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Real estate investment flying high Asia Pacific Property Digest Q3 2015

Asia Pacific investment volumes are at $88 billion year-to-date and are on track for a record level in 2015. Increased space requirements from corporates have been reflected in a 33% surge in leasing activity over the same period.
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Dr Jane Murray Head of Research – Asia Pacific Asia Pacific Economy and Shanghai 16Chengdu The impact of online retailing on Australian industrial demand Women are critical to Japan's Ho Chi Minh City 27Delhi Navigating the "patent-cliff": re A
the role of corporate real estate in the life science industry Net absorption in Shanghai's Grade A office market to hit 11 record high in 2015

ASIA PACIFIC ECONOMY A rather sluggish economic environment.
By regional standards, economic growth was rather sluggish in the third quarter, prompting a number of
governments to implement further supportive measures.
China continues its economic transformation, moving to a greater focus on services and domestic consumption – a profound structural change that is reverberating throughout the rest of Asia Pacific, particularly China's major trading partners. Japan, the region's second biggest economy, fell into recession in the third quarter, with the government's huge stimulus measures yet to be reflected in a meaningful uplift in consumption or corporate capex. Meanwhile, India's economy has held up relatively well and growth is projected to overtake that of China this year. Despite various challenges, the Asia Pacific economy is still expanding at a decent pace – indeed more than twice as fast as the rest of the world. Retail sales performance remains mixed Further rate cuts while deflation emerges in some markets Encouragingly, retail sales in China have been trending higher since During the quarter, various governments continued to cut interest April (+11% y-o-y in October), supported by solid wages growth rates to shore up growth in their economies. India and New Zealand and providing a cushion against weakness in other parts of the cut rates by 50 bps, China by 25 bps, while Taiwan lowered the economy. However, the performance of retail sales in other areas of policy rate for the first time in six years by 12.5 bps. Low prices for Asia Pacific has been less robust. In Hong Kong, a slowdown in oil and other commodities are flowing through to falling inflation. Mainland Chinese visitor arrivals has impacted sales which fell Singapore and Thailand have seen declining consumer prices, while almost 5% y-o-y in 3Q. Retail sales growth in Japan remains weak producer prices have been falling for at least six months in major as households hold back on spending, while in Singapore, retail markets including China, India and Japan. sales have improved but remain subdued. In Australia, a buoyant housing sector has supported retail sales over the last year. Stable growth expected for this year and next Ongoing weakness in regional trade Oxford Economics expects 2015 regional growth of 5.3% and a similar outcome next year, with a gradual recovery in global demand Weaker global demand for Chinese goods saw exports from China to underpin growth. Most major economies in the region are decline in each month of 3Q. However, devaluation of the Chinese forecast to see modest improvements with the exception of China as Yuan may provide a boost going forward. Economic restructuring in it continues to transition to new growth drivers. Although stable China is impacting trade throughout the region with exports performance is anticipated for AP, there are downside risks to the remaining weak in most AP markets.
outlook including ongoing uncertainties related to the impact of China's slowdown and the timing of US interest rate hikes.

Figure 1: Outlook for Major Economies Real GDP Growth (%) 2015–16 Outlook Slower growth as government continues with structural reforms. Services sector an area of strength 5
in part due to robust consumption. Modest recovery supported by gradual improvement in domestic demand. More stimulus may be on Domestic demand and fixed investment to underpin growth. Improved growth trajectory to depend on progress on reforms. Gradual improvement in trade and consumption amid loose fiscal and monetary policy.
Growth supported by residential sector and lower AUD which will improve export competitiveness. Mining investment a drag.
Modest pick-up in growth underpinned by infrastructure investment and private consumption.
Rise in government spending and investment, but export performance to remain patchy.
Subdued growth as sluggish Mainland demand impacts exports and inbound tourism spending. Gradual recovery in global demand and ongoing policy support to aid solid performance.
Pick-up in global growth expected to be driven by improvements in advanced economies including the US (from 2.4% in 2015 to 2.7% in 2016) and the Eurozone (from 1.5% to 1.8%).
Note: India revised its GDP methodology (including historical growth rates) in January 2015.
Source: Oxford Economics, November 2015 ASIA PACIFIC PROPERTY MARKET …while leasing and investment maintain
good momentum
In 3Q15, occupier demand surged for a second successive quarter and we are optimistic that regional
leasing volumes for the full year will finish up at least 20% higher than the 2014 level. On the commercial
real estate investment front, investor interest remains strong with ample liquidity and low borrowing
costs supporting demand for assets. 2015 investment volumes are expected to reach the record level
achieved in 2014.
Office leasing demand continues to strengthen, but still not leasing in its Tier 1 markets. Shanghai is on track to achieve its strongest ever year of take-up. Consistent with this, occupier Overall leasing activity continued to improve in 3Q, with gross demand in Hong Kong is being bolstered by Mainland Chinese firms. leasing volumes rising by a strong 27% y-o-y, following 40% growth In Australia, Sydney is leading the leasing recovery while the cities in 2Q. However, the improvement was not consistent: activity was more dependent on the resources sector remain weak.
strongest in India and China, but still subdued in some other markets Healthy office supply additions. Occupancy levels up slightly including Singapore. The most active occupier types across the region were domestic financial institutions and technology-related Asia Pacific stock additions were up 38% y-o-y to 1.2 million sqm in 3Q, with more than one-third of the total in India. In spite of the large volume of new supply, vacancy declined in many markets including The Indian markets of Delhi, Mumbai and Bangalore contributed Beijing, Hong Kong and Seoul, with Hong Kong Central falling to half of total regional leasing volumes in 3Q, underpinned by both 1.2%, the lowest vacancy in over seven years. Vacancy rates held domestic expansion and offshoring by MNCs. China's shift to a stable in Shanghai, Tokyo and Sydney but rose in most Southeast service based economy is being seen through the growth in office Office rental growth slows in most markets exports and airfreight cargo. Strong tenant expansion demand Net effective rents declined in about one-third of major Asia Pacific continued to be evident in Tokyo, supporting a modest rise in rents. markets in 3Q. On average, rents grew 0.5% q-o-q, slowing from Strong residential sales momentum in China while some 0.8% in 2Q. The strongest quarterly growth was in Sydney (3.9%) markets see lacklustre sales and Hong Kong (3.5%). Despite the recent financial market ructions 6
in China, rents increased in Shanghai and Beijing on the back of Policy restrictions remained in place in various markets across sustained demand from financials and IT firms. Asia. In China, high-end sales activity strengthened on the back of a more accommodative policy stance, including a cut in interest Rents fell furthest in Singapore (–5.2% q-o-q) as landlords continued rates. However the high-end markets in Hong Kong and Singapore to take pre-emptive steps to retain and attract occupiers ahead of remained sluggish. Leasing activity in these two cities was stronger a large wave of supply due to be completed in 2016. Declines were – the third quarter being the traditional peak season in Hong Kong, also seen in Kuala Lumpur, Ho Chi Minh City and some Australian while Singapore leasing volumes were supported by tenants moving to newly completed units. Most markets across the region saw stable or small increases in rents and prices, a trend that is Over the 12 months ending 3Q15, average rents in aggregate were expected to continue over the short term.
up 2.1%. Already with the highest rents in the region, Hong Kong was the market leader with 11.1% y-o-y growth, followed by Buoyant commercial real estate investment market Shanghai and Sydney which both recorded growth of 8.2%. Investment volumes for 3Q15 came in at USD 32 billion, relatively Bangalore, Bangkok and Tokyo also recorded strong growth. At the stable y-o-y but with growth partly impacted by a stronger USD, the opposite end of the spectrum, Singapore and most Australian cities reporting currency. Year-to-date, investment volumes total have seen rents fall over the past year.
USD 88 billion, up 1% on the same period last year. During the Mid-tier brands are the most active retailers quarter, cross-border Asian investors and global funds were active. There were also more portfolio and platform transactions, During the quarter, retailer demand in China continued to be as investors sought to acquire assets that are difficult to acquire supported by fast fashion retailers and F&B. However, new supply and ongoing caution by the luxury segment have created a more challenging operating environment. Market conditions in Hong Kong Japan (+11% y-o-y), Australia (+13%) and China (+81%) performed have continued to weaken and some retailers have reduced their strongly in 3Q as investors continued to focus on large and liquid store footprint and/or secured rental reductions. Retailer demand in markets. Japan remained the largest market in AP with investment Singapore continued to be subdued as consumer caution prevailed, volumes totalling USD 8.9 billion. Other markets saw a mixed while the economic backdrop in Australia remained largely performance with Hong Kong up 25% y-o-y, buoyed by a major hotel supportive of trend growth in retail spending. deal, while volumes in South Korea were down 24%, in part due to a lack of tradeable assets. During 3Q, there was limited rental growth in most markets and average growth edged down. Over the short term, we see limited Capital value growth slows scope for significant rental gains in most markets, while in Capital value growth moderated across all sectors and most Hong Kong, high street rents are likely to fall further.
markets in the region. In the office sector, average capital value Generally healthy leasing activity for logistics facilities growth slowed to 1.5% q-o-q but continued to outpace rental growth. Quarterly growth was strongest in Osaka (+6.4%) and Across the region, 3PL and e-commerce firms continued to underpin Sydney (+6.3%), with Melbourne, Brisbane and Auckland all leasing activity. Rents were generally flat, with the highest quarterly recording growth of between 3–5%. Capital values in Jakarta and growth seen in Hong Kong (1.4%) amid a tight vacancy environment. Singapore declined.
However, leasing demand in Hong Kong was impacted by falling Figure 2: Office Rental & Capital Value Changes Figure 3: Direct Commercial Real Estate Investment Yearly % Changes, 3Q15 Figures relate to the major submarket in each city Figures refer to transactions over USD 5 million in office, retail, hotels and industrial Source: JLL (Real Estate Intelligence Service), 3Q15 Source: JLL (Real Estate Intelligence Service), 3Q15 Figure 4: Rental Property Clocks, 3Q15 Jakarta, Singapore 7
Auckland, Bangalore Shanghai, Melbourne Seoul, Ho Chi Minh City Sydney*, Melbourne*, Brisbane* High Street Shops Prime Residential Singapore (Logistics), Guangzhou, Kuala Lumpur Singapore (Business Park) *For Luxurious Residential Properties *Logistics space (Hong Kong, Shanghai, Beijing, Greater Tokyo) Source: JLL (Real Estate Intelligence Service), 3Q15 Note: Clock positions for the office sector relate to the main submarket in each city.
Continued optimism on leasing and investment activityOffice leasing volumes should continue to improve in 4Q15 and into 2016, with India and Tier I cities in China (particularly Shanghai) expected to see the strongest activity. Moderate rental growth is generally expected over the next year, with Sydney, Tokyo and Dr Jane Murray joined JLL in 1998 and in 2005 Bangalore leading the way in the office sector. Singapore, Jakarta was appointed as Head of Research – Asia and Brisbane may see further declines due to lacklustre tenant Pacific. In this role, Jane leads a team of demand and/or upcoming supply. 140 professional researchers in the region, Meanwhile, 2016 should be another strong year for investment which forms part of a network of over 400 activity. At this stage, volumes are expected to be similar to this researchers in 65 countries around the globe. year's estimate of USD 130 billion, on par with the record in 2014.
The impact of online retailing on Australian
Online retailing has grown rapidly over the last decade. Traditional especially given the recent weakening of the Australian dollar, retail operators are being challenged by technological advances, domestic retailers incorporating online platforms are likely to however many have adapted and now offer a multichannel sales require more flexible industrial property solutions that incorporate approach. Here, we look at how online retailing is impacting the non-traditional stock picking (selection of stock as per orders) and Australian industrial sector.
delivery methods. These may include higher staff ratios, smaller delivery vehicle access, returns areas and direct customer access.
According to National Australia Bank's latest online retail sales index, Australian online retail spending increased to AUD 17.5 billion Online retailers need to locate in areas that will provide an efficient in the year to August 2015, a year-on-year increase of 7%. Online movement of goods to their consumers, as well as close proximity to retailing now represents around 7.1% of traditional retail spending major postal centres. In Sydney, the Outer West (OW) precincts excluding cafes, restaurants and takeaway food, up from 4.9% in centred on major transport routes (M2, M4, M5 and M7) have proven to be key areas for retail occupiers. The OW precincts have accounted for 76% of total retail and wholesale trade gross take-up Over the past two years, there has been a strong correlation (0.7) annually between 2010 and 2014. These precincts are highly sought between online retail turnover growth and gross take-up of after due to the relative simplicity of receiving and distributing stock.
industrial space by the retail and wholesale trade sectors. This supports the need for industrial expansion from retailers moving to Between 2006 and 2010, retail and wholesale trade accounted for or expanding their online presence.
26% of gross industrial take-up nationally. Since then (2011 to YTD 2015), the retail and wholesale trade sectors recorded an additional Traditionally, warehouse space utilised by the retail trade sector 750,000 sqm of activity, and represented 32% of total take-up. was stocked with products for sale at store-based retailers. Logistics has also benefitted from the increase in online retailing However, with the ongoing advances in technology and the and retailer demand as distribution operations get outsourced to increasing number of retailers with an online presence, there is a third-party logistics (3PL) providers. The transport and storage growing trend to deliver goods direct from warehouses to the sector's percentage of total gross take-up increased from 25% to consumer. As the retail market becomes more competitive, 34% over the same period.
Despite the rapid growth in online retailing in Australia, it still Online retail turnover growth vs retail and wholesale trade gross take-up comprises a small percentage of total retail sales (the majority of which is through domestic retailers), indicating that there is further room for expansion. It is likely that more traditional retailers will expand into and increase their exposure to the online retailing market and subsequently increase their requirements directly or indirectly through 3PLs for distribution space that can accommodate the special needs of online retailers.
Alison Spiteri is a Senior Analyst in the JLL Research team in Australia. She specialises in industrial research for the Sydney and Gross take-up (sqm): Retail & Wholesale Trade Online retail turnover growth Melbourne markets and office research for Multi-channel online retail trade Pure-play online retail trade the Sydney Metro markets.
Source: ABS, JLL Research TURES
Women are critical to Japan's economic success
Japan has regained some of its lost momentum under "Abenomics",
restrictive Japanese labour laws, low numbers of women in a three-pronged set of policies aimed at rejuvenating and reforming managerial positions, a lack of childcare facilities, and the spousal the Japanese economy. While consumer sentiment has remained tax deduction, which incentivises a sole-breadwinner household, all fragile over the past few years, corporate profits have continued stand in the way of women's participation in the labour force.
to rise and the unemployment rate has declined to 3.4%, the lowest level in 18 years. Should private consumption recover along with The Abenomics structural reform strategy aims to encourage a rising real wages, the stagnation that has characterised Japan's radical change in this paradigm and establish woman-positive economy since the "Lost Decade" might at last be giving way.
corporate environments and policies. The most recent results are encouraging; already female employment has increased by 930,000 There is a blip on this bright horizon, however. Japan's declining workers since Abe took office in 2012. Given Japan's tradition birth rate and rapidly ageing population threatens the working of "lifetime employment", which limits re-entry of workers into capacity of its labour force, and therefore the long-term viability of well-paid, permanent positions, much of the new female workforce the nation's growth. Fertility rates are below replacement level, and has been relegated to low-benefit, low-wage, temporary positions over one-fourth of Japan's current population is over the age of 65. with little to no chance of advancement. Furthermore, there is Current demographic predictions by Japan's Health Ministry put the still a wealth of untapped potential; according to a 2013 survey by Japanese labour force at 55 million by 2050, down 10 million from the Ministry of Internal Affairs, as many as 3.15 million currently this year. Without a consistent supply of labour, Abenomics cannot unemployed women could return to work if given the opportunity. succeed, and so to forestall this damaging shortfall, Abe has turned The economic effect of such a change is nothing to sneeze at; to a chronically underutilised demographic – Japan's women.
closing the workforce gender gap could boost Japan's GDP by as much as 12.5%, according to a report by Goldman Sachs.
Japanese women are among the most highly educated in the world, but female participation in the Japanese workforce ranks among For Japan to truly see returns from an influx of women in the the lowest in OECD countries, especially in the late 20s to early 30s workforce, it's critical that initiatives are put in place to incentivise age bracket, when most women have their first child. The reason women to return to work and furthermore, remain employed for this lies in the entrenched corporate mind-set, which penalises throughout their childbearing years. Revising antiquated legislation, maternity leave, prioritises long hours and ultimately clashes with building day care facilities, and promoting a culture that promotes, sociocultural expectations for Japanese motherhood. In addition, rather than demeans, women's empowerment, will be instrumental in deciding the future of both the gender gap and the country as a whole. The extraordinary growth potential of Japanese women is Female labour force participation rates, top 25 countries 2014 already there – it is just a question of providing the right environment for them to flourish. This is also an important driver of demand within Japan's real estate markets which should reap the benefits of a revitalised labour force along with other structural reforms.
Takeshi Akagi is the Head of Research in Japan. His responsibilities include primary real estate research, economic and investment analysis, and forecasting. He Russian Fed.
regularly contributes to JLL's publications as well as provides commentary on issues OECD aveage: 62.8 related to Japan.
Source: OECD Employment Outlook 2015 Emma Saraff was an intern for JLL's research team in Tokyo.
Japan female labour force participation rates Source: OECD Employment Outlook 2015 TURES

Navigating the "patent-cliff": the role of corporate
real estate in the life science industry
The life science industry is standing on the edge of a "patent cliff." In 2015, the world's biggest pharmaceutical firms stand to lose up How would you best describe the current delivery of the following CRE to USD 47.5 billion in revenues from the expiry of the patents of some of their biggest blockbuster drugs. For example, Celebrex – an arthritis drug which contributed almost USD 3 billion to Pfizer's Lease Administration revenues in 2014 – is set to see its patent expire later this year, Facilities and Property Management opening it up to competition from "generic" alternatives which are often sold at much cheaper prices.
Transaction Management Transaction Execution This has triggered a wave of consolidation activity within the industry as firms look to replace best-selling drugs whose patents Energy Management are expiring with newer drugs that have the potential to grow revenues. According to the Thomson Reuters Full Year Mergers & Supply Chain Management Acquisitions Review, the life science industry saw more than Project and Construction Management USD 390 billion in transactions in 2014, and transactions are expected to remain at similarly high levels throughout 2015.
Worlplace Strategy With revenue streams becoming more uncertain, many firms are also focusing on reining in costs to maintain overall profitability. Occupancy Planning While these cost pressures impact all aspects of a firm's operations, Capital Budget Planning & Management they are being felt more keenly in corporate real estate (CRE). In the 2015 Global Corporate Real Estate Survey conducted by JLL, 92% of CRE executives from the life science industry felt that the demand from their senior leadership for them to reduce operating expenses Portfolio Strategy had increased. This represents a marked increase from the already Change Management substantial 85% of executives from the industry who felt the same way in the last survey conducted in 2013.
