke ThompsonNational Director | Research | Australia
+61 3 9940 [email protected]
Chris DibbleNational Director | Colliers Partnerships,
Research & Communications | New Zealand+64 9 357 8638
2
COLLIERS RADAR OFFICE SECTOR | ASIA PACIFIC | 18 AUGUST 2020
KEY TAKE-AWAYS AND RECOMMENDATIONS
Aggregate absorption
-56% QOQ in Q2
Demand under pressure, but to pick up gradually
Aggregate APAC supply
2.8x absorption in 2020
We see heavy supply over 2020 and 2021
Rents declining now, though medium-term outlook brighter
China and India drive our forecast of
11.4% at end-Q2
The aggregate APAC vacancy rate stood at
-0.7%aggregate average annual
rent growth over five years
Capital values not collapsing
Vacancy set to rise for two years
Aggregate absorption over 19 APAC office markets fell 56% QOQ in Q2, and despite signs of a pick-up in China should fall 41% over 2020. Average annual absorption over five years should be close to the 2019 level.
Led by China and India, aggregate APAC supply of office space should be 2.8x absorption in 2020. Supply should remain high in 2021 but ease thereafter, with demand and supply balanced by 2023.
Weighted average APAC rent should fall 5.0% in 2020, while over five years we see an average annual rent decline of 0.7%. Popular occupier centres such as Singapore, Bangalore and Melbourne CBD should achieve higher rent growth, of 3.3%-2.5% on average over five years.
With conditions in many markets set to favour tenants for up to three years, tenants have the chance to lock in good deals in districts like Hong Kong SAR Central, Shanghai’s New Bund and Shenzhen’s Qianhai area.
Office markets with solid rent growth, e.g. Singapore, Bangalore, Melbourne CBD and Auckland, have the greatest potential for long-run capital appreciation. Singapore offers the highest average annual rent growth in APAC over five years (3.3%), while Auckland offers the highest spread over ten-year government bonds (5.1pp).
Despite a 48% YOY drop in aggregate APAC office investment sales in Q2 2020, capital values have yet to fall sharply, and yields are little changed. We expect modest yield softening over H2 and H1 2021.
The aggregate APAC vacancy rate stood at 11.4% at end-Q2. We expect APAC vacancy to peak at 14.5% at end-2022, and to ease to 13.3% by end-2024.
Investors should focus on popular occupier centres
Occupiers should act now to secure good deals
3
COLLIERS RADAR OFFICE SECTOR | ASIA PACIFIC | 18 AUGUST 2020
Demand
Vacancy
Supply
Rent
Q2 2020 MARKET AGGREGATION, 5-YR FORECASTS, CONCLUSIONSFull Year 2020Q2 2020
2020–24Annual Avg
YOY / End 2020
Annual Avg Growth 2019–24 / End 2024
QOQ / End Q2
> Held back by COVID-19, aggregate absorption in the 19 APAC office markets that we track closely fell 56% QOQ in Q2. While demand appears to be picking up in China, over 2020 we predict a drop of 41%. Average annual absorption over 2020-2024 should be close to the 2019 level of 6.82 million sq metres.
> For 2020, we expect weighted average APAC rent to fall 5.0%. The rising importance of office stock in China and India drives our forecast of a 0.7% average annual rent decline over five years.
> Singapore, Bangalore, Melbourne CBD, Taipei and Auckland should achieve five-year average growthof between 3.3% and 2.2%.
> Aggregate vacancy at end-Q2 was 11.4%. Reflecting heavy supply in China and India, we expect APAC vacancy to peak at 14.5% at end-2022.
> The prospect of conditions favouringtenants for up to three years gives occupiers the chance to lock in good deals in markets like Hong Kong SAR¹ Central, Shanghai’s New Bund and Shenzhen’s Qianhai district.
> Reflecting heavy planned supply in H2 in the leading Chinese and Indian cities, we expect aggregate APAC new supply to be 2.8x absorption in 2020. Supply should remain heavy in 2021 but ease thereafter. We see average annual new supply over 2020-2024 at 1.4x average absorption.
4.03mn sq m
11.48mn sq m
6.87mn sq m
9.41mn sqm
0.48mn sq m
1.42mn sq m
USD45.7/sq m/month
USD43.7/sq m/month
-2.5% -5.0%
USD44.3/sq m/month
-0.7%
11.4% 13.2%
1.1pp 3.2pp
13.3%
0.7pp
> Investment sales in the APAC office sector in Q2 fell 48% YOY, but rose 17% QOQ, reflecting relative strength in Shanghai, Beijing and Singapore. In general, capital values have yet to fall sharply, and yields are little changed. We expect modest yield softening over H2 and H1 2021.
> In the long run, the office markets with the greatest potential for capital appreciation should be popular occupier centres with solid rent growth, e.g. Singapore, Bangalore, Melbourne CBD and Auckland.
¹ Rents are net effective on an NFA basis (USD per sq metre per month). ² Special Administrative Region [of the People’s Republic of China]
Highest yield8.5%
Mumbai
Highest spreadover 10-yr bonds
5.1pp
Auckland
Highest 5-yr rent growth
3.3%
Singapore
Capital Values and
Yields
4
COLLIERS RADAR OFFICE SECTOR | ASIA PACIFIC | 18 AUGUST 2020
ASIAN OFFICE MARKETS: POSITION IN PROPERTY CYCLEKEY
MOMENT
KEY
MOMENT
EXPANSION
Rental value growth slowing
IMBALANCEof supply and
demand;Rental value falling
CONSOLIDATIONRental value
bottoming out
RECOVERYRental value
growth accelerating
Taipei
Chengdu, Jakarta
Hong Kong
Shenzhen, Shanghai
Sydney, Melbourne, Auckland, Delhi NCR, Mumbai
Seoul
Bangalore, Tokyo
Beijing, Guangzhou
Manila, Singapore
Notes:1. Best estimate as of end-Q2 2020.2. The chart assesses market prospects over the next 12-18 months.3. In simple terms, markets on the left of the chart favour landlords, while those on the right favour tenants.
Source: Colliers International
SUMMARY OF PRIME OFFICE RENTS IN KEY CITIES (USD, Q2 2020)Rents shown are net effective rents on an NFA basis per sq metre per year
Auckland
$297
Shanghai
$648
Seoul
$534
Bangalore
$222
Taipei
$543
Bangkok
$470
Jakarta
$269
Manila
$309
Sydney
$647
$1,317
Tokyo Hong Kong SAR
$1,281
Singapore
$989
Beijing
$873
Melbourne
$499
Shenzhen
$517
ASIAN OFFICE MARKETS: POSITION IN PROPERTY CYCLE
We see a sustained period of nearly three years over which many APAC markets will favour tenants. However, popular occupier centresshould see above-average rental growth over the medium term.
Notes:
1. Prime office refers to Grade A and/or more premium grade office space. Rents refer to the net effective rent per sq metreper month on an NFA basis, which is defined as the rent executed in the lease excluding operating expenses (i.e. utilities, management, property tax) on the building and averaged out over the term of the lease (including consideration of rent-free periods or up-front incentives).
2. Tokyo rents are for the five central wards.
5
COLLIERS RADAR OFFICE SECTOR | ASIA PACIFIC | 18 AUGUST 2020
4.6 4.7 4.7
2.83.9
2.83.5 3.8
8.58.0
4.7 4.75.5
1.7 1.8 1.82.3 2.5 2.4
3.42.9 2.5
2.0
3.8 3.7
5.1
0.0
2.0
4.0
6.0
8.0
APAC OFFICE MARKETS - YIELDS, YIELD SPREADS, RENT GROWTH
Sources: S&P Global Intelligence, Financial Times, Colliers International, other. Correct as of 17 August, 2020.
Premium/Grade A office yield (%) Yield spread over 10-year bonds (percentage points)
Hong KongShanghai SeoulBeijing Tokyo BangaloreTaipei SydneySingapore AucklandGuangzhou MelbourneMumbai
Annual average rental growth rate (%, 2019-2024)
%
-1.5 -1.2
1.1
-1.0
1.2
2.5
0.5
3.3
0.0
3.02.5
-0.9
2.2
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
RENT GROWTH
YIELDS
%
Notes. 1) For Asia, we define property yields as “effective rents” (i.e. headline rents less incentives such as rent-free months) divided by capital values. For Australia, we cite “market/reversionary yield”, defined as assessed net market income divided by the sum of the sale price or the adopted value plus any capital adjustments to the core value such as letting up allowances, capital expenditure and present value of reversions. 2) The yield of 4.7% for Shanghai is for CBD areas. Including DBD areas with a yield of 5.2%, the weighted average yield for Shanghai is 4.9%.
About Colliers International
Colliers International (NASDAQ, TSX: CIGI) is a leading real estate professional services and investment management company. With operations in 68 countries, our more than15,000 enterprising professionals work collaboratively to provide expert advice and services to maximize the value of property for real estate occupiers, owners and investors. Formore than 25 years, our experienced leadership, owning approximately 40% of our equity, has delivered compound annual investment returns of almost 20% for shareholders. In2019, corporate revenues were more than $3.0 billion ($3.5 billion including affiliates), with $33 billion of assets under management in our investment management segment. Learnmore about how we accelerate success at corporate.colliers.com, Twitter or LinkedIn
Copyright © 2020 Colliers International
The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it.No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
Primary Authors:Andrew HaskinsExecutive Director | Research | Asia+852 2822 [email protected]
Rakesh KunhiramanSenior Director | Research | Asia+65 6531 [email protected]
Anneke ThompsonNational Director | Research | Australia+61 3 9940 [email protected]
Chris DibbleNational Director | Colliers Partnerships, Research & Communications | New Zealand+64 9 357 [email protected]
For further information, please contact:Simon HuntManaging Director | Office Leasing | Australia+61 3 9612 [email protected]
Sam Harvey-JonesManaging Director | Occupier Services | Asia+852 2822 [email protected]
Doug Henry Managing Director | Occupier Services | Australia+61 2 9257 0386 [email protected]
Terence TangManaging Director | Capital Markets & Investment Services | Asia+65 6531 [email protected]
John MarascoManaging Director | Capital Markets & Investment Services | Australia & New Zealand
+61 3 9612 8830