At the same time, a substantial proportion of CRE executives also *Percentages represent proportion of respondents who selected 4 or 5, on a scale where 1=fully in-house and 5=fully outsourced reported rising demand from their senior leadership for them to deliver across the following areas that could help to further manage Notably, the increased demands being placed on CRE teams in the industry appears to have significantly stretched their current Increasing portfolio flexibility (71%) capabilities: three out of four CRE executives indicated that they Challenging the business about presumed space needs (71%) were not confident of meeting all the demands that were being placed on them.
Reducing portfolio size (71%) To learn more, click here to download the Global Corporate Real Correspondingly, CRE teams in the life science industry now say that Estate Trends 2015, and also look out for upcoming industry specific they feel more empowered within their organisations, with 88% of life science industry respondents reporting that they have stronger or much stronger mandates now compared to three years ago.
Life science firms are also making plans to aggressively outsource Clarence Goh is a Senior Manager of APAC the delivery of many CRE services over the coming years. According Corporate Research for JLL in Singapore. He to the survey, significant outsourcing activity is expected to take place from now to 2018 (see figure). In particular, CRE services is involved in global and regional research like lease administration, facilities and property management, and projects for JLL's Corporate Solutions transaction management, which are more transactional in nature, are expected to be outsourced at the quickest pace.

Net absorption in Shanghai's Grade A office
market to hit record high in 2015
Over the past few months, one of the most common questions we Leasing deals by MNCs in Shanghai's Grade A office market hear in China from clients has been what effect the gyrations in China's stock market might have on the performance of the office market in Shanghai. Some investors have assumed – perhaps drawing a connection between Shanghai's status as a financial centre and the stock market crash's disproportionate impact on financial services – that the stock market's post-June slump will negatively impact the office leasing market. The numbers do not bear this out, however: net absorption for the year through 3Q15 has already exceeded 1 million sqm , and we believe Shanghai's Grade Source: JLL (Real Estate Intelligence Service), CREIS A take-up is on track to reach a record high in 2015. Three factors are driving the record high absorption. First, domestic The third main driver of take-up this year has been firms self-using financial service firms have increased leasing activity in both the space that they build or acquire. In the decentralised market, CBD and decentralised markets. Encouraged by ongoing financial several companies – notably domestic financial institutions – have reform and liberalising policies in the Shanghai Free Trade Zone, acquired or developed buildings, and have reserved large shares of both traditional domestic finance firms (like retail banks and space for their own use.
insurers) along with non-traditional internet finance companies have been active in setting up new offices and expanding their Owner-occupation in Shanghai's Grade A office market office space in Shanghai.
Leasing deals by domestic financial services companies in Shanghai's Greenland Center Grade A office market Source: JLL (Real Estate Intelligence Service), CREIS Aside from the three main demand types discussed above, other tenant types have also contributed to this year's robust demand, including domestic retailers and professional services firms. We expect leasing momentum to remain strong through the remainder of the year. As a result, Shanghai's overall net take-up is Source: JLL (Real Estate Intelligence Service), CREIS expected to reach a record high of above 1.4 million sqm in 2015. The Shanghai stock index may have taken a dive, but the take-up in the city's Grade A office market is heading skyward. A second key driver is MNC tenants, who have demonstrated particularly strong leasing demand in decentralised areas. Recognising that China's middle class population is expanding the country's consumer potential, MNCs in the retailing and media sectors are actively expanding their business, and many have found they require more office space in Shanghai. The large Grace Lv is a Senior Manager in JLL's volume of new supply in the decentralised market has tapped into research team in Shanghai, specialising in the pent-up demand from MNCs that seek large contiguous spaces for office sector in Shanghai and major Yangtze consolidation and expansion. In addition, many MNC professional River markets. She regularly contributes to services firms such as consulting companies have retained a quarterly publications and is also involved in positive outlook toward their China business, and have shown market consultancy studies.
strong interest in office expansion.
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"Demand recovery pushes monthly rents in
Central back up to HKD 100 per sq ft for the first
time since 4Q11."
Denis Ma, Head of Research, Hong Kong SQ FT PER MONTH, NET EFFECTIVE ON NLA HKD 100.0
STOCK MARKET ROUT HAS LIMITED IMPACT ON PRC DEMAND Financial Indices The recent volatility in the local and Mainland Chinese stock markets had a limited impact on PRC demand, with a number of PRC securities trading firms and mid-tier banks actively securing office space in 3Q15. PRC demand accounted for about 60% of all new lettings (in terms of floor area leased), up from 25% in 2Q15.
A tight vacancy environment entering the quarter saw headline net absorption moderating in most of the city's five major office submarkets. Leasing demand, nonetheless, remained intact with a handful of shadow space being backfilled, including AIA's lease on three floors at 633 King's Road in North Rental Value Index Capital Value Index TOWER 535 IN CAUSEWAY BAY RECEIVES OCCUPATION PERMIT Arrows indicate 12-month outlook Phoenix Property Investors' office/retail development, Tower 535, in Index base: 4Q11 =100 Causeway Bay was issued its Occupation Permit in 3Q15, adding 128,300 sq ft Financial Indicators are for Central.
to the market. About 20% of the building has already been leased to a fitness centre and a club house operator.
Physical Indicators In Central, robust leasing demand drove the vacancy rate down to 1.2%—its lowest level since March 2008 just prior to the Global Financial Crisis.
CENTRAL RENTALS BACK AT HKD 100 PER SQ FT PER MONTH Rents in Central grew by 3.5% q-o-q in 3Q15 to reach HKD 100 per sq ft per month for the first time since the Eurozone Crisis in 4Q11, as the vacancy rate further tightened. All of the city's major office submarkets recorded rental With rents in Central experiencing a broad-based recovery, investors showed renewed interest in the submarket despite strong pricing levels, as evidenced by several non-Grade A en bloc office buildings changing hands in 3Q15. The interest in office properties prompted more developers and owners to consider selling properties in their portfolio.
OUTLOOK: CENTRAL RECOVERY HAS YET TO RUN ITS COURSE For 2011 to 2014, take-up, completions and Despite an uncertain economic outlook, leasing activity should remain intact vacancy rates are year-end annual. For 2015, with most companies still looking to increase headcount over the near term. take-up, completions and vacancy rates are YTD, while future supply is for 4Q15.
Strong policy support from China should translate into ongoing demand from Physical Indicators are for the Overall market.
PRC firms. Central rentals are likely to continue to edge higher, supported by an ultra-tight vacancy environment.
Steady rental growth should enhance the investment appeal of office properties over the near term, enabling pricing across the market to hold firm. However, capital values are likely to face increasing downside risks amid a moderating rental market and rising interest rates.
Note: Hong Kong Office refers to Hong Kong's Overall Grade A office market.
"Despite slow economic growth and volatility in
the stock market, finance firms remain
Steven McCord, Head of Research, North China NET EFFECTIVE ON GFA RMB 382.6
DOMESTIC FINANCE AND IT FIRMS CONTINUE TO DRIVE DEMAND Financial Indices Due to the supply-constrained market, net absorption in the first nine months of 2015 reached just 104,500 sqm, down 34% y-o-y. IT remained one of the most active sectors in Zhongguancun and Wangjing, accounting for more than 30% of the overall net absorption in 3Q15.
A handful of projects in Finance Street achieved 100% occupancy in the quarter due to strong demand from domestic finance companies such as state-owned banks, and private equity and securities firms. Expansion plans from existing tenants in the CBD and Finance Street were put on hold due to limited availability of space in these areas.
MARKET VACANCY DECLINES TO 3.8% DUE TO STEADY LEASING PROGRESS• Raycom Infotech Park Tower B obtained a 60% commitment rate at end-3Q15 Arrows indicate 12-month outlook a quarter after opening; most new tenants came from IT or IT-related sectors.
Index base: 4Q11 =100 Dreamsfounts 35th, another new completion in Finance Street from 2Q15, Financial Indicators are for the CBD.
achieved a 70% commitment rate in the quarter, with state-owned banks and private investment companies making up a large presence at the project.
Physical Indicators RENTS RISE ACROSS MOST SUBMARKETS AMID LOW VACANCY Landlords at buildings with very low vacancy were able to focus more on tenant profile and exert greater power during rental negotiations. Landlords at recently completed projects charged higher rents as occupancy stabilised.
Singaporean-listed GuocoLand sold its Dongzhimen mixed-use project for RMB 10.5 billion to China Cinda Asset Management Co. after the property was kept vacant for years. Slated for completion by end-2015 in Wangjing, Kuntai Garry Center, owned by Beijing developer Kuntai, sold to Alibaba for 2.84 billion RMB.
OUTLOOK: FUTURE SUPPLY PROJECTED TO RELIEVE PENT-UP MARKET DEMAND Net take-up is expected to climb as Grade A office space becomes available in the CBD and Finance Street, where absorption and company expansion have been muted due to a lack of leasable space. Rents are likely to rise as tenants compete for space at quality buildings.
For 2011 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, Investors remain interested in Beijing, but there continues to be a disconnect while future supply is for 4Q15.
with sellers on pricing. Wangjing's popularity is climbing; one property sold Physical Indicators are for the Overall market.
here in the quarter, making it the third of five Beijing office buildings to be transacted in the submarket this year. Due to strong government support, Tongzhou is set to become a hot spot for investment opportunity.
Note: Beijing Office refers to Beijing's Overall Grade A office market.
"Net take-up to hit record high in 2015."
Daniel Yao, Local Director - Research, Shanghai NET EFFECTIVE ON GFA NEW SET-UP DEMAND FROM DOMESTIC FINANCIAL SERVICES ON THE RISE Financial Indices Domestic retail banks and wealth management companies were active in setting up branch offices in Pudong in 3Q15. Changchun Rural Commercial Bank set up its Shanghai branch office in Jin Mao Tower (500 sqm), while a domestic wealth management firm set up a new branch office in Hong Jia Tower (1,800 sqm).
Domestic financial services companies were seeking space in Puxi as well. Meanwhile, multi-national companies (MNC) in retailing and professional services were also active in Puxi.
LETTABLE SPACE REMAINS TIGHT IN PUDONG For the fourth consecutive quarter, no new supply was delivered in the Rental Value Index Capital Value Index Pudong CBD. In the Puxi CBD, Soho Bund (87,248 sqm) in Huangpu District Arrows indicate 12-month outlook was the only project reaching completion in the quarter. Index base: 4Q11 =100 Financial Indicators are for the CBD.
In the Decentralised market, three Grade A projects with a total GFA of 151,220 sqm were completed, including Oriental One Tower 3 (30,831 sqm) in Pudong, as well as Hongqiao Vanke Center Phase 1 (58,385 sqm) and Soho Physical Indicators Hongkou Plaza (62,004 sqm) in Puxi.
SEVERAL MAJOR INVESTMENT DEALS CLOSE; RENTS RISE Underpinned by strong leasing momentum, Pudong Grade A rents increased by 2.2% q-o-q to RMB 11.0 per sqm per day, and Puxi Grade A rents rose by 2.3% q-o-q to RMB 9.4 per sqm per day. Positive sentiment about rental growth prospects in the CBD market led domestic and foreign institutional investors to become increasingly active in seeking en bloc investment opportunities. Notable investment deals closed in the quarter included Corporate Avenue 1 & 2 (RMB 6.6 Billion), Hongjia Tower (RMB 2.6 Billion) and GC Tower (RMB 2.2 Billion).
OUTLOOK: STRONG LEASING DEMAND EXPECTED TO CONTINUE THROUGH 2016 It is expected that financial and professional services enterprises – particularly domestic firms – should remain active in the CBD market. For 2011 to 2014, take-up, completions and Meanwhile, many MNC manufacturers are likely to continue to show interest vacancy rates are year-end annual. For 2015, in relocating operations to decentralised areas. take-up, completions and vacancy rates are YTD, while future supply is for 4Q15.
Physical Indicators are for the CBD.
The strong demand and rental outlook should further boost institutional investors' confidence. We expect more core investors, who tend to have longer investment horizons, to become active in the market.
Note: Shanghai Office refers to Shanghai's Overall Grade A office market consisting of Pudong, Puxi and the decentralised areas.
"Robust leasing activity as landlords employ
various measures to boost occupancy."
Frank Ma, Head of Research, West China NET EFFECTIVE ON GFA LARGE LEASING DEALS PUSH UP QUARTERLY NET TAKE-UP Financial Indices Net absorption significantly improved q-o-q in 3Q15, underpinned by several large lease deals. The most notable transaction was Tianfu International Funds Business Park committing to about 14,000 sqm in Taifeng International Plaza in the City Centre submarket. The tenant was introduced to the landlord by the district government.
Leasing activity was concentrated in the City Centre and New South Area submarkets. The City Centre mainly appeals to MNCs and financial services/ professional services companies due to the maturity of its business environment and quality office buildings. New South Area is attractive to small- to medium-sized local tenants because of its lower rents.
ONE PROJECT RECEIVES OCCUPANCY PERMIT Arrows indicate 12-month outlook International Financial Square (Tower 3, IFS) in the City Centre was the only Index base: 4Q11 =100 Grade A completion in 3Q15. After being fully fitted out, the office portion of this mixed-used development was subleased to MFG, a serviced office operator, by developer Wharf Group. MFG had 20% of the space committed by Physical Indicators In 3Q15, overall vacancy edged down by 1.8 percentage points to 38.5%. However, vacancy marginally increased in the South Renmin Road submarket as tenants of older buildings relocated out of the submarket.
HIGH VACANCY PROMPTS LANDLORDS TO LOWER RENTS• A high vacancy environment led many landlords to lower rents in a bid to improve occupancy and as such, net effective rents declined 1.4% q-o-q to RMB 94.7 per sqm per month.
Chinese Estates Center was acquired by Evergrande Real Estate Group when it purchased all of Chinese Estates Group's projects (two residential, one mixed-use) in Chengdu for a total consideration of HKD 6.5 billion (CNY 5.3 billion).
OUTLOOK: NEW LEASING STRATEGIES EXPECTED TO SPUR ACTIVITY In addition to lowering rents, various measures are being undertaken by For 2011 to 2014, take-up, completions and landlords to spur leasing activity, including offering higher commissions to vacancy rates are year end annual. For 2015, take-up, completions and vacancy rate are YTD, leasing agents and co-operating with government agencies to encourage while future supply is for 4Q15.
more company setups. As vacancy is forecast to remain high in the near term, more landlords are expected to adopt the aforementioned methods to fill vacant space.
A low interest rate environment and business diversification strategies are expected to see more domestic real estate funds/companies explore the purchase of quality commercial property assets in core locations. Note: Chengdu Office refers to Chengdu's Overall Grade A office market.
"Record third quarter net take-up but largely due
to pre-commitments to new completions."
Jamie Chang, Head of Research, Taiwan NTD 3,039
ACTIVITY STRONGEST AMONG MID-TO-LARGE SIZED UNITS Financial Indices In the past three years, net take-up in 3Q averaged around 3,000 ping (9,915 sqm). However, net take-up in 3Q15 reached 10,800 ping, a notable improvement and largely driven by strong pre-commitments to supply completed in the quarter.
Demand mainly came from firms in the technology, IT and financial services TWO BUILDINGS COMPLETE Cathay Landmark Square and Hung Shen International Financial Centre reached completion in the quarter and added 31,575 ping to stock. As result of the new supply, the vacancy rate increased by 2.8 percentage points q-o-q to Rental Value Index Capital Value Index Arrows indicate 12-month outlook Index base: 4Q11 =100 Cathay Landmark Square (27,333 ping) is located in the Xinyi submarket and Financial Indicators are for Xinyi.
features direct access to public transport, a shopping arcade and premium building characteristics. Hung Shen International Financial Centre which is located in the Non-core submarket, added 4,242 ping to market stock and has Physical Indicators direct access to the Metro system.
RENTALS GENERALLY STABLE DESPITE STRONG TAKE-UP In spite of healthy demand, overall rents edged down slightly by 0.2% q-o-q to NTD 2,582 per ping per month. It was observed that many leasing deals signed in the quarter had lengthy negotiation periods and in some circumstances, with rentals agreed upon in prior quarters – as early as 4Q14. Overall market yields remained flat at 3.3% due to sluggish investment activity and slow rental growth. Investment volumes for all real estate asset classes totalled NTD 9.7 billion in 3Q, a decrease of 9.0% q-o-q or 71% y-o-y.
OUTLOOK: MODERATE RENTAL GROWTH EXPECTED Taiwanese businesses have reduced their intentions to increase staffing levels and as a result, office demand may be impacted. Finance, professional services and transport & utility sectors are expected to be the primary drivers For 2011 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, A further 32,000 ping of new Grade A office space is planned to be completed while future supply is for 4Q15.
Physical Indicators are for the Overall market.
by year end, with around 85% planned for owner occupancy. As such, vacancy is likely to increase moderately in 4Q15.
Note: Taipei Office refers to Taipei's Overall Grade A office market.
"Rent growth moderates despite low vacancy, as
corporates are cautious about a global
Takeshi Akagi, Head of Research, Japan TSUBO PER MONTH, JPY 34,688
IT AND MANUFACTURING FIRMS MAIN DRIVERS OF DEMAND Financial Indices According to the Financial Statements Statistics of Corporations by Industry, corporate profits reached a record high in the April-June period (+21.6% y-o-y). However, global economic uncertainty weighed on corporate sentiment. Net absorption tipped slightly into negative territory in 3Q15. In 3Q15, demand was largely driven by tenants in the information & communication and manufacturing industries. A notable leasing deal announced in the quarter was mobile app developer Line's expansion to JR Shinjuku Miraina in January 2016.
VACANCY REMAINS STABLE The vacancy rate at end-3Q15 was 3.3%, remaining stable q-o-q but down 60 bps from a year earlier. Vacancy in mature buildings continued to be below Rental Value Index Capital Value Index Arrows indicate 12-month outlook the market average, while commitment rates for recently completed buildings Index base: 4Q11 =100 was only around 60%. By submarket, Shibuya saw a decrease in vacant space while Toranomon recorded an increase.
The Tokiwabashi District Redevelopment Project was announced in 3Q15. Located on a 3.1 hectare site adjacent to Tokyo Station, the complex will Physical Indicators comprise four buildings offering a total floor area of 680,000 sqm (GFA). Office space will be offered in Building A (140,000 sqm, GFA) which is due for completion in 2021 and Building B (490,000 sqm, GFA) which is scheduled to be finished in 2027.
RENT AND CAPITAL VALUE GROWTH SLOWS Rents at end-3Q15 averaged JPY 34,688 per tsubo per month, increasing 0.7% q-o-q. Rents have grown for 14 consecutive quarters, although the rate of increase moderated in 3Q15. Growth was driven by Otemachi/Marunouchi, Akasaka/Roppongi and Hibiya submarkets.
Capital value growth slowed to 0.2% q-o-q (15.2% y-o-y), in part reflecting weaker rental growth. However, the investment market remained active. Mori Hills Reit acquired a stake (1.4%) in Roppongi Hills Mori Tower for JPY 12 billion (NOI cap rate of 3.8%).
For 2011 to 2014, take-up, completions and OUTLOOK: MODEST RISE IN RENTS AND CAPITAL VALUES EXPECTED vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, The Japanese economy is expected to see a modest recovery in 2016, with while future supply is for 4Q15.
Oxford Economics forecasting real GDP growth of 1.5%. However, increased uncertainty surrounding the global economy is a downside risk. Vacancy is expected to remain stable amid steady demand and healthy take up of new supply. The low vacancy environment should support moderate growth of rents. Persisting investor interest is expected to see cap rates compress further, and this, in combination with rent growth, should support a rise in capital values.
Note: Tokyo Office refers to Tokyo's 5 Kus Grade A office market.
"Rents continue to edge up as vacancy declines and
corporate sentiment improves."
Takeshi Akagi, Head of Research, Japan TSUBO PER MONTH, JPY 16,125
DEMAND STEADY AMID RECOVERING ECONOMY Financial Indices According to September's Greater Osaka Tankan Survey, business conditions for large manufacturers and non-manufacturers continued to improve.
Leasing demand in 3Q15 was driven by sectors such as professional services, finance and insurance. Net absorption slowed q-o-q to 7,500 sqm; however, total net take-up for the first nine months of the year recorded a strong increase from the same period last year. Notable tenant movements in the quarter included Asatsu-DK and Daicel's relocation to Grand Front Osaka VACANCY CONTINUES TO DECLINE AND REACHES 5.5% There were no completions in the quarter and the Shin Daibiru Building which Rental Value Index Capital Value Index completed in 1Q is expected to be the only addition to market stock in 2015. Arrows indicate 12-month outlook Index base: 4Q11 =100 With no new supply entering the market and steady demand, vacancy in the overall market declined by 40 bps q-o-q (310 bps y-o-y) to 5.5%. This was the fourth consecutive quarter of decline. By submarket, decreases were recorded in Umeda and Midosuji. Grand Front Osaka continued to see an Physical Indicators improvement in occupancy, reaching 80% in the quarter.
RENT GROWTH PICKS UP SLIGHTLY Rents at end-3Q15 averaged JPY 16,125 per tsubo per month, increasing 0.6% q-o-q. The rate of growth accelerated slightly and rents maintained an uptrend for the fifth consecutive quarter. Growth was driven by Dojima and Capital values in 3Q15 increased 6.4% q-o-q (25.4% y-o-y) and this marked the eighth straight quarter of growth. Strong growth was sustained as yields continued to compress, reflecting strong investor interest in regional office assets. Mori Trust Reit sold Osaka Marubeni Building for JPY 11 billion.
OUTLOOK: RENT GROWTH AND YIELD COMPRESSION PUSH UP CAPITAL VALUES Japan's economy is expected to continue a slow recovery, but the slowdown in the global economy and volatility in financial markets is a concern. For 2011 to 2014, take-up, completions and According to the latest Greater Osaka Tankan Survey, business conditions vacancy rates are year-end annual. For 2015, are expected to improve for large manufacturers, while those for large non- take-up, completions and vacancy rates are YTD, while future supply is for 4Q15.
manufacturers are likely to soften in 4Q15.
Leasing demand is expected to remain resilient and this coupled with no new supply over the next 12 months should place continued downward pressure on vacancy and support moderate rent growth. In the investment market, capital values are expected to grow while cap rates compress.
Note: Osaka Office refers to Osaka's 2 Kus Grade A office market.
"Absorption reaches the highest level since 1Q14
amid a modest pick-up in demand, in particular
in the CBD."
Yongmin Lee, Head of Research, Korea PYUNG PER MONTH, NET EFFECTIVE ON GFA KRW 95,245
CBD LEADS REBOUND IN ABSORPTION Financial Indices 101 Pine Avenue reached full occupancy on move-ins by Hana Tour (3,860 pyung, gross), ABC Mart Korea (2,300 pyung) and Hanwha S&C (2,200 pyung), while Hanwha Finance Center Taepyungro and D-Tower witnessed the arrivals of Hanwha Total (2,200 pyung) and a local taskforce team (1,300 In Yeouido, Yello Finance Group (2,000 pyung, gross) commenced business at IFC Three. Gangnam activity was bouyed by the relocation of Amway (2,200 pyung) and Daehan Real Estate (930 pyung) to Asem Tower from Textile Building due to the increased occupancy requirements of Yulchon, Textile Building's anchor tenant.
MODEST DECLINE IN VACANCY ACROSS ALL THREE DISTRICTS Rental Value Index Capital Value Index Arrows indicate 12-month outlook A lack of new supply aided a 60 bps q-o-q drop in overall vacancy, the largest Index base: 4Q11 =100 decline since 2Q14.
Financial Indicators are for the CBD.
The decline in vacancy was largest in the CBD and Yeouido, where tenant demand was focussed on recently completed stock. Despite having a low vacancy rate, Gangnam continued to struggle to attract new tenants to the Physical Indicators district and to stem the outflow of tenants to newer stock in other districts.
RENTS DECLINE MARGINALLY FOR THE THIRD CONSECUTIVE QUARTER Rents declined by 0.5% q-o-q due to increasing incentives in recently completed stock and buildings with sizeable backfill vacancy. Rent declines were largest in Yeouido reflecting attractive deals concluded at IFC.
Investment deal volume was muted in the quarter; however, a strong pipeline of deals indicates that transaction volumes should pick-up by year end. The largest deal in 3Q was Hana Financial Group's acquisition of Grace Tower (GFA 7,420 pyung) in Gangnam for owner-occupation. The property was sold by Kormaco on behalf of National Pension Service for KRW 159.5 billion.
OUTLOOK: SAMSUNG AFFILIATES MAY RELOCATE TO NEW SUBURBAN PROJECT The only Grade A supply expected over the coming 12 months is Parnasse Tower (GFA 44,460 pyung) in Gangnam which is scheduled for completion in For 2011 to 2014, take-up, completions and 3Q16. However, the completion of Samsung Electronics Umyeondong R&D vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, Center (GFA 99,800 pyung) on the south fringe of Seoul in 4Q15 may lead to the while future supply is for 4Q15. relocation of several Samsung affiliates to this project from Grade A stock.
Physical Indicators are for the Overall market.
The investment market is forecast to remain robust with 2016 pricing levels likely to be benchmarked off the closing prices for a large number of deals expected to conclude in 4Q15.
Note: Seoul Office refers to Seoul's Grade A office market.
"Weak global economic conditions and large
impending supply put pressure on office rents."
Dr Chua Yang Liang, Head of Research, Southeast Asia SQ FT PER MONTH, GROSS EFFECTIVE ON NLA SUBDUED ECONOMIC ENVIRONMENT IMPACTS OFFICE DEMAND Financial Indices Demand for CBD office space remained lacklustre in 3Q15 with economic uncertainty and expectations for further rental declines having an effect on leasing activity. Despite overall demand being subdued, there were still some firms that looked to leverage on Singapore's position as a regional hub and set up new offices in the city during the quarter. These tenants were from a wide range of industries and included the South Korea National Pension Service, ZS Associates and ECommPay. FLIGHT-TO-QUALITY PUSHES VACANCY UP IN OLDER STOCK In 3Q15, tenants looking to relocate continued to show a preference for deals Rental Value Index Capital Value Index which offered lower rents in higher quality buildings in Raffles Place and Arrows indicate 12-month outlook Marina Centre submarkets. These deals were especially attractive to tenants Index base: 4Q11 =100 who occupied space in older buildings - usually in the Shenton Way Financial Indicators are for the CBD.
The overall CBD vacancy rate increased slightly in 3Q15 to 6.1%. Vacancy is Physical Indicators expected to increase gradually over the next few quarters as select occupiers, mainly in the financial sector, give up space. With much of this space large in size, landlords may find it difficult to re-lease vacated space given that most demand is currently for smaller requirements. This may prompt some landlords to subdivide space.
INVESTOR DEMAND REMAINS RESILIENT DESPITE DECLINING RENTS In 3Q15, overall CBD rents fell by 4.5% q-o-q to SGD 9.61 per sq ft per month, declining at a similar pace as in 2Q15. Landlords continued to take pre- emptive steps to retain and attract occupiers ahead of a large wave of supply (3.07 million sq ft) due to be completed in 2016.
The en bloc sales of 158 Cecil Street and Thong Sia Building for SGD 240 million and SGD 380 million, respectively, signalled the strength of investors' confidence. Investors appear to be focused on the longer term fundamentals of the office market rather than the short-term outlook and potential impact of an interest rate hike.
For 2011 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, OUTLOOK: OCCUPIERS MAY DELAY DECISIONS IN HOPE OF LOWER RENTS while future supply is for 4Q15. Physical Indicators are for the CBD.
In the short term, rents across all submarkets are likely to continue trending lower due to lacklustre demand and pressure from the large supply pipeline Pre-leasing activity is likely to remain challenging as existing occupiers are hesitant to sign new leases until shortly before the expiration of their existing contracts due to the expectation of further rental declines.
Note: Singapore Office refers to Singapore's CBD Grade A office market in Marina Bay, Raffles Place, Shenton Way and Marina Centre.
"Limited occupier movement but a number of
significant relocation deals inked that will be
reflected in upcoming quarters."
Andrew Gulbrandson, Head of Research, Thailand ROBUST LEASING ACTIVITY BUT NET TAKE-UP NEGATIVE Financial Indices Net absorption moved into negative territory (–4,000 sqm) in 3Q15 amidst small amounts of churn, consolidations and a lack of major tenant movements. The leasing market remained active with a large number of deals signed in the quarter. However, most deals represent relocations to projects currently under construction and thus, will not be reflected in demand figures until these buildings complete in 2016.
NO NEW SUPPLY COMPLETES WHILE VACANCY RISES• Grade A office stock remained unchanged in 3Q15 at 1,824,000 sqm, while vacancy increased by 0.2 percentage points q-o-q to 9.2%.
Several projects are expected to complete in the next 12 months including The Metropolis Building in 4Q15 (13,000 sqm), located on Sukhumvit Road, and Arrows indicate 12-month outlook Index base: 4Q11 =100 FYI Center (48,000 sqm) on the Ratchadaphisek and Rama IV intersection, which is scheduled to open in 1Q16. RENTS AND CAPITAL VALUES RISE, WHILE YIELDS REMAIN STABLE• Gross rents increased by 0.4% q-o-q to THB 783 per sqm per month in 3Q15. Physical Indicators Capital values increased by 0.5% q-o-q to THB 106,507 per sqm in 3Q15. The increase was at the same pace as rent growth and as such, market yields remained at 6.8%.
OUTLOOK: HEALTHY SUPPLY PIPELINE AND STRONG PRE-COMMITMENT LEVELS More than 65,000 sqm are in the pipeline due to complete in the next 12 months in the Central Business Areas (CBA). An estimated 50% of this space was pre-committed at end-3Q15, suggesting strong demand for new, high quality space. We believe these projects will be taken up quickly upon completion and generating robust demand throughout 2016. Despite relatively limited available space and a fairly small supply pipeline, new Grade A office supply outside of the CBA has provided alternative choices for office tenants, pressuring rental growth for Grade A office space in the CBA. We believe this trend should continue into 2016. While all For 2011 to 2014, take-up, completions and submarkets should achieve positive rental growth over the next 12 months, vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, growth in the CBA will likely lag market-wide figures. while future supply is for 4Q15.
Note: Bangkok office refers to Bangkok's Central Business Areas Grade A office market.
"Demand remains relatively thin amid slow
economic growth and continued
James Taylor, Head of Research, Indonesia NET EFFECTIVE ON NLA IDR 4,370,094
NET TAKE-UP PICKS UP DUE TO NEW SUPPLY BUT ENQUIRIES REMAIN LOW Financial Indices Relatively slow economic growth, rupiah depreciation against the US dollar, low commodity prices and global economic headwinds continued to impact the Jakarta office market. Demand remained relatively thin in 3Q15 and the overriding sentiment in the market was one of cost-saving and consolidation.
The oil and gas and mining sectors were relatively inactive in 3Q15 and some smaller, local operations were contracting or closing down. However, firms which feed off Jakarta's most dependable resource – a large, growing population - remained relatively strong with several e-commerce firms looking AIA CENTRAL THE SECOND NEW COMPLETION IN AS MANY QUARTERS• AIA Central (42,999 sqm), developed by Selaras Group, is located at the Arrows indicate 12-month outlook Sudirman end of the main Thamrin/Sudirman thoroughfare which dissects Index base: 4Q11 =100 Jakarta's CBD and will form the route of the future MRT line; earmarked for completion at the end of this decade. AIA moved in during the quarter, relocating from the Greater Jakarta area.
Physical Indicators Vacancy rates broke the double-digit barrier in 2Q15 on the back of the completion of Sahid Sudirman Center and rose further in the third quarter. The two new completions in successive quarters are the forerunners of a packed supply schedule.
RENTS DECLINE AMID ECONOMIC HEADWINDS AND RISING VACANCY• Historically, many landlords of Grade A buildings in Jakarta quoted rents in US dollars. New government regulations, effective July 1st, stipulated that all domestic business transactions must be conducted in Indonesian Rupiah. Rental growth turned negative (–1.6% q-o-q) as landlords offered more attractive terms in the face of rising vacancy rates and relatively thin demand. No en bloc sales transactions were closed in 3Q15 although some international investors continued to show interest in developing mixed-use projects in prime locations.
OUTLOOK: VACANCY RATES TO RISE FURTHER; MORE RENTAL DECLINES LIKELY For 2011 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, Although pre-commitment deals have been agreed in projects with take-up, completions and vacancy rates are YTD, completion dates as far ahead as 2018, demand is likely to remain relatively while future supply is for 4Q15.
thin in the short term. We expect continued inactivity from oil and gas firms, while e-commerce companies are likely to expand. Given the volume of pipeline supply, we expect vacancy rates to rise further.
With some landlords facing vacancy pressure and demand remaining relatively thin, we expect further rental declines in IDR terms in the coming quarters. A pick up in government spending and GDP growth as well as currency stabilisation are vital in terms of boosting demand and sentiment.
Note: Jakarta Office refers to Jakarta's CBD Grade A office market.
"Continued political and economic uncertainty
puts a dampener on office leasing activity."
Dr Chua Yang Liang, Head of Research, Southeast Asia SQ FT PER MONTH, SUBDUED DEMAND WITH DOWNSIZING BY OIL & GAS AND FINANCIAL FIRMS Financial Indices Leasing enquiries declined on the back of the recent political issues and difficult economic situation caused by low commodity prices and a weakened Malaysian ringgit. Oil & gas companies and large financial institutions continued to downsize in terms of headcount and occupied space. Despite weak demand, net absorption was positive in 3Q15. Leasing demand was led by domestic business services firms' flight- to-quality. The decentralisation trend continued with the Decentralised submarket gaining popularity - especially within KL Sentral, Mid Valley City and Bangsar South - due to its access to quality public transportation and affordable rents.
VACANCY STABLE AMID NO NEW SUPPLY Arrows indicate 12-month outlook No new supply was completed during the quarter and vacancy held firm at Index base: 4Q11 =100 Financial Indicators are for the Kuala Lumpur City.
There are rising concerns over the large amount of supply due in the KLC submarket from 2019 onwards. This supply is largely being driven by major government-led projects including KL 118, Tun Razak Exchange and Bukit Physical Indicators Bintang Commercial Centre.
RENTS DECLINE ON THE BACK OF A SUBDUED LEASING MARKET• Softer leasing market conditions resulted in rents declining marginally as some landlords opted to focus on occupancy over rents. Select landlords of older buildings within the CBD submarket increased rental incentives including offering longer rent-free periods.
Investment yields remained stable amid a muted investment market. While some property owners lowered their pricing expectations, prices are still relatively high due to the limited availability of quality assets.
OUTLOOK: RENTAL DECLINE LIKELY TO CONTINUE • Landlords are expected to prioritise occupancy over rents and this in combination with softening demand is expected to lead to a further decline in For 2011 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, The leasing market should continue to favour tenants, with vacancy rates take-up, completions and vacancy rates are YTD, lingering in double digits. Demand is expected to be more concentrated within while future supply is for 4Q15.
the Decentralised submarket due to its quality infrastructure and relatively Note: Kuala Lumpur Office refers to Kuala Lumpur City's Grade A office market consisting of the Golden Triangle and CBD submarkets.
"Rents expected to grow at a slower pace due to
competition from new supply."
Claro dG. Cordero, Jr., Head of Research, Philippines NET EFFECTIVE ON NLA OUTSOURCING AND TECHNOLOGY FIRMS LEAD OFFICE DEMAND Financial Indices Net absorption in Makati CBD and Bonifacio Global City (BGC) rose from 12,000 sqm in 2Q15 to 86,400 sqm in 3Q15, mainly driven by off-shoring and outsourcing (O&O), technology-related and other services firms. The increase in net absorption was partly due to take-up of office space in newly completed developments. Notable lease transactions in 3Q15 included an O&O firm renewing its lease in a built-to-suit development in Makati CBD, an e-services firm taking up 2,100 sqm in newly completed Net Park and a business services firm pre- committing to 2,000 sqm in Uptown Tower 3 in BGC.
NEW SUPPLY AND EXISTING AVAILABLE SPACE PUSH UP VACANCY Rental Value Index Capital Value Index Four office developments, MDI Corporate Center, Net Park, 8 Rockwell and Arrows indicate 12-month outlook Cocolight were completed in 3Q15, adding 102,800 sqm of office space. All of Index base: 4Q11 =100 these developments, except for 8 Rockwell, are located in BGC.
The vacancy rate increased slightly to 4.8% in 3Q15 from 4.3% in 2Q15 as newly completed developments were not fully leased out upon completion. Physical Indicators Despite the increase in the vacancy rate, Grade A developments in Makati CBD and BGC continued to enjoy high occupancy.
CAPITAL VALUES INCH UP SLOWLY AFTER PREVIOUS ROBUST GROWTH Rents registered a modest growth of 0.2% q-o-q, supported by stable O&O office demand. Likewise, capital values saw minimal movement, inching up by 0.1% q-o-q and consequently, investment yields remained relatively stable at Strata-title office units in existing Grade A developments in Makati CBD continued to be traded in the secondary investment market, fuelled by demand from investors and occupiers. Meanwhile, demand for pre-selling strata-title office units, mostly located in BGC, was driven by retail investors and small and medium-sized enterprises.
OUTLOOK: SLOWER RENT GROWTH EXPECTED AS SUPPLY EXPANDS FURTHER For 2011 to 2014, take-up, completions and A total of 200,000 sqm of office space is scheduled to be completed in the next vacancy rates are year-end annual. For 2015, two quarters from eight office developments. Vacancy rates are likely to rise, take-up, completions and vacancy rates are YTD, while future supply is for 4Q15.
given the incoming supply.
Rents are expected to maintain positive growth, albeit at a slower pace, while capital values are expected to increase further supported by the favourable investment outlook of the country.
Note: Manila Office refers to the Makati CBD and BGC Grade A office market.
"Net absorption reaches a record high with strong
activity in new supply."
Joseph Yee, Regional Director – Valuation Advisory Services, NET EFFECTIVE ON NLA RECORD HIGH NET ABSORPTION DRIVEN BY NEW COMPLETION Financial Indices In 3Q15, net absorption rose to over 28,000 sqm, the highest quarterly net absorption recorded in the Ho Chi Minh City office market. However, nearly 15,000 sqm was from the subsidiaries of a landlord of a newly completed Many large-sized leasing deals (greater than 1,000 sqm) were recorded at the newly completed building – Vietcombank Tower. Relocation from lower grade buildings to Grade A buildings and new market entrants were key drivers of leasing deals during 3Q15. Renewals accounted for a minor percentage of total leasing activity in the quarter.
VACANCY REMAINS BELOW 10% DESPITE LARGE NEW SUPPLY Vietcombank Tower completed in 3Q15, adding approximately 37,000 sqm of Rental Value Index office space to the market, resulting in total Grade A office stock increasing to Arrows indicate 12-month outlook 192,000 sqm, an increase of 19.3% q-o-q. Index base: 4Q11 =100 The vacancy rate remained lower than 10% as Vietcombank Tower had a high occupancy rate at launch. Most existing Grade A office buildings enjoyed an occupancy rate of more than 90% in 3Q15. However, Times Square continued Physical Indicators to have an above market average vacancy rate as the landlord remained highly selective about tenants.
RENT DECLINE MAINLY DRIVEN BY LOWER RENT AT NEW SUPPLY The average rent of Grade A office space was USD 37.7 per sqm per month, a decline of 3.5% q-o-q. The quarter's downward trend emanated mainly from Vietcombank Tower, as most landlords of existing buildings kept their rents stable from 2Q15.
The investment market remained quiet in 3Q15 and valuation-based yields were stable at around 9%.
OUTLOOK: RENTS TO INCREASE SLIGHTLY AMID NO NEW SUPPLY Given the good performance and increasing rents in the Grade B sector, and higher asking rents at some Grade A office buildings in 3Q15, we expect a slight increase in rents over the next 12 months. Demand is likely to come For 2011 to 2014, take-up, completions and from financial and banking institutions and Vietcombank Tower should vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, continue to lead in leasing performance in the coming quarters.
while future supply is for 4Q15.
No new supply is expected between now and 2017, supporting the upward trend in rents for the remaining vacant space at Vietcombank Tower and Times Square.
Note: Office market refers to the Grade A Office market in Ho Chi Minh City.
"Despite net absorption remaining robust, vacancy
remains high due to large volume of new supply."
Ashutosh Limaye, Head of Research, India SQ FT PER MONTH, STRONG LEASING ACTIVITY; HOWEVER, NET TAKE-UP DECLINES Q-O-Q Financial Indices Strong leasing activity saw net absorption recorded at 1.4 million sq ft in 3Q15, with occupiers looking for space for expansion. However, occupier exits and tenant relocation/consolidation activity resulted in net take-up declining from the previous quarter's level. Demand was led by the IT/ITeS sector, with support from consulting, professional and financial services firms. Notable deals in 3Q15 included Bank of Tokyo & Mitsubishi, GMR and Bharti Softbank all leasing space in the SBD; IBM, Mercer and Olympus leased space in Gurgaon and Vivo Mobiles and Reliance Jio in Noida.
VACANCY RISES AMID LARGE NEW SUPPLY• New completions added 2.9 million sq ft of space in the quarter. Four projects Arrows indicate 12-month outlook were completed in Gurgaon, three in Noida and one in the SBD. Index base: 4Q11 =100 Financial Indicators are for the SBD.
Vacancy rose by 80 bps q-o-q to 31%.
RENTS RISE IN SBD AND MARGINALLY IN NOIDA Physical Indicators Rents in the SBD rose in 3Q15, after remaining stable for eight straight quarters. A slight rise was also recorded in the Noida-Greater Noida Expressway corridor of the Noida submarket.
Capital values rose largely in line with rents and a result, yields remained OUTLOOK: DEMAND TO REMAIN STRONG AS OCCUPIERS PLAN EXPANSION• Large IT occupiers are likely to retain their preference for space in existing and planned SEZs. However, there is also likely to be demand for quality space in emerging office corridors due to low vacancy and limited supply in established office precincts. Limited, quality future supply in established office corridors may fuel faster rent increments. Investor interest in leased assets is likely to contribute towards a rise in capital values, with yields expected to remain generally For 2011 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, while future supply is for 4Q15.
Physical Indicators are for the Overall market.
Note: Delhi Office refers to Delhi NCR's Overall Grade A office market.
"High leasing volumes in well-situated, under
construction buildings highlights importance of
Ashutosh Limaye, Head of Research, India SQ FT PER MONTH, LEASING VOLUMES REACH RECORD HIGH Financial Indices A total of 2.7 million sq ft of office space was transacted in 3Q, mostly in under-construction buildings. However, net absorption was recorded at 1.0 million sq ft, a decrease of 52% q-o-q. Healthcare and IT/ITeS companies drove demand for office space during the quarter, with upcoming office supply in the SBD BKC and Thane submarkets attracting pre-commitments. SEVEN NEW BUILDINGS ADD 1.7 MILLION SQ FT In 3Q15, seven projects commenced operations with modest levels of pre- commitments and as a result, the vacancy rate in the overall Mumbai market increased slightly by 30 bps q-o-q to 20.1%. Rental Value Index Capital Value Index Mumbai's total stock grew by 1.7% q-o-q and surpassed 100 million sq ft.
Arrows indicate 12-month outlook Index base: 4Q11 =100 RENTS RISE IN SELECT SUBMARKETS Financial Indicators are for the SBD BKC.
In 3Q15, rents in SBD Central, SBD North and Eastern Suburbs rose in the range of 1–2% q-o-q. In the SBD BKC submarket, rents stabilised after declining for four straight quarters. Physical Indicators Market yields were generally stable across most submarkets of the city.
OUTLOOK: ROBUST LEASING ACTIVITY EXPECTED IN NEXT 12 MONTHS• Leasing demand is likely to come from established businesses expanding and new foreign firms entering the market. About 1 million sq ft of office space requirements were circulating in the market at end-3Q15. It is expected that institutional investors will gain confidence to purchase income-generating and strategically located office assets that are expected to attract good demand and high rents.
For 2011 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, while future supply is for 4Q15.
Physical Indicators are for the Overall market.
Note: Mumbai Office refers to Mumbai's Overall Grade A office market.
"Corporate expansions drive leasing activity
Ashutosh Limaye, Head of Research, India SQ FT PER MONTH, LEASING ACTIVITY REMAINS ROBUST Financial Indices Leasing activity in the Bangalore office market was relatively stable in 3Q15 with about 3.0 million sq ft of office space transacted and net absorption was recorded at 2.8 million sq ft. The SBD remained the most preferred submarket and most absorption came from occupier expansions and pre-commitments to newly completed buildings. IT/ ITES companies were the most active occupiers that leased space over the quarter and key tenants leasing space in the quarter included Accenture, Infosys, Citix and HP.
1.1 MILLION SQ FT OF NEW SUPPLY• Four office buildings commenced operations in 3Q15, adding 1.1 million sq ft and increasing total Grade A office stock to 90.9 million sq ft. Arrows indicate 12-month outlook Index base: 4Q11 =100 Stable leasing activity and high occupancy at newly completed buildings Financial Indicators are for the SBD.
pushed the vacancy rate down to 4.2% in 3Q15 from 6.1% in 2Q15.
SHARP DECLINE IN VACANCY CONTINUES TO DRIVE SBD RENTS UP Physical Indicators In 3Q15, average rents increased in the CBD and SBD submarkets, while remaining unchanged elsewhere. The SBD witnessed a 2.0% q-o-q increase in rents, and the CBD growth of 1.0%.
Capital values increased q-o-q in the range of 1–2% in the CBD and SBD, with other submarkets remaining unchanged. Market yields remained relatively OUTLOOK: DEMAND LIKELY TO REMAIN STRONG• Demand for office space is expected to remain strong across all submarkets through 1H16 as corporate occupiers continue to expand. The limited availability of space in the SBD-east and south-east stretch of the Outer Ring Road is likely to push demand for space towards the northern part of the city and to projects along Bellary Road.
Rents and capital values are also likely to increase across the city due to For 2011 to 2014, take-up, completions and steady leasing activity. Yields are likely to compress along some stretches of vacancy rates are year-end annual. For 2015, the SBD Outer Ring Road given the good occupancy rates of buildings in this take-up, completions and vacancy rates are YTD, while future supply is for 4Q15.
Physical Indicators are for the Overall market.
Note: Bangalore Office refers to Bangalore's Overall Grade A office market.
"The demand recovery is broadening with
increased activity from financial services and
education sector tenants."
Andrew Ballantyne, National Director - Research, Australia GROSS EFFECTIVE ON NLA DEMAND RECOVERY GATHERS MOMENTUM IN SYDNEY CBD Financial Indices The Sydney CBD office market recorded a seventh positive quarter of net absorption (25,600 sqm) and 148,000 sqm was recorded for the 12 months ending September 2015. Education institutions and finance & insurance firms were the main drivers of growth.
The Sydney CBD leasing recovery continued into 3Q15. The bulk of leasing activity was tenants moving into new developments, in particular Westpac relocating to International Towers Sydney – Tower 2 (ITS2; 59,385 sqm).
A NUMBER OF ASSETS WITHDRAWN FOR RESIDENTIAL CONVERSION IN 3Q15 Positive take-up pushed vacancy down to 7.7%, the lowest level since 1Q11. There are signs of a leasing recovery in the Premium Grade leasing market; vacancy has fallen 1.5 percentage points over the 12 months ending Rental Value Index Capital Value Index September 2015.
Arrows indicate 12-month outlook Index base: 4Q11 =100 There were three office completions totalling 109,300 sqm in 3Q15. This included the first stage completion of ITS2. A further 295,900 sqm – equating to 5.9% of total Sydney CBD office stock – was under construction at end- 3Q15. Seven assets were withdrawn from the CBD stock (77,700 sqm) in the Physical Indicators quarter. Three of the assets will be converted to residential use. INVESTOR APPETITE FOR CBD ASSETS PERSISTS Strong demand for prime space and an increase in face rents resulted in effective rents increasing by 2.7% q-o-q in 3Q15 to AUD 654 per sqm per annum. Office withdrawals and limited options for quality secondary stock have pushed secondary gross effective rents up 9.9% y-o-y.
There were two investment transactions totalling AUD 276.0 million in 3Q15. Investor demand for core assets continued to push prime yields down to range between 5.25%–6.25%. However, the improvement in leasing activity and prospect of effective rental growth has resulted in stronger demand for core plus assets and a compression in secondary yields.
OUTLOOK: STRONG EMPLOYMENT GROWTH SHOULD DRIVE LEASING ACTIVITY • Office completions in the Sydney CBD over the next two years will be the For 2011 to 2014, take-up, completions and highest since the early 1990s. Completions over 2015/16 are expected to reach vacancy are year-end annual. For 2015, take-up, 394,000 sqm or 7.8% of 3Q15 total stock.
completions and vacancy rates are YTD, while future supply is for 4Q15.
Business confidence is highest in the non-mining states of New South Wales (NSW) and Victoria. NSW has accounted for over 50% of job growth in Australia over the past 12 months. Positive lead indicators from the labour market are supportive of increasing leasing activity and positive net Note: Sydney office refers to Sydney's CBD office market (all grades).
"Strong investor demand as leasing market
continues to recover."
Dr David Rees, Head of Research, Australasia GROSS EFFECTIVE ON NLA PRE-LEASING ACTIVITY GAINS MOMENTUM IN 2015 Financial Indices Solid demand from professional services, finance and insurance, and technology firms.
The completion of 567 Collins Street contributed 29,700 sqm to the absorption figure in 3Q15, with major tenants Jemena (12,700 sqm) and Leighton (12,700 sqm) centralising from suburban and fringe locations.
SUPPLY PIPELINE LIMITED OVER THE NEXT 12 MONTHS• 567 Collins Street was the only office development to reach completion in the quarter. Four office assets are under construction totalling 132,000 sqm, of which 86,100 sqm is pre-committed.
Rental Value Index Capital Value Index Additional space in the new building and some sublease availability Arrows indicate 12-month outlook contributed to vacancy remaining at 10.1%.
Index base: 4Q11 =100 YIELDS CONTINUE TO TIGHTEN• Nine major investment transactions occurred in 3Q15, totalling AUD 685.7 million. Sales in 3Q15 represent 39% of total sales for the past 12 Physical Indicators months. The two largest sales in the quarter were 222 Exhibition Street and 114 William Street which sold for AUD 231.0 million and AUD 125.0 million, Yields for prime assets have tightened by 25 bps to 5.25%–7.00%, with the upper end of the range being tighter than the 2007 peak. Secondary assets yields have tightened by 75 bps to 6.00%–8.00%.
OUTLOOK: YIELDS ARE EXPECTED TO STABILISE OVER THE SHORT TERM Demand in the CBD is expected to remain positive with continued growth in IT and professional services such as bankers, lawyers, real estate agents and accountants that are benefiting from strong population growth.
Effective rental levels are expected to increase as landlords reduce incentive levels to match improving business sentiment.
For 2011 to 2014, take-up, completions and vacancy are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, while future supply is for 4Q15.
Note: Melbourne Office refers to Melbourne's CBD office market (all grades).
"Substantial upcoming supply likely to push up
vacancy and apply further downward pressure on
Dr David Rees, Head of Research, Australasia GROSS EFFECTIVE ON NLA SMALL TENANTS ARE LEADING TAKE-UP IN THE CBD Financial Indices Net absorption has been positive in Brisbane CBD for three consecutive quarters following nine quarters of negative results.
Small tenants (<1,000 sqm) that were priced out of the CBD during the mining boom have been taking advantage of the current low rents to centralise their operations. Additionally, large contractions and downsizing by resource related companies has been slowing in the CBD.
VACANCY TRENDS LOWER IN PART DUE TO SEVERAL STOCK WITHDRAWALS• Vacancy declined to 14.5% at end-3Q15 after peaking at 16.8% in 4Q14. This was due to positive absorption, office stock withdrawals (38,800 sqm) and no new supply additions.
Although no projects have reached completion as at YTD September, the Arrows indicate 12-month outlook supply pipeline is substantial with 192,300 sqm of stock anticipated to Index base: 4Q11 =100 complete within the next 12 months. However, this large supply is expected to be partially offset in future by a number of possible stock withdrawals. OCCUPIER AND INVESTMENT MARKETS REMAIN DISCONNECTED Physical Indicators Despite a steady fall in effective rents since 2013, the weight of capital from both international and domestic investors in the last 12 months has compressed the upper yield of the prime and secondary ranges by 50 bps and 100 bps, respectively.
Following a highly active 2Q15 in which Brisbane recorded its highest ever single asset sale, Waterfont Place (AUD 592 million), 3Q15 was very quiet with only one asset transacting for AUD 20 million. OUTLOOK: FUTURE SUPPLY TO PUSH UP CBD VACANCY TOWARDS 20% IN 2016• During 2016, Brisbane CBD vacancy is forecast to reach a historical high of just over 20% due to the large development pipeline. Consequently, effective rents are expected to continue their decline until 2017. Possible stock withdrawals such as the 58,300 sqm to be withdrawn for the Queen's Wharf redevelopment in 2017 should soften the impact. For 2011 to 2014, take-up, completions and Despite the projected weakness in the rental market, further mid-point vacancy are year-end annual. For 2015, take-up, yield compression is expected as the lower end tightens under the weight completions and vacancy rates are YTD, while of capital. Transaction volumes are anticipated to be supported by several future supply is for 4Q15.
assets coming to the market before the end of 2015. Note: Brisbane Office refers to Brisbane's CBD office market (all grades).
"Investor demand drives capital values to new
Justin Kean, Head of Research, New Zealand GROWING SERVICE INDUSTRIES SUPPORT ROBUST DEMAND Financial Indices A healthy performance of the services sector has translated into strong leasing activity in the Auckland Office market. Centralisation remains a significant driver of leasing demand with business actively securing space in the CBD, resulting in 9,500 sqm of net absorption during 1H15. Service industries including information and communication, technology and professional services have been the primary drivers of take-up of space in the CBD during the first six months of 2015.
NEW SUPPLY TO SHORTLY ENTER THE MARKET • Vacancy in the Auckland CBD market has fallen to a new record low, declining by 0.8 percentage points in 1H15 to 4.9%. The short supply of high quality space has forced occupiers to the secondary end of the market, with Arrows indicate 12-month outlook both Grades B & C experiencing a significant fall in vacancy.
Index base: 4Q11 =100 Construction of the 18,600 sqm office development at 151 Victoria Street is in its final stages. This new supply will help ease pressure in the tight Prime market, providing some relief for occupiers.
Physical Indicators HIGH DEMAND FOR QUALITY OFFICE STOCK PUSHES RENTS UP• Limited available space underpins healthy growth in Prime rents. In 3Q15, average rents for Prime space increased 1.3% q-o-q to NZD 459 per sqm per annum, with renewals and new leases pushing values higher. Incentives remained steady during 3Q15.
Core office assets continue to be highly sought after by investors. Prime yields tightened by 25 bps q-o-q at the lower end of the range to now range between 6.5% and 7.5%. Capital values are now above the peak set before the global financial crisis.
OUTLOOK: DEMAND FROM INVESTORS AND OCCUPIERS LIKELY TO CONTINUE • Corporate expansion and space consolidation are expected to keep landlords in a dominant position relative to occupiers over the next 12 months, despite concerns of lower economic growth. This should support upward pressure on For 2011 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, Capital values for office assets are forecast to increase over the next 12 while future supply is for 4Q15.
months, with no sign of buyer interest subsiding.
Note: Auckland Office refers to Auckland's CBD and Viaduct Harbour office markets.

"High street shop rents under greatest pressure as
retailing conditions worsen amid tourism slump."
Cathie Chung, Director - Research, Hong Kong SQ FT PER MONTH, HKD 603.8
Financial Indices RETAILING CONDITIONS WORSEN AMID TOURISM SLUMP• The recent stock market rout along with devaluation of the RMB further weighed on already weak tourism and retail markets. Dragged by a 17.7% y-o-y contraction in Individual Visit Scheme visitors from Mainland China, total tourist arrivals plunged by 7.4% in July-August. Meanwhile, total retail sales have fallen for eight months straight as of August, the longest downturn The lacklustre retail market pushed some retailers to terminate their leases early to cut losses, with those in Central and Causeway Bay—where rents had outperformed in recent years—showing the greatest interest to break leases. Faced with increased vacancy pressure, landlords of high street shops were generally more flexible in lease negotiations.
RV Index (High Street Shop) CV Index (High Street Shop) SPOTLIGHT ON NEW SHOPPING CENTRE OPENINGS IN 3Q15 RV Index (Premium Prime Shopping Centres) RV Index (Overall Prime Shopping Centres) Sun Hung Kai Properties' Grand Century Place (rebranded as MOKO) in Arrows indicate 12-month outlook Index base: 4Q11 =100 Mongkok added 65,455 sq ft to Prime Shopping Centre stock. The upgraded shopping centre is now anchored by Yata supermarket, Food Opera and Prologue Book Store.
Physical Indicators The retail podium of Yoho Midtown and the previous Sun Yuen Long Shopping Centre were officially opened to the public in 3Q15. These two malls, along with Yoho Mall Extension (2016)—collectively branded as Yoho Mall—will be the largest shopping mall complex (about 1.1 million sq ft of retailing floor space) in the North-West New Territories when complete.
RENTS ON HIGH STREET SHOPS UNDER GREATEST PRESSURE With more landlords significantly lowering rents to keep their premises tenanted, market rents on the high streets plunged by 12.5% q-o-q in 3Q15. Retailers' preference towards shopping centres, which enjoy relatively higher foot traffic and lower upfront rental outlays, rendered support to rents.
Market yields remained largely flat during the quarter, amid a quiet investment market. The focus of investors continued to be on street shops and retail podiums with lowered asking prices in non-core locations.
For 2011 to 2014, completions are year-end annual. For 2015, completions are YTD, while future supply OUTLOOK: RENTAL CORRECTION TO MODERATE IN 2016 is for 4Q15.
Downward pressure on high street shop rents is expected to moderate over the next 12 months after the realisation of major corrections in 2015. We should continue to see a gradual change in the tenant profile of high streets in core shopping locations as more luxury retailers are replaced with mid-priced We may see more long-term owners of non-core retail assets looking to lower asking prices to realise capital gains accumulated over the past few years.
Note: Hong Kong Retail refers to Hong Kong's Overall Prime Shopping Centres and High Street retail "Landlords continue to adjust tenant mixes to
optimise rental income during period of
Steven McCord, Head of Research, North China NET EFFECTIVE ON NLA FAST FASHION POPULAR AT NEWLY OPENED COMMUNITY-BASED MALLS Financial Indices Net absorption turned positive as several new malls entered the market with healthy commitment rates. However, small, newer, and centrally located projects continued to struggle to fill up space under fierce competition from established projects nearby.
Mid-market F&B retailers continued to drive demand; ice cream snack brands Dairy Queen and Haagen-Dazs added stores in the quarter. Fast fashion brands dominated new community projects, with Uniqlo underscoring its presence as a staple of the mid-market while Old Navy expanded. THREE PROJECTS OPEN, ADDING TO CORE, URBAN, AND SUBURBAN MARKETS Core project Jinbao Place Phase II opened near Wangfujing's ever-popular Beijing APM. Attached to Jinbao Place, the small 17,700 sqm-project defied Rental Value Index Capital Value Index Arrows indicate 12-month outlook the market trend of entering as a small and centrally located new mall with Index base: 4Q11 =100 leasing challenges, boasting a strong commitment rate of 90%.
Aeon Beijing Fengtai entered the Urban market with an impressive commitment rate of 99% in the decentralised Urban market. Meanwhile, Gem Mall came online slightly earlier than expected in the Suburban market. Physical Indicators Though its physical occupancy was only at 65% upon opening, 90% of leasable space was committed. RENTAL GROWTH STILL SLOW; YIELDS STABLE Rents continued to grow at a slower pace, with Urban rents recording 0.4% q-o-q growth and Core rents registering 0.6% q-o-q growth.
Yields were flat as the pricing standoff between buyers and sellers continued and the outlook for rental growth weakened.
OUTLOOK: NEW POLICY IS SET TO REDIRECT URBAN RETAIL DEVELOPMENT Landlords are likely to readjust floor plans due to the new rule prohibiting malls within the six core districts from allowing new F&B tenants to open in the basement or in units smaller than 60 sqm regardless of which floor they are located on. The policy aims to nudge new development towards higher- For 2011 to 2014, completions are year-end annual. For 2015, completions are YTD, while future supply is for 4Q15.
The Suburban supply boom takes off at the end of the year; with future supply in this market to outpace the Urban market over the forecast horizon. Note: Beijing Retail refers to Beijing's Urban retail market.
"Luxury brands focus on experience-oriented
offerings to enhance brand influence."
Joe Zhou, Head of Research, China Financial Indices LUXURY RETAILERS SHIFT STRATEGY TO BROADEN CUSTOMER BASE• Luxury brands expanded their reach by embracing experience-oriented offerings and other non-traditional approaches. Gucci opened its first restaurant in China, 1921Gucci, at iapm, while Burberry and Chanel opened new cosmetic boutiques. Lower pricing points for products in these stores means spending per customer tends to be less than at their traditional stores, allowing them to appeal to a wider range of customers.
Meanwhile, luxury watch and accessory brands responded to stagnating sales by shrinking the operating space of their existing stores. In 3Q15, several high-end watch retailers such as Chopard and Piaget trimmed their operating space in ifc Mall, while Loewe closed its store on the second floor of Kerry Centre. Rental Value Index Capital Value Index Arrows indicate 12-month outlook THREE NEW PROJECTS OPEN, WHILE TWO DEPARTMENT STORES CLOSE Index base: 4Q10 =100 Index base: 4Q11 =100 Soho Fuxing Plaza in Xintiandi, The Place North in Hongqiao and Hall of the Financial Indicators are for the Core market.
Stars in Hongkou added a total of 94,400 sqm to the market. These malls are relatively small and all have mid-range positioning. Meanwhile, Oriental Department Store on Huaihai Road and Tianshan Parkson closed; both will be Physical Indicators renovated into boutique shopping malls.
Vacancy decreased slightly to 9.5% in the core areas as several existing malls in East Nanjing Road and Hongqiao made progress filling vacant space. Non- core vacancy also fell, declining to 6.8% as several malls filled empty spaces on upper floors with experience-oriented tenants. RENTS EDGE UP WHILE INVESTMENT MARKET REMAINS QUIET In the core area, open-market ground floor base rents increased by 4.6% y-o-y to RMB 51.8 per sqm per day. Non-core rents rose 6.0% y-o-y to RMB 20.6 per sqm per day. In both markets, successful malls undergoing tenant adjustment outperformed the market and drove rental growth.
There were no en bloc sales transactions in the quarter.
OUTLOOK: SLOWER RENTAL GROWTH EXPECTED IN NON-CORE AREAS For 2011 to 2014, completions are year-end annual. Luxury retailers are expected to stay cautious amid limited sales growth. In For 2015, completions are YTD, while future supply the mass market, continued strong demand is expected from fast fashion is for 4Q15.
Physical Indicators are for the Core market.
brands as they further expand their presence in newly opened projects around the city. Meanwhile, children-related brands are becoming a new growth point, and are highly sought after by landlords.
Forecast non-core supply for 2016 is large, especially around the Hongqiao Transportation Hub. As a result, rents of malls in such areas are expected to grow more slowly. There is also a rising risk that slow leasing may lead to delayed openings of several projects. Meanwhile, mature malls in key precincts should continue to drive rental growth in the core area.
Note: Shanghai Retail refers to Shanghai's Overall Core and Non-core retail markets.
"Direct import goods retailers rapidly expand to
address consumers' demand for quality goods."
Frank Ma, Head of Research, West China RMB 394.2
ACTIVE LEASING MARKET ACROSS THE CITY Financial Indices In 3Q15, new-to-market brands continued to debut at premium malls across the city. For instance, Agent Provocateur and Tesla opened stores at Sino- Ocean Taikoo Li, while New Look and Cath Kidston secured space in Raffles Cross-border Offline to Online operators (O2O) and direct import goods firms opened stores/sales centres in the quarter. Foshan-based opened in Perennial Qingyang Mall and D.I.G, which operates in the Shanghai Waigaoqiao Free Trade Zone, opened in Shihao Mall.
VACANCY RISES AS SEVERAL LARGE TENANTS VACATE SPACE Two prime retail projects opened in 3Q15, adding a total of 112,300 sqm to prime retail stock. The One opened in the Chunxi Road-Yanshikou submarket Arrows indicate 12-month outlook and Diamond Plaza in Jianshe Road submarket.
Index base: 4Q11 =100 Some large tenants were observed to have closed stores in shopping malls during the quarter. Central Department Store from Thailand closed its last store in China in MixC, while Dagexing KTV, a part of the Wanda Group, also closed two stores in two Wanda Plazas. These store closures were the main Physical Indicators contributors to a rise in vacancy in the quarter.
PREMIUM MALLS CONTINUE TO PUSH UP RENTS• Average ground floor effective rent in Chengdu's prime retail market marginally increased by 0.4% q-o-q to RMB 394.2 per sqm per month. Premium malls continued to record rental growth, given that most of these malls have long waiting list of brands looking to enter. However, landlords of the majority of malls held rents steady.
The One, the retail portion of Chinese Estate Plaza, was sold by Chinese Estate Group to Evergrande Group when they purchased the mixed-use project in early July. The total consideration for the deal was around RMB 2.5 billion. OUTLOOK: MORE PROJECT DELAYS EXPECTED Joy City and Paradise Walk (North) in the Shuangnan submarket are expected For 2011 to 2014, completions are year end annual. to open in 4Q15. The high quality of these buildings and strong tenant mixes For 2015 completions are YTD, while future supply is for 4Q15.
should help broaden the customer base of this submarket.
Intensifying competition in part due to a large supply pipeline is likely to cause further delays in project openings and some landlords may explore converting retail space to other use. Premium malls are expected to continue to outperform; however, landlords of other prime malls may find the challenging operating environment puts further pressure on rents. Note: Chengdu Retail Market refers to the Urban retail market.
"Rents and capital values continue to grow
moderately amid resilient retail sales in Tokyo's
Takeshi Akagi, Head of Research, Japan TSUBO PER MONTH, JPY 74,737
Financial Indices DEMAND REMAINS SOLID AMID HEALTHY RETAIL SALES • Retail sales continued to grow in August, rising for a fifth straight month. Department stores led the way in higher sales, with luxury goods sales in Tokyo increasing 25.9% y-o-y in August, while duty-free sales in Japan increased 260% y-o-y.
Healthy demand in 3Q15, with luxury retailers and F&B operators taking up space. Ginza Chuo-dori saw the opening of Pandora and Seiko Premium Boutique as well as the relocation of Damiani from Namiki-dori. The Ginza 6-chome Project which is located at the Sukiyabashi crossing and due for completion in 2016, announced that Bally would be one of the occupiers of its street level space. Rental Value Index Capital Value Index DAI 22 GINZA POLESTAR BUILDING COMPLETES BUT VACANCY REMAINS TIGHT Arrows indicate 12-month outlook Dai 22 Polestar Building on Kojunsha-dori at Ginza 6-chome was completed Index base: 4Q11 =100 (GFA 1,200 sqm) in the quarter. Brunello Cucinelli and Versace have taken ground floor space in this building.
The Fred Perry Flagship store is under construction in Omotesando and scheduled for completion in March 2016. RENTS AND CAPITAL VALUES CONTINUE TO GROW Rents at end-3Q15 averaged JPY 74,737 per tsubo per month, increasing 1.1% q-o-q and marking the eighth consecutive quarter of growth. The growth rate in 3Q15 remained mostly in line with the previous quarter and was driven by ground floor rents in Ginza.
Capital values in 3Q15 increased 3.3% q-o-q and 20.6% y-o-y. Although growth remained strong, it slowed from the previous quarter as cap rate compression moderated. Investor interest persisted with a noteworthy sales transaction being sovereign wealth fund SOFAZ's acquisition of Kirarito Ginza (GFA 16,000 sqm) for JPY 52.3 billion. Sales Growth of Large-Scale OUTLOOK: RENTS AND CAPITAL VALUES TO GROW, ALBEIT MODERATELY Retail Stores in Tokyo Private consumption is expected to pick-up underpinned by improving Source: Ministry of Economy, Trade and Industry employment and wage conditions. Oxford Economics is forecasting for private consumption to grow by 1.8% in 2016. Record tourist arrivals should provide further support to retail sales. Availability of prime space is likely to remain tight amid firm demand and high pre-commitment to new supply. As such, an uptrend for rents should persist. Capital values are expected to grow, in part reflecting rent growth, while cap rates are likely to hold relatively stable.
Note: Tokyo Office refers to Ginza and Omotesando Prime retail markets.
"Weak consumer sentiment and tepid retail sales
weigh on rents."
Dr Chua Yang Liang, Head of Research, Southeast Asia SQ FT PER MONTH, GROSS EFFECTIVE ON NLA SGD 37.30
F&B OVERTAKES FASHION RETAILERS AS TOP DRIVER OF RETAIL DEMAND Financial Indices Retail sales slightly improved in July and August after recording negative y-o-y growth (excluding auto sales) in 2Q. Sales of consumer goods, which include watches and jewellery, rebounded moderately in both months. Meanwhile, a recovery in international visitor arrivals gained momentum, supported by tourist arrivals from mainland China.
Leasing activity in the Marina submarket increased in the quarter. The refurbished Suntec City Mall and recently completed Capitol Piazza leased space to several new-to-market entrants, mainly restaurants. However, overall occupier demand was generally subdued. STORE CLOSURES INCREASE SUBURBAN VACANCY Vacancy levels in the Suburban submarket continued to edge up due to the Rental Value Index Capital Value Index Arrows indicate 12-month outlook ongoing consolidation and contraction of retailers. Exits by large-space Index base: 4Q11 =100 occupiers in less popular malls were the primary cause of higher vacancy.
Financial Indicators are for Orchard Road.
Landlords of the once-popular but apparently less prestigious malls have begun to upgrade their malls through large-scale renovation or space reconfiguration in an effort to attract more exclusive retailers and F&B Physical Indicators tenants to shore up foot traffic.
CHALLENGING LEASING CONDITIONS DAMPEN INVESTMENT CLIMATE• Prime retail rents witnessed a steeper decline than in the previous quarter. As retailers were hesitant to take up space in view of subdued consumer buying sentiment, some landlords adopted more flexible leasing terms by offering lower base rents with higher variable components (e.g. turnover rent). In addition to the difficult leasing environment, concerns over rising interest rates and a potential oversupply of retail space kept potential investors on the side-lines. This, coupled with declining strata-titled retail property sales, weighed on prime retail capital values.
OUTLOOK: RENTAL DECLINE TO CONTINUE IN THE NEAR TERM Retail sales are likely to improve underpinned by a gradual recovery in the economy and tourist arrivals. Mirroring the optimistic outlook for tourism, For 2011 to 2014, completions are year-end annual. retailers' business confidence is forecast to improve.
For 2015, completions are YTD, while future supply is for 4Q15.
Physical Indicators are for the Overall market.
However, as the retail sector is still adjusting to labour market challenges and weak consumer sentiment, occupier demand in the near term is projected to remain subdued, resulting in further rental and capital value corrections.
Note: Singapore retail refers to Singapore's Primary, Marina and Suburban retail markets.
"New market entrants and expansions by
international retailers continue to drive demand
in the market."
Andrew Gulbrandson, Head of Research, Thailand THB 2,431
Financial Indices CENTRALPLAZA WESTGATE CONTRIBUTES TO SURGE IN DEMAND• Prime grade retail space was in demand in 3Q15, with positive net absorption being driven by strong pre-commitment (95%) at the newly opened CentralPlaza Westgate. In 3Q15, four internationally recognised retailers opened their first locations in Thailand in the city. A number of large foreign retailers are known to be looking to enter Thailand, while some existing international brands are expanding their footprints including Ikea, which will open its second location in Thailand next to CentralPlaza Westgate in 2017. Lotte Duty Free, which is expected to open its first location in Bangkok in 2016.
CENTRALPLAZA WESTGATE OPENS Rental Value Index Capital Value Index CentralPlaza Westgate was the only new prime grade mall to open its doors in Arrows indicate 12-month outlook 3Q15, with its leasable space of 140,000 sqm bringing market-wide prime stock Index base: 4Q11 =100 to 2,858,000 sqm. Despite new supply, prime grade vacancy declined to 6.1% in 3Q15 from 6.3% in the previous quarter.
The newly-formed business group Siam Synergy, which includes the Physical Indicators developers of Siam Paragon, Siam Center and MBK Center, has announced plans to make substantial investments in existing retail assets near BTS Siam and pedestrian infrastructure nearby, including new walkways and connections to skytrain stations, to further enhancing the area's attractiveness and competitiveness.
RENTS AND CAPITAL VALUES RISE AMID HEALTHY DEMAND• Rents increased by 0.6% q-o-q in 3Q15, a more modest rise than in recent Capital values increased 0.6% q-o-q in 3Q15 amidst healthy investor demand for retail assets. While transaction activity in the retail sector has been limited, demand from both local and foreign investors is strong, as investors seek the relatively higher returns offered by the retail sector.
OUTLOOK: SMALLER SUPPLY PIPELINE IN 2016; STRONG DEMAND FOR SPACE For 2011 to 2014, completions are year-end annual. Two prime projects, Central Festival East Ville and Zpell, are scheduled to For 2015, completions are YTD, while future supply complete in 4Q15 and this will bring annual supply to 344,000 sqm. With new openings in 2016 including the refurbishment of three existing centres that are expected to complete by 2Q16, another 112,000 sqm of space will be add to market stock. After 2Q16, no new major completions are expected until at Solid leasing activity in recently completed malls and upcoming projects should continue to drive rents and capital values higher over the next 12 Note: Bangkok Retail refers to Bangkok's Prime retail market.
"A rare new completion provides expansion
options in the supply-constrained retail market."
James Taylor, Head of Research, Jakarta NET EFFECTIVE ON NLA IDR 5,822,743
NET ABSORPTION PICKS UP BUT VACANCY RISES Financial Indices Net absorption has been somewhat constrained by a lack of supply in recent quarters. As such, the completion of St. Moritz Phase II provided tenants with more options to leverage. This project was approximately 70% pre-committed upon completion with physical occupancy at around 25%. As such, net absorption turned positive and vacancy increased to around 8%.
Retail sales grew by just 4.8% y-o-y in July, down from 22.3% in the preceding month. Slow economic growth and a weakening rupiah negatively affected purchasing power and sales of food and beverages were down. That said, we continued to see expansion activity from middle and lower-middle end F&B tenants while mid-tier fashion also remained active.
ST. MORITZ PHASE II, DEVELOPED BY LIPPO, COMPLETES IN WEST JAKARTA Arrows indicate 12-month outlook A moratorium on stand-alone retail development has been in place in Jakarta Index base: 4Q11 =100 since 2011. As such, prime retail supply in Jakarta has been limited in recent years and the only new completions have been retail components of mixed- use projects. There has been no indication as to when the moratorium will be Physical Indicators The completion of St. Moritz Phase II in the west of the city boosted total stock by 80,000 sqm. Developed by Lippo, this mixed-use project is positioned as mid-market and due to the supply constrained nature of core-Jakarta, pre- commitment came in at a healthy 70%.
RENTS EDGE UP DESPITE RISING VACANCY• Limited supply has meant that vacancy rates have remained in single-digit territory since mid-2011. As such, landlords of top-performing malls in good locations continued to be in the enviable position of having waiting lists for prime units. This has allowed some landlords to steadily raise rents.
As vacancy rates have remained low for a number of years and small, steady rental increments continued to be recorded, many retail landlords in Jakarta are unwilling to offload their assets. As such, no en bloc transactions were recorded in 3Q15 and with a largely unchanged market situation, yields remained stable q-o-q.
For 2011 to 2014, completions are year-end annual. For 2015, completions are YTD, while future supply OUTLOOK: VACANCY LIKELY TO DECREASE; SLOW BUT STEADY RENTAL GROWTH is for 4Q15.
Physical occupancy in this year's only new completion is likely to improve in 4Q15 and into next year, meaning that the average market vacancy rate is likely to come back down to around pre-3Q15 levels. Just 44,000 sqm of new supply is likely to enter the market in 2016.
A number of mid-market tenants are currently in the fitting out stage and are likely to open stores next quarter at St. Moritz. We expect business as usual in terms of rents with slow, steady growth over the coming quarters.
Note: Jakarta Retail refers to Jakarta's Overall Prime retail market.
"Net take-up rises to an 11-quarter high due to
strong commitments in new completions."
Ashutosh Limaye, Head of Research, India SQ FT PER MONTH, Financial Indices STRONG DEMAND FOR QUALITY SPACE• International and well-known domestic retailers continued to focus their attention on premium malls; however, low vacancy restricted new leasing activity in such locations. Landlords of prime malls in the Prime South continued to make tenant adjustments. Net absorption was at a 15-quarter high in Prime Others and the highest in eleven quarters in Suburbs. H&M entered the Indian market with a store in Prime South. Other active comparnies were Mothercare, Jamie Oliver, Pizza Express and Studio Pepperfry. ONE COMPLETION EACH IN PRIME OTHERS AND NOIDA –
Quarterly supply was recorded at 0.8 million sq ft, the highest level in seventeen quarters. Worldmark 1 in Prime Others and Gardens Galleria in Arrows indicate 12-month outlook Noida became operational with healthy commitment rates.
Index base: 4Q11 =100 Financial Indicators are for the Prime South.
Vacancy rose slightly by 50 bps q-o-q to 25%, with the highest level being recorded in Prime Others. Physical Indicators RENTS AND CAPITAL VALUES RISE MARGINALLY IN PRIME OTHERS• High quality malls were the first preference for retailers and as such, landlords of some prime malls increased asking rents. Some deals in 3Q15 were transacted at higher rents. Tenant mix repositioning and limited vacancy resulted in competition for premium space. A lack of quality assets for sale continued to limit investment activity. OUTLOOK: PROJECTS WITH HEALTHY COMMITMENTS NEAR COMPLETION• Upcoming quality projects with healthy pre-commitments are likely to aid improved absorption volumes going forward. Availability of quality mall space is expected to continue to restrict absorption and leasing.
Global retailers, hypermarkets, multiplexes and F&B outlets are likely to be more active in expanding their store networks. However, the strong performance of online retailing is expected to play an important role for For 2011 to 2014, completions are year-end annual. bricks-and-mortar retailers in determining their future growth plans.
For 2015, completions are YTD, while future supply is for 4Q15.
Physical Indicators are for the Overall market.
Note: Delhi Retail refers to Delhi NCR's Overall Prime retail market.
"Some underperforming mal s convert retail space
to office use and this contributes to a decline in
Ashutosh Limaye, Head of Research, India SQ FT PER MONTH, F&B AND APPAREL RETAILERS MAIN DEMAND DRIVERS Financial Indices Leasing activity in 3Q15 was mostly concentrated in malls in the Suburbs and Prime South, and prime high street locations across the city. The two categories that dominated leasing activity during the quarter were F&B and apparel, but home furnishings and hypermarkets also supported NO NEW SUPPLY IN THE QUARTER It was observed that some landlords of malls with high levels of prolonged vacancy converted retail space to office use.
As at end-3Q15, total retail stock in Mumbai was 19 million sq ft and vacancy 19.8%. Both stock and vacancy declined q-o-q due to the conversion of retail Rental Value Index space to office use.
Arrows indicate 12-month outlook Index base: 4Q11 =100 RISING DEMAND AND LOW VACANCY IN PREMIUM MALLS PUSH UP RENTS Financial Indicators are for the Prime South.
Prime South and Suburbs recorded a marginal rise in rents, owing to low vacancy in quality malls.
Physical Indicators Overall market yields remained stable at 11.2%, as rents and capital values continued to move in tandem.
OUTLOOK: PRIME MALLS LIKELY TO SEE HIGHER RENTS AND CAPITAL VALUES• Peripheral locations of the Mumbai Metropolitan Region are increasingly Leasing volumes in 4Q15 are likely to rise due in part to a new mall that is expected to become operational in the Suburbs. This mall is expected to have a healthy level of commitment upon opening.
Rents and capital values are likely to appreciate in good quality malls and prominent high street locations, owing to increased interest from retailers for prime space.
For 2011 to 2014, completions are year-end annual. For 2015, completions are YTD, while future supply is for 4Q15.
Physical Indicators are for the Overall market.
Note: Mumbai Retail refers to Mumbai's Overall Prime retail market.
"Retail investment market activity remains
elevated and yields continue to trend down across
a variety of sub-sectors."
Andrew Quillfeldt, Associate Director – Strategic Research, AUD 1,933
Financial Indices STRONG STATE ECONOMIC ACTIVITY SUPPORTING MARKET FUNDAMENTALS• The current revitalisation of the Sydney CBD, particularly in Pitt Street Mall, Martin Place and George Street, is being driven by commercial developments, international retailers and the construction of a new light rail system.
A number of significant leasing transactions occurred in 3Q15, including Tesla Motors in 20 Martin Place (1,654 sqm) and H&M subsidiary, COS, at the redeveloped 5 Martin Place. Leasing activity in major suburban centres continues to be supply led, via major redevelopments of existing regional and SUPPLY ADDITIONS PICK UP IN 2015 Supply of retail space in Sydney continues to gradually rise from the low point Rental Value Index in 2013. Three projects completed in 3Q15 totalling 50,600 sqm. Approximately 221,900 sqm is expected to complete in the 2015 calendar year, representing Arrows indicate 12-month outlook Index base: 4Q11 =100 the first year of above-trend supply since 2010.
During 3Q15, AMP Capital and Scentre Group commenced the AUD 310 million redevelopment of Warringah Mall (9,000 sqm extension); while Lendlease and Physical Indicators GPT started works on the AUD 240 million redevelopment of Macarthur Square (16,000 sqm extension).
SYDNEY IS LIKELY TO LEAD THE NATIONAL RENTAL GROWTH RECOVERY PROFILE Further modest rental growth was recorded in the CBD and bulky goods sub- sectors in 3Q15, as a result of new sources of tenant demand in the CBD and a strong recovery in household goods spending.
Investment activity remained healthy in 3Q15, and a number of major assets are currently for sale which are likely to boost the volume of transactions in 4Q15. Further yield compression (25 to 50 basis points) was recorded across all monitored sub-sectors in 3Q15.
OUTLOOK: SYDNEY IS EXPECTED TO CONTINUE TO OUTPERFORM Economic drivers will remain supportive of retail leasing conditions in 2016. Landlords are continuing to progress with projects to refurbish and expand For 2011 to 2014, completions are year-end annual. existing centres. Supply is projected to moderate in 2016 before increasing For 2015, completions are YTD, while future supply again in 2017 and 2018, based on the current pipeline. is for 4Q15.
Investment market conditions are likely to remain buoyed by strong demand for assets, with yields trending slightly lower over the next 12 months, reaching their low point for the current cycle. Note: Sydney Retail refers to Sydney's overall retail market.
"An improvement in retail spending growth is
fuel ing investor demand and yield compression."
Andrew Quillfeldt, Associate Director – Strategic Research, AUD 1,462
DRIVERS OF RETAIL SPENDING SUPPORT IMPROVING LEASING CONDITIONS Financial Indices Retail turnover grew by 4.9% y-o-y in August 2015. Strong population growth, improving labour market conditions and positive housing market activity in Victoria continued to aid retail spending growth. International retailers continued to underpin new developments. South African retailer, Mr Price (MRP), began its Australian expansion, committing to its first store at GPT's Melbourne Central in the CBD. H&M, Uniqlo and MRP also committed to QIC's redevelopment of Eastland Shopping Centre, which partially completed in October.
SUPPLY IN MELBOURNE REMAINS MODERATE BY HISTORICAL STANDARDS The average vacancy rate for Melbourne remained stable in the first half of 2015. This was primarily driven by a decrease in the CBD vacancy rate back Rental Value Index closer towards its long-term average level. Arrows indicate 12-month outlook Index base: 4Q11 =100 Six major projects completed in 3Q15 totalling 53,500 sqm, following 49,900 sqm in 2Q15 and 24,500 sqm in 1Q15. Supply for 2015 is expected to be above the 2014 level but low in a historical context, with 160,100 sqm completed or scheduled to complete by year-end, compared with the long-term average of Physical Indicators 205,400 sqm.
FURTHER EVIDENCE OF YIELD COMPRESSION EMERGES Further rental growth was recorded in the prime CBD and bulky goods sub- sectors in 3Q15. Average rents (across all sub-sectors) have grown by 0.75% on an annual basis, the fastest pace since 1Q12, representing the beginning of a slow recovery.
Retail investment volumes in Victoria were stable in 3Q15 at AUD 432.8 million. Momentum in the national investment market has increased notably since late-3Q. Stud Park Shopping Centre transacted for AUD 154 million, reflecting an equivalent yield of 5.94%; and Spencer Outlet Centre transacted for AUD 125 million reflecting a reported initial yield of 5.04%. OUTLOOK: RETAILERS BUOYED BY ONGOING RETAIL SPENDING RECOVERY While the outlook for retail spending growth is positive, increased competition For 2011 to 2014, completions are year-end annual. between existing retailers and new retailers expanding into Australia will For 2015, completions are YTD, while future supply is for 4Q15.
likely result in just a mild recovery in average rents across the market. Low levels of new supply should be supportive of competitive market conditions for retailers.
Investor demand is likely to remain solid and increasingly we expect to see more owners take advantage of ideal market conditions and asset pricing by disposing of stabilised core assets to recycle capital into redevelopment Note: Melbourne Retail refers to Melbourne's overall retail market.
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"Housing prices face downside risks despite record
breaking sales in the top-end of the market."
Denis Ma, Head of Research, Hong Kong SQ FT PER MONTH, Financial Indices SALES MOMENTUM DECELERATES AMID UNCERTAINTIES• Preliminary data showed 88 residential properties priced above HKD 50 million changing hands in 3Q15, down 31.8% q-o-q, as the lack of new launches, interest rate uncertainty and stock market turmoil all negatively affected buying activity. Notwithstanding, mass residential launched during the quarter were still generally well-received.
Seasonal demand from families boosted leasing activity during the summer. The end of the peak season saw inquiries shifting towards smaller units— with monthly rentals between HKD 50,000–80,000—in non-traditional luxury districts, such as the Western District on Hong Kong Island.
GOVERNMENT ON TRACK TO REACH ITS ANNUAL LAND SUPPLY TARGET Rental Value Index Capital Value Index Nine luxury residential projects (177 units) are expected to be issued with Arrows indicate 12-month outlook Occupation Permits in 3Q15, providing the largest quarterly supply since 3Q12. Index base: 4Q11 =100 On Hong Kong Island, 24 Po Shan Road in Mid-levels and 8 Mount Nicholson Road on The Peak will add 38 and 67 luxury units, respectively to the market.
The government announced that the private residential land supply in the first Physical Indicators three quarters of FY2015/16 is expected to amount to 16,700 units, close to achieving its annual private land supply target of 19,000 units (by March 2016).
A HOUSE ON THE PEAK BREAKS RECORD IN ASIA Rents edged up by 1.2% q-o-q, after advancing by 1.6% q-o-q in 2Q15. Traditional luxury districts displayed more modest rental increases than the rest of the market, given a shift in preference towards properties requiring smaller rent payments.
Supported by record-breaking end-user purchases and a strong land sales market, capital values continued to hold up, enabling market yields to remain largely stable. In the ultra-luxury segment of the market, a house at 22 Barker Road on The Peak was sold for HKD 1.50 billion or HKD 151,653 per sq ft, SA, breaking a record for unit price in Asia.
OUTLOOK: ANTICIPATED INTEREST RATE RISE REMAINS AS A CONCERN For 2011 to 2014, completions are year-end annual. With the supply pipeline expanding and uncertainty about an interest rate For 2015, completions are YTD, while future supply rise, investors will likely stay on the sidelines. As such, we expect luxury home prices to hold up in 4Q15, but likely face increasing pressure as demand wanes, culminating in a correction of 0–5% in 2016.
Whilst availability remains tight across all budget bands, we may see higher vacancy in the top-end of the market going forward. We expect rental growth to remain in the range of 5–10% for the full year and moderate to 0–5% in 2016.
Note: Hong Kong Residential refers to Hong Kong's Overall Luxury residential market.
"Upgrade demand to support strong sales volumes
Steven McCord, Head of Research, North China POSITIVE POLICY ENVIRONMENT SPURS SALES MOMENTUM Financial Indices Sales volumes for the high-end residential market continued to expand, thanks to the further loosening of credit policies. A total of 635 luxury apartment units were sold in the quarter, up 3.9% q-o-q; meanwhile, 299 high- end villas were sold in the same period, up 69.9% q-o-q.
High-end residential leasing demand remained soft. Many serviced apartments attempted to widen their tenant base by attracting more domestic tenants or by signing more short-term leases. Net absorption for serviced apartments registered 38 units.
IMPROVED SENTIMENT DRAWS MORE PROJECTS TO SALES MARKET The rebound in transaction volumes gave developers more confidence and 571 luxury apartment units were put up onto the sales market in 3Q15, up 4.8% Rental Value Index Capital Value Index q-o-q. The high-end villa market saw 750 new units enter the sales market Arrows indicate 12-month outlook Index base: 4Q11 =100 over the same period, more than doubling the supply amount which entered Financial Indicators are for the Overall Luxury After no new supply for a fifth consecutive quarter, the vacancy rate for serviced apartments continued to slide, falling 0.4 percentage points q-o-q to Physical Indicators FIERCE COMPETITION WEIGHS ON LUXURY APARTMENT PRICE GROWTH• Supported by the larger transaction volumes, primary capital values for the high-end villa market increased 4.2% q-o-q. However, under fierce competition and due to the high prices of new units, capital values for luxury apartments increased just 1.9% q-o-q.
Serviced apartment and luxury apartment rents were largely flat under the stable demand environment. High-end villa rents, however, affected by weakening demand, declined further, dropping 1.3% q-o-q to RMB 110.2 per sqm per month.
OUTLOOK: SALES VOLUMES TO REMAIN STRONG UNTIL YEAR-END• Sales volumes should remain strong in 4Q15 for both the luxury apartment and villa markets. Although restrictions on foreign housing purchases in China For 2011 to 2014, completions are year-end annual. were recently lifted, the relaxation in policy is not expected to have a major For 2015, completions are YTD, while future supply is for 4Q15.
impact. However, reverting to the more lenient rules will allow foreign end- Financial Indicators are for the Overall Luxury users to support the current strength in demand.
A run-up in housing prices is not expected given that developers still face intense competition and pressure from year-end sales targets. Rents for serviced apartments are unlikely to rise considering that the year-end is a slow season for the leasing market.
Note: Beijing Residential refers to Beijing's Overall Luxury and High-end residential market.
"Sales on track to reach a six-year high in 2015."
Joe Zhou, Head of Research, China RMB 135.5
Financial Indices SALES MOMENTUM REMAINS STRONG• Accommodative policy and robust upgrade demand allowed strong sales momentum to continue into 3Q15. After surging 104% q-o-q in 2Q15, sales volumes in the primary market stayed high in 3Q15 with 4.0 million sqm sold, down 0.1% q-o-q but up 81.2% y-o-y. Likewise, the high-end segment saw 761 units sold in 3Q15, down 2.0% q-o-q but up 122% y-o-y.
In the leasing market, demand improved slightly in 3Q15 as some MNCs in the automotive sector deployed additional expatriates to Shanghai to support expansion plans. With no new projects opening in the quarter, vacancy in the serviced apartment market fell by 1.2 percentage points to 12.2% in 3Q15.
NEW LAUNCHES ACCELERATE AMID STRONG MARKET SENTIMENT Rental Value Index Capital Value Index In the high-end segment, developers accelerated new launches in light of Arrows indicate 12-month outlook buoyant buying sentiment. A total of 1,241 units from 7 projects were launched Index base: 4Q11 =100 for sale in 3Q15, the highest quarterly total since 4Q08.
In the leasing market, no new serviced apartment projects opened in the quarter. Meanwhile, The Bund Residence in Huangpu District put 106 units Physical Indicators onto the strata-titled market for sale, effectively reducing the market's total serviced apartment stock.
HIGH-END PRICES CONTINUE TO RISE On the back of better-than-expected sales, developers continued to raise their prices in 3Q15. On average, primary prices for high-end apartments grew 1.5% q-o-q to RMB 82,207 per sqm in 3Q15.
In the leasing market, average rent for serviced apartments edged up by 0.2% q-o-q, boosted by improving demand in the presence of limited new supply. OUTLOOK: 2015 LIKELY TO END ON A STRONG NOTE We expect the strong sales momentum to carry over through the fourth quarter, given the government's continued accommodative policy stance. With sales volumes likely to reach a six-year high, Shanghai's high-end prices are likely to be on the rise going forward.
For 2011 to 2014, completions are year-end annual. For 2015, completions are YTD, while future supply In the leasing market, with very limited supply in the pipeline, serviced is for 4Q15.
apartment vacancy should continue to fall over the remainder of 2015. However, we expect rental growth will be minimal in the fourth quarter as serviced apartments continue to face competition from non-serviced apartments serving similar residents.
Note: Shanghai Residential refers to Shanghai's high-end residential market.
"Continued weakness in the Singapore residential
market as the economy slows."
Ong Teck Hui, National Director – Research, Singapore SQ FT PER MONTH, DEMAND WEAKENS FURTHER Financial Indices Preliminary estimates, based on Urban Redevelopment Authority (URA) data, showed 380 non-landed residential units transacted in Prime districts 9, 10 and 11 in 3Q15. This was a decline of 21% q-o-q but close to the sales volume of 3Q14. With buyer sentiment already weighed down by the cooling measures, the seventh lunar month, which is a traditional low period, further discouraged buyers from making purchases. No new launches in the Prime districts were recorded in 3Q15. Primary sales volumes decreased to 107 units in 3Q15 from the 128 units in 2Q15. Similarly, resale volumes in the quarter were also lower, down 22% q-o-q to 266 units.
NEW SUPPLY DECLINING BUT UNSOLD STOCK INCREASING It is estimated that 119 prime residential units were completed in 3Q15. Annual RV Index (Luxury) new supply in the prime districts is expected to be reduced significantly over CV Index (Luxury) Arrows indicate 12-month outlook the next few years – ranging between 1,000–1,500 units per annum. The Index base: 4Q11 =100 annual average recorded between 2010 and 2014 was 3,100 units. This situation may help ease supply pressures in the prime residential market.
However, the number of completed and unsold units recorded by the URA Physical Indicators reached more than 1,200 units at end-3Q15, which is about 23% higher than the 973 units in 2014 and 136% higher than the 509 units in 2013.
RENTS AND CAPITAL VALUES DECLINE BUT LEASING VOLUMES RESILIENT Gross rents in the Typical Prime market fell 1.9% q-o-q to SGD 3.44 per sq ft per month, while in the Luxury Prime segment rents declined 2.9% q-o-q to SGD 3.81. A higher number of leasing transactions were recorded in 3Q15 relative to 2Q15, with many existing tenants moving to higher quality premises with lower rents. Typical Prime capital values fell 1.4% q-o-q to SGD 1,212 per sq ft, while those for the Luxury Prime segment declined 2.0% q-o-q to SGD 2,017 per sq ft. Buyer interest remained subdued due to ongoing cooling measures and the expectation of further price corrections.
OUTLOOK: FURTHER PRESSURE ON RENTS AND CAPITAL VALUES For 2011 to 2014, completions are year-end annual. The number of employment-pass holders has been relatively unchanged since For 2015, completions are YTD, while future supply is for 4Q15.
2011 due to government regulations that limit the intake of foreign labour into Singapore. As a result, demand for prime residential units has stagnated while prime stock has grown and competition from newer developments in the city fringe areas has increased. Therefore rents are expected to continue Capital values are expected to decline further as investor caution prevails amid ongoing cooling measures, an economic slowdown and interest rate Note: Singapore Residential refers to Singapore's Overall Prime and Luxury residential markets.
"Luxury condominiums in prime locations remain
highly desirable despite the weak
Andrew Gulbrandson, Head of Research, Thailand Financial Indices HEALTHY DEMAND FOR NEW LAUNCHES AND NEW COMPLETIONS Four new projects were launched in 3Q15 with a combined pre-sales rate of 68% at the close of the quarter. One of the four projects, The Line Sukhumvit developed by a joint venture between Sansiri PCL and BTS Group, sold out completely within days of launch, owing in part to healthy pre-sales generated from road show events in Hong Kong, Taiwan and Singapore. Six projects completed in 3Q15 and had achieved a combined sales rate of 90% upon completion. Of these projects, those located in desirable neighbourhoods and those near mass transit achieved the highest sales rates. LABOUR SHORTAGES CONTINUE TO PLAGUE CONSTRUCTION SCHEDULES Of the eight condominium projects that were scheduled to complete in 3Q15, Rental Value Index Capital Value Index two were delayed because of labour shortages, following a pattern seen Arrows indicate 12-month outlook frequently in recent quarters. The six new high-end projects that completed in Index base: 4Q11 =100 the quarter added 997 units to the existing stock.
New luxury apartments, The Willows and Monet House were launched in 3Q15 and resulted in the total apartment stock rising to 4,303 units. The Physical Indicators vacancy rate in the apartment sector rose from 6.2% in 2Q15 to 7.3% in 3Q15, largely as a result of the new supply coming on line.
SLIGHT RENTAL DECLINE; HEALTHY DEMAND FOR PRIME DEVELOPMENT SITES Gross rents for condominiums edged down by 0.2% q-o-q to THB 515 per sqm per month. Apartment rents declined by 1.1% q-o-q to THB 359 per sqm per month. Capital values remained at THB 111,225 per sqm in 3Q15, with market yields were generally stable.
Sansiri PCL bought a 3,344 sqm site on Sukhumvit Soi 38 for THB 1.421 billion and a 7,022 sqm site on Pradipat Rd. for THB 1.3 billion, while divesting a 3,013 sqm plot near BTS Onnut to BTS Sansiri for THB 828 million. SC Asset PCL bought a development site in Thong Lor for THB 428,000 per sqm and Richy Place PCL acquired a project under construction on Sukhumvit Soi 49 from Woraluck Property valued at THB 945 million. OUTLOOK: STRONG DEMAND FOR PRIME PROJECTS EXPECTED For 2011 to 2014, completions are year-end annual. For 2015, completions are YTD, while future supply Almost 5,300 units are expected to complete by 3Q16 in the Central Business is for 4Q15.
Areas (CBA), equivalent to 16% of current stock. With more than 88% of these units already pre-sold, we expect the overall unsold rate in the CBA to remain in the low single digits throughout the next 12 months. With a small amount of new apartment supply in the pipeline and healthy competition between luxury apartments, the condominium rental market and traditional serviced apartment market, we expect rents in all sectors to grow very slowly, with yields compressing slightly.
Note: Bangkok Residential refers to Bangkok's Central Business Areas (CBA) high-end and luxury residential market.
"Price growth remains positive, but supply
pressures expected to temper growth
Claro dG. Cordero, Jr., Head of Research, Philippines NET EFFECTIVE ON NLA DEMAND REMAINS STRONG DESPITE SLOWER ECONOMIC GROWTH IN 1H15 Financial Indices The entry and expansion of multinational companies (MNCs) in the country drove growth in residential demand, as it encouraged expatriate employees to locate in residential developments within and on the fringe areas of business centres such as Makati CBD and Bonifacio Global City (BGC).
The continued positive performance of the economy supported demand for residential units despite relatively slower growth in 1H15. Sales and leasing enquiries for mid-to-high-end residential units remained healthy.
VACANCY STABLE AMID LARGE NEW SUPPLY Three developments, namely Park Terraces Tower 1, Trion Towers 2 and The Linear Tower 2 were completed in 3Q15, adding approximately 2,000 units to market stock. Meanwhile, Megaworld Corporation launched San Antonio Rental Value Index Capital Value Index Arrows indicate 12-month outlook Residences which will be built on the fringe of Makati CBD. Index base: 4Q11 =100 The vacancy rate stayed at a manageable level of 6.3%, marginally lower q-o-q, despite the high volume of supply added in 3Q15.
YIELDS SLIGHTLY CONTRACT AS CAPITAL VALUES GROW MODERATELY Physical Indicators Rents of high-end residential units continued to grow moderately at 1.0% q-o-q on the back of robust demand from expatriate employees of MNCs in various sectors such as offshoring and outsourcing (O&O).
Investor interest remained healthy and underpinned a rise in capital values of 1.6% q-o-q to PHP 153,010 per sqm. As a result, investment yields slightly contracted to 6.0%.
OUTLOOK: SUPPLY PRESSURES LIKELY TO PUSH VACANCY UPWARDS The expected positive performance of the O&O sector, healthy inflow of overseas Filipino remittances, increasing demand from foreign retirees, and positive outlook for the national economy are likely to provide support for the continued growth of the local residential market. In the next two quarters, more than 7,000 units are expected to be completed and the addition of this large stock is expected to heighten supply pressures For 2011 to 2014, completions are year-end annual. and push the vacancy rate upwards. For 2015, completions are YTD, while future supply is for 4Q15.
Note: Manila Residential refers to the Makati CBD and Fringe Residential Condominium Market.
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"Rental market posts its weakest quarterly growth
in three years as demand slows."
Denis Ma, Head of Research, Hong Kong SQ FT PER MONTH, Financial Indices LEASING DEMAND REMAINS SLUGGISH AMID A WORSENING LOCAL ECONOMY• Weak demand for Chinese exports and faltering sales in the domestic retail sector saw the value of total exports and imports falling by 4.1% y-o-y and 6.7% y-o-y, respectively, through 3Q15. This marked the first time since the GFC that aggregate trade has contracted in two successive quarters.
3PLs and retailers took a cautious view towards expansion amid a worsening business environment, leading to a relatively quieter leasing market. Notwithstanding, Chinese e-commerce operator Baozun expanded its warehousing network in Hong Kong by leasing 13,200 sq ft at the Goodman Shatin Logistics Centre.
VACANCY IN RAMP ACCESS WAREHOUSES EDGES HIGHER Rental Value Index Capital Value Index Returning space from a handful of ramp access warehouses contributed to Arrows indicate 12-month outlook vacancy in the overall market edging up to 2.4%. Vacancy in cargo-lift access Index base: 4Q11 =100 warehouses, however, remained tight at below 1.0%. Strong demand for cost effective space saw some shadow space being backfilled.
The completion date of Mapletree's warehouse development in Tsing Yi has Physical Indicators been brought forward from 2017 to early-2016, given the faster-than-expected construction progress. No new supply was completed in 3Q15.
BOTH LEASING AND INVESTMENT ACTIVITY REMAIN SUBDUED In spite of rental increases in cargo-lift access warehouses, growth in the overall market moderated amid subdued leasing activity. Rents in the top-end of the market faced increased downward pressure as vacant and shadow space started to pile up.
Capital values rose only modestly against a muted investment market, with volumes in the broader industrial market slumping by 73.5% q-o-q as investors adopted a wait-and-see attitude. The absence of en bloc industrial properties changing hands came amid interest rate uncertainties.
OUTLOOK: CHINA SLOWDOWN TO CONSTRAIN MARKET GROWTH• A slowdown in Chinese demand and weakness in global trade markets is For 2011 to 2014, completions are year-end annual. likely to continue to weigh on Hong Kong's external trading sector. As a result, For 2015, completions are YTD, while future supply we expect a further slowdown in rental growth over the next 12 months, with is for 4Q15.
demand moderating due to ongoing headwinds on both the external and domestic fronts.
Investors are likely to be more selective by focusing on high-quality warehouse assets, especially those with upgrading potential. High prices should also continue to divert investors' interest towards smaller-sized industrial properties owing to the more affordable lump sum payments Note: Hong Kong Industrial refers to Hong Kong's Industrial Warehouse market.
"Stable demand in a tight market continues to
prop up rents."
Steven McCord, Head of Research, North China NET EFFECTIVE ON GFA MANUFACTURING AND 3PL FIRMS REMAIN THE MAIN DEMAND DRIVERS Financial Indices Limited leasable space continued to restrain leasing activity. Due to the supply-constrained market, net absorption registered just 12,300 sqm in 3Q15, down 76.3% q-o-q. Manufacturing was one of the most active industries, with several companies from the sector closing deals in Daxing and emerging Pinggu submarkets.
Third party logistics (3PL) firms were also busy. SF Express utilised the opportunity to expand in Beijing Airport Logistics Park (BALP) after Taobao left earlier in the quarter to consolidate operations at its regional distribution centre in Wuqing, Tianjin; just 9,000 sqm of available space remains in the previously fully occupied submarket. VACANCY DECLINES DUE TO STABLE DEMAND AND LACK OF NEW SUPPLY Rental Value Index Capital Value Index Arrows indicate 12-month outlook No new supply entered in 3Q15 and no new projects are expected to come Index base: 4Q11 =100 online until early 2016. Prologis Beijing Capital Airport Logistics Centre II, previously scheduled to open in 4Q15, was postponed due to construction Under stable demand and absence of new supply, the vacancy rate continued Physical Indicators to slide, falling 0.7 percentage points q-o-q to 3.3%.
LANDLORDS CONTINUE TO PUSH UP RENTS IN THE LOW VACANCY MARKET• Overall rents continued to increase, rising 1.3% q-o-q after landlords adjusted their tenant mix to exploit rental growth opportunities in the supply- constrained market. Capital values followed the rental trend, also growing at 1.3% q-o-q. Yields remained stable as there was no evidence to support any change in yields.
Investors remained interested in logistics properties, but the lack of tradable projects on the market continued to restrict deals. More developers were looking for second-hand land since no new warehouse land supply has come to the market for more than a year. OUTLOOK: RENT TO MAINTAIN UPWARD MOMENTUM IN TIGHT MARKET Manufacturing, 3PL and small e-commerce firms along with brick-and-mortar For 2011 to 2014, completions are year-end annual. retailers should continue to support stable demand and further push down For 2015, completions are YTD, while future supply is for 4Q15.
vacancy. The undersupply condition is expected to drive annual appreciation to 3.0% by end-2015.
Though vacancy is projected to climb soon after Prologis Beijing Capital Airport Logistics Centre II opens in early 2016, the spike should only be temporary as the project is expected to fill up quickly given its prime location.
Note: Beijing Industrial refers to Beijing's prime non-bonded logistics market.
"Net absorption is strong, but limited room for
rental growth due to large upcoming supply."
Joseph Kim, Associate Director - Research, Shanghai NET EFFECTIVE ON GFA Financial Indices LEASING ACTIVITY IMPROVES DUE TO STRONG DEMAND FROM 3PLS Non-bonded net absorption rose from 67,000 sqm in 2Q15 to over 90,000 sqm in 3Q15, stronger than had been expected given the quarter's lack of new supply. Bonded absorption reached 10,000 sqm, due in part to the recent rise in cross- border e-commerce as well as increased imports by the automobile industry.
3PLs contributed almost 90% of non-bonded absorption, leasing space in the highly sought-after west Shanghai submarkets and traditionally less popular Fengxian and Lingang. In addition, traditional retailers such as Ikea were also active in the quarter. NON-BONDED VACANCY CONTINUES TO DROP AMIDST A LACK OF NEW SUPPLY Strong absorption along with an absence of new completions contributed to a Rental Value Index Capital Value Index fall in non-bonded vacancy, which fell 2.1 percentage points to 11.2% in 3Q15. Arrows indicate 12-month outlook Index base: 4Q11 =100 Non-bonded vacancy in Shanghai at end-3Q15 was at its lowest level since 2Q14, with much of the vacancy that accumulated over 2H14 now committed.
Financial Indicators are for the Non-bonded In the bonded market, a government-backed firm completed a 120,000 sqm- project in the Lingang submarket. The project was fully vacant at the end of Physical Indicators the quarter, contributing to a rise in bonded vacancy to 17.1% despite this quarter's improved take-up.
LANDLORDS KEEP NON-BONDED RENTS FLAT TO REDUCE VACANCY Non-bonded rents were flat for a fourth consecutive quarter. Landlord sentiment showed some improvement in the quarter as strong demand continued to chip away at lingering vacancies, however, most landlords continued to prioritise reducing vacancy over raising rents.
There were no en bloc transactions in Shanghai city. LOGOS acquired two logistics projects in the northern satellite market of Taicang. Investment activity remained upbeat on the entity level as well, with Apg and E-Shang jointly committing an additional USD 285 million to their ventures in China.
OUTLOOK: NEW SUPPLY TO LIMIT RENT GROWTH DESPITE STRONGER DEMAND• Three projects totalling 400,000 sqm are scheduled for completion in 4Q15, For 2011 to 2014, completions are year-end annual. including the 250,000 sqm-GLP Baoshan project. In addition, over 600,000 sqm For 2015, completions are YTD, while future supply of new supply is planned for 2016. If completed on schedule, this wave of is for 4Q15.
supply is likely to push up market vacancy.
Considering the large upcoming supply and potential for rising amounts of uncommitted space, landlords will be wary about raising rents aggressively, even considering the recent improvement in demand. As a result, rental growth in Shanghai is expected to remain at a moderate level for the next 12 Note: Shanghai Industrial refers to high-quality modern warehouses in Shanghai city.
"Robust demand for modern distribution centres
in Tokyo persists."
Takeshi Akagi, Head of Research, Japan TSUBO PER MONTH, JPY 4,197
DEMAND COMES FROM VARIOUS TENANT TYPES, BUT STRONGEST FROM 3PLS Financial Indices Industrial production and exports growth softened in the first two months of 3Q15, impacted by a slowdown in regional trade. In August, industrial production edged down (-0.5% m-o-m) for the second consecutive month, while export growth (3.1% y-o-y) also decelerated for a second straight In spite of mixed economic cues, demand remained robust with food wholesalers, manufacturers and third party logistics players (3PLs) taking up space. Net absorption slowed to 68,000 sqm in 3Q15; however, the cumulative net take-up for the first three quarters of 2015 surpassed the full year total for 2014, reflecting the sector's recent strong performance.
VACANCY DECLINES TO 2.8% Rental Value Index Capital Value Index Arrows indicate 12-month outlook The vacancy rate was 2.8% at end-3Q15, decreasing 110 bps q-o-q and 170 Index base: 4Q11 =100 bps y-o-y. Vacancy decreased in the Bay and Inland areas, with the Bay area vacancy being around 1%.
Prologis Park Higashi Matsuyama (70,000 sqm, GFA) and GLP Kashiwa II (32,000 sqm, GFA) were added to the development pipeline in the Inland area. Physical Indicators Both projects are due for completion in 2017.
RENTS CONTINUE TO RISE, WHILE CAP RATES COMPRESS Rents averaged JPY 4,197 per tsubo per month in 3Q15, increasing 0.3% q-o-q. Rents continued to edge up for the 11th consecutive quarter, as the market tilted in favour of landlords on the back of limited available space.
Capital values increased 2.5% q-o-q and 16.9% y-o-y, marking the 12th consecutive quarter of increase and reflecting further yield compression. J-REITs remained active in the investment market with GLP Reit acquiring GLP Shinkiba for JPY 11.54 billion (NOI cap rate of 4.7%).
OUTLOOK: SLOWER GROWTH EXPECTED FOR RENTS AND CAPITAL VALUES A recovery in regional and global demand should underpin an improvement in industrial production and exports. According to Oxford Economics, industrial production is expected to increase 1.7% in 2016, while exports grow by 5.3%.
For 2011 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are YTD, Vacancy is likely to rise as major new supply enters the market; however, while future supply is for 4Q15.
demand should remain healthy. Rents are expected to rise but at a slower pace. In the investment market, capital values are expected to grow moderately as cap rates compress further.
Note: Tokyo Industrial refers to Greater Tokyo's Prime logistics market. Compiled in collaboration with Ichigo Real Estate Services Co., Ltd. "Owner-occupation drives demand for business
Dr Chua Yang Liang, Head of Research, Southeast Asia SQ FT PER MONTH, GROSS EFFECTIVE ON NLA SOFTWARE AND IT INDUSTRIES DRIVE DEMAND FOR BUSINESS PARK SPACE Financial Indices Demand for business park space remained sporadic with limited interest from financial institutions. However, some support came from software and IT companies. Pre-commitment rates for newly completed developments continued to be high as most new facilities in recent quarters have been Total take-up in the first three quarters of 2015 is estimated at 165,000 sqm, a marked improvement on the annual total of 83,000 sqm in 2014. However, part of the rise in take-up in 2015 was due to the physical occupation of space by tenants of buildings completed in 2014. ONE OWNER-OCCUPIED FACILITY COMPLETES Rental Value Index Capital Value Index Based on data from the Building and Construction Authority of Singapore, a Arrows indicate 12-month outlook single business park development by Soo Kee Jewellery (13,000 sqm) was Index base: 4Q11 =100 completed in 3Q15. This makes an estimated 69,000 sqm of space completed as at YTD September 2015, the majority of which was built-to-suit.
Business park vacancy improved in 3Q15, declining by 40 bps q-o-q as new Physical Indicators supply was limited and take-up stayed relatively healthy.
ECONOMIC UNCERTAINTY DAMPENING INVESTMENT SENTIMENT Investment volumes for the industrial sector grew 12.8% q-o-q to SGD 196 million, on the back of a handful of land plots transacted with prices above SGD 40 million. The business park sector recorded a single sale at Changi Business Park, with Kingsmen Creative accepting an offer from Jurong Town Corporation to acquire their site for SGD 7.07 million.
It is still too early to infer that there is an improvement in sentiment, as some industrial transactions were a result of business consolidation. In addition, the cloudy economic environment and heightened stock market volatility are expected to see investor caution prevail.
OUTLOOK: TIGHT SUPPLY TO KEEP VACANCY IN CHECK With little indication of an improvement to the macroeconomic environment For 2011 to 2014, take-up, completions and in sight, a subdued investment market is likely to persist in the short term. vacancy rates are year-end annual. For 2015, Rents and capital values of business parks are likely to be under continual take-up, completions and vacancy rates are YTD, while future supply is for 4Q15.
downward pressure.
Taking into account that the majority of the near-term business park supply consists of owner-occupied buildings, vacancy is likely to remain stable with the potential to tighten further.
Note: Singapore Industrial refers to Singapore's island-wide Business Park market.
"Strong domestic and offshore interest for
industrial assets should place downward pressure
Nicholas Crothers, Director - Research, Australia OUTER WEST PRECINCTS ARE DRIVING LEASING ACTIVITY Financial Indices There was 219,100 sqm of gross take-up recorded over 3Q15 – 37% was of which was in the Outer South West precinct. Take-up in the quarter was driven by purpose-built industrial facilities being announced for manufacturing and transport companies.
Major lease deal announcements in the new build market in the quarter include a new 55,000 sqm-production facility at Ingleburn for Freedom Foods, and a new 22,810 sqm-warehouse and distribution facility in Marsden Park for SUPPLY IN 2015 WILL BE BELOW THE 10-YEAR AVERAGE Ten developments totalling 147,200 sqm completed in 3Q15, 85% of this space was pre-committed. A total of 22 projects (283,100 sqm) have now completed Rental Value Index Capital Value Index Arrows indicate 12-month outlook over 2015 – nineteen of these completions have been in Sydney's Outer West Index base: 4Q11 =100 Financial Indicators are for Outer Central West.
The purpose-built warehouse and distribution facility leased to Techtronic by Frasers Property at Kangaroo Avenue in Eastern Creek was the largest project to complete in the quarter (30,900 sqm). 2015 is expected to be a low Physical Indicators point in the Sydney supply cycle with supply additions in 2015 well below the 10-year average of 557,000 sqm per annum.
YIELDS CONTINUE TO FALL Three industrial precincts had small rental growth over 3Q15. This was predominantly a result of a lack of development land as well as few contiguous options for large-space occupiers.
Investment transaction volumes strengthened significantly in 3Q15, with 20 assets transacting for a combined AUD 640.9 million. Singaporean based Ascendas Real Estate Investment Trust purchased a portfolio of 26 assets located across Sydney, Melbourne, Brisbane and Perth from GIC and Frasers Property for AUD 1.073 billion.
OUTLOOK: DEVELOPMENT PIPELINE IS EXPECTED TO INCREASE IN 2016 Despite the lack of construction activity in 2015, there will be increased For 2011 to 2014, take-up and completions development in 2016 – an estimated 464,000 sqm of developments have are year-end annual. For 2015, take-up and completions are YTD, while future supply is for received or are awaiting development approval for next year.
Yields are expected to tighten further underpinned by strong investment demand for industrial assets across all investor classes. The spread between prime and secondary grade assets is also expected to compress further as investors continue bid up the price of secondary assets.
Note: Sydney Industrial refers to Sydney's industrial market (all grades). "Investment activity strengthens over 3Q15, with
total transaction volumes reaching
AUD 378 mil ion."
Dr David Rees, Head of Research, Australasia Financial Indices LEASING ACTIVITY IN THE NEW BUILD MARKET REMAINS STRONG • Gross take-up of 112,100 sqm was recorded in 3Q15 and 455,300 sqm as at year to date September. 2015 take-up is likely to exceed 2014 levels and return to recent averages. Approximately 60% of gross take-up was in Melbourne's South East industrial market. Major lease deals announced in 3Q15 include Astral Pool's pre-commitment to a 21,800 sqm-warehouse at Frasers Key Industrial Park in Dandenong, and Cyclone Tools pre-commitment to 16,000 sqm at Pellicano's Innovation Park in SIX PROJECTS TOTALLING 68,500 SQM REACH PRACTICAL COMPLETION In 3Q15, 100% of new supply was pre-committed upon completion. Design and Rental Value Index Construct projects have completed for DHL Express near the airport in Arrows indicate 12-month outlook Tullamarine and for manufacturer Fisher and Paykel in Truganina in the West. Index base: 4Q11 =100 Financial Indicators are for South East.
Melbourne's supply in 2015 will be far lower than in 2014, but remain the largest nationally. The proportion of speculative development is continuing to decline, with only 25,700 sqm of space under construction and yet to secure a Physical Indicators pre lease. This equates to a pre-commitment rate of around 91%.
RESIDENTIAL DEVELOPERS TARGETING CITY FRINGE SITES CONTINUING TREND Investment transaction volumes accelerated and reached AUD 378 million across 15 assets in 3Q15. The South East and West precincts recorded prime yield compression in 3Q15, with the yield range tightening by 50 bps to 6.25%–7.00% in both precincts.
The largest single asset transaction in the quarter was the acquisition of the 24 hectare-Bradmill Denim Factory site at 341 Francis Street, Yarraville for AUD 160 million by Chinese residential developer Fortune Property Group. The vendor was property investor Colin De Lutis.
OUTLOOK: YIELDS TO FIRM; MORE CORE DISTRIBUTION ASSETS TO TRADE Rental growth forecasts for prime net face rents remain unchanged with growth below the rate of inflation expected in the near term.
For 2011 to 2014, take-up and completions are year-end annual. For 2015, take-up and As at end-3Q15, 279,000 sqm of supply was under construction and with completions are YTD, while future supply is for 192,900 sqm scheduled to complete before the end of 2015. 87% of space in projects to be completed this year is pre-committed. Supply is expected to remain above recent trend levels.
Note: Melbourne Industrial refers Melbourne's industrial market (all grades).

"Limited growth in inbound visitation results in
weak hotel trading performance."
Phoebe Teo, Senior Vice President, Strategic Advisory - Hotels & Hospitality Group, Asia STAGE IN REVPAR CYCLE HKD 2,548
Luxury Hotel Trading Performance VISITOR ARRIVALS SLIGHTLY INCREASE BY 1.0% Y-O-Y AS AT YTD JULY 2015• As at YTD July 2015, growth in tourist arrivals continued to be driven by same- day visitor arrivals, which showed a 6.4% y-o-y growth to 19.2 million while overnight visitors declined by 5.1% to 15 million. Hence, overall visitor arrivals showed minimal growth of 1.0% y-o-y to 34.3 million.
Only overnight visitors from South Korea, the Philippines and USA registered increases as at YTD July 2015, rising 8.4%, 4.2% and 2.7% y-o-y, respectively. ADR / RevPAR (HKD) 1,000 Overnight visitors from short-haul markets (excluding Mainland China), recorded a decline of 4.3% y-o-y while long-haul markets decreased by 2.6%, indicating a downward trend in overnight visitation to Hong Kong.
MAJORITY OF HOTEL OPENINGS IN 2015 COMPRISE OWNER-OPERATED HOTELS As at YTD September 2015, Hong Kong had approximately 74,000 rooms. An additional 519 rooms are expected to open in the remainder of 2015, with most Source: STR Global, JLL of the future supply located in Kowloon. This will result in an estimated 1,814 Note: MAA - Moving Annual Average new rooms in 2015, an increase of 2.5% in stock if all projects materialise. Hotel openings were primarily in Kowloon, with only two hotel openings in Major Additions to Hotel Supply Hong Kong Island. With the exception of the Holiday Inn Express Mong Kok and the Hotel Pravo which is managed by Ascott, most of the new openings are managed by local independent operators.
HOTEL PERFORMANCE CONTINUES DOWN TREND ACROSS ALL SEGMENTS As at YTD August 2015, occupancy for luxury hotels declined 2.6% y-o-y to 75.7%, while Average Daily Rate (ADR) decreased y-o-y by 7.1% to HKD 3,364. Consequently, Revenue Per Available Room (RevPAR) recorded a 9.5% decline y-o-y to HKD 2,548. With regard to moving annual average, RevPAR continued to decline and was recorded at HKD 2,713 in August 2015.
Performance in the upscale as well as the midscale and economy hotel segments also exhibited RevPAR declines of 14.3% and 14.9% y-o-y respectively. Declines in trading performance in all segments can be attributed to weaker demand due to less overnight visitors to Hong Kong.
Additions to Supply Source: Industry sources, JLL OUTLOOK: LIMITED GROWTH IN VISITOR ARRIVALS• Inbound visitation to Hong Kong remains weak due to currency depreciation of major source markets and socio-political tension with Mainland China. In addition, Mainland China has also removed unlimited Hong Kong entry to Shenzhen residents and amended this to one visit a week effective April 2015, affecting visitation from Mainland China.
Nevertheless, we are cautiously optimistic that hotel performance is likely to stabilise in the medium to long run as Hong Kong remains a key business gateway in Asia and a popular destination for leisure and MICE.
Note: Hong Kong Hotels refers to Hong Kong's Luxury hotel market.

"RevPAR stabilises as fal ing ADR offset by
increase in occupancy."
Frank Sorgiovanni, Head of Research - Hotels & Hospitality Group, STAGE IN REVPAR CYCLE INTERNATIONAL VISITOR ARRIVALS SHOW MARGINAL INCREASE Upscale Hotel Trading Performance According to the latest data released by Beijing Statistics Bureau, international visitor arrivals to Beijing increased slightly by 0.1% y-o-y to 2.7 million as at YTD August 2015. Visitors from India witnessed the strongest growth rate at 30.2% y-o-y, followed by Macau which grew 24.6%. However, visitors from Russia declined by 25.4% y-o-y. As the Mainland China and USA Tourism Year approaches in 2016, beneficial travel policies are expected to be implemented to attract visitors to both countries. Additionally, according to the One Road One Belt Strategy, tighter relationships with Asian countries is likely to drive tourism. MODERATE SUPPLY OF HOTELS IN 2015 As at YTD August 2015, four hotels positioned in the midscale to upscale segments opened, adding 1,353 rooms to the hotel market. One of the key Source: STR Global, JLL hotel openings was the 439-room NUO hotel managed by Kempinski Hotel Note: MAA - Moving Annual Average Group, which opened in June to become the flagship NUO hotel in China. By end-2015, an additional 561 rooms are expected to open in Beijing. From 2016 onwards, approximately 4,700 rooms are forecasted to enter the market.
Major Additions to Hotel Supply ADR CONTINUES TO DECLINE As at YTD August 2015, occupancy continued on the growth trajectory by registering an increase of 7.1% to 71.9%. In contrast, Average Daily Rate (ADR) declined by 2.8% to RMB 935 as compared with the previous year. As a result, Revenue Per Available Room (RevPAR) increased marginally by 4.1% On a moving annual average basis, occupancy reached 71.7% in August while ADR was recorded at RMB 944; RevPAR remained stable at RMB 680.
OUTLOOK: MAJOR EVENTS ARE LIKELY TO BENEFIT HOTEL PERFORMANCE In 2016, significant new supply is expected to enter the market and put some downward pressure on hotel trading performance.
Additions to Supply Source: Industry sources, JLL As Beijing is set to become the host city for the 2022 Winter Olympic Games, the city is expected to redevelop as a modern tourist destination with various international MICE events, entertainment options and improved transport connectivity to attract more visitors.
Note: Beijing Hotels refers to Beijing's Upscale hotel market.

"Robust domestic tourism underpins a steady rise
in ADR and occupancy."
Frank Sorgiovanni, Head of Research - Hotels & Hospitality Group, STAGE IN REVPAR CYCLE INTERNATIONAL VISITOR ARRIVALS DECLINE; DOMESTIC TOURISM ROBUST Upscale Hotel Trading Performance Based on data from the Shanghai Statistics Bureau, as at YTD July 2015, international visitor arrivals to the city reached approximately 4.5 million, registering an increase of 0.2% y-o-y. The marginal increase is a result of weakness in international business travel due to a slowdown in global economic activity and weaker export demand.
The main purpose of domestic travel to Shanghai continues to be for ADR/RevPAR (RMB) 400 business. However, this segment has witnessed a decrease in demand stemming from increased volatility in the Chinese stock market. Offsetting this been a boost in domestic travellers to Shanghai for sightseeing and leisure INFLUX OF NEW HOTELS IN 2016 IN TANDEM WITH OPENING OF DISNEYLAND Five hotels positioned in the midscale to upscale segment have opened as at Source: STR Global, JLL YTD September 2015, adding 1,389 rooms to the market. By end-2015, three Note: MAA - Moving Annual Average additional hotels are expected to enter the market with 651 rooms. More than 5,000 rooms are in the pipeline in 2016. Disney estimates that Major Additions to Hotel Supply 10 million people will visit Shanghai Disneyland theme park annually and this additional demand will benefit the hotel market.
INCREASE IN ADR AND OCCUPANCY BOOST REVPAR GROWTH As at YTD August 2015, Revenue Per Available Room (RevPAR) increased by 10.4% y-o-y to RMB 731, driven by both occupancy and Average Daily Rate (ADR) growth. ADR increased by 2.2% to RMB 1,078 as compared to the same period in 2014. Occupancy continued to improve, increasing by 5.0 percentage points y-o-y to 67.8%.
On a moving annual average basis, ADR has remained relatively stable and reached RMB 1,073 in August 2015. Occupancy continued to rise, reaching 68.7% in August while RevPAR was recorded at RMB 742.
OUTLOOK: NEW ATTRACTIONS AND INFRASTRUCTURE TO DRAW VISITORS Additions to Supply Shanghai is welcoming several large-scale projects such as the new National Source: Industry sources, JLL Exhibition and Convention Centre which opened in 2015, the Shanghai Disneyland which is expected to open in 2016 and the Polar Ocean World which is anticipated to open in 2017. These new tourist attractions and exhibition centre are expected to induce inbound visitation and increase demand for hotels.
Strong demand and balanced supply is expected to strengthen hotel trading performance across the city in the next 18 months to two years, before a large supply pipeline may become a concern post-2017.
Note: Shanghai Hotels refer to Shanghai's Upscale hotels.

"Strong hotel performance attributable to leisure
Tom Sawayanagi, Managing Director – Hotels & Hospitality Group, STAGE IN REVPAR CYCLE JPY 41,999
RISING INBOUND VISITATION FORMS SOLID BASE FOR LODGING DEMAND Luxury Hotel Trading Performance Inbound visitation to Japan recorded y-o-y growth of 49.1% to 12.9 million as at YTD August 2015. Growth in visitor arrivals was driven by a significant y-o-y improvement of 117% in visitors from Mainland China. Visitors from Indonesia, the Philippines and Vietnam also increased due to the relaxation of multiple- entry visas since September 2014.
Domestic leisure travellers including ‘Active Seniors', which refers to retired people with time and financial resources to travel, have contributed to growth ADR/RevPAR (JPY) 15,000 in accommodation demand. With a large ageing population in Japan, this segment is an increasingly important contributor of demand.
NO MAJOR OPENINGS OF FOUR OR FIVE-STAR HOTELS There are no luxury hotel openings scheduled in 2015. Two new luxury hotels are in the pipeline for 2016. The 84-room Hoshinoya Tokyo is expected to open Source: STR Global, JLL as a ryokan-style lodging facility in the Marunouchi area. The 250-room Prince Note: MAA - Moving Annual Average Gallery Tokyo Kioicho, the former Grand Prince Hotel Akasaka, is due to open as part of a redevelopment project.
The 109-room Futako-Tamagawa Excel Hotel Tokyu, a small-sized upscale Major Additions to Hotel Supply hotel in Tokyo, opened in July 2015. This is the only upscale hotel opening in TOKYO HOTELS CONTINUE TO SHOW STRONG PERFORMANCE Hotel trading performance in Tokyo continued to improve, as reflected by Revenue Per Available Room (RevPAR) increasing 16.6% y-o-y as at YTD August 2015. This is attributed to the growth in both occupancy and Average Daily Rate (ADR). On a moving annual average basis, RevPAR has been on a growth trajectory since 2Q12.
While there were no hotel sales transactions in the luxury segment in Tokyo during 3Q15, Hoshino Resort purchased the ANA Crowne Plaza portfolio for JPY 40 billion. The portfolio comprises four properties - ANA Crowne Plaza Hiroshima, Fukuoka, Kanazawa and Toyama.
Additions to Supply OUTLOOK: ADR GROWTH LIKELY TO DRIVE REVPAR IN SHORT TERM Source: Industry sources, JLL Domestic and international demand is expected to maintain upward momentum. This trend can be attributed to the recent economic improvements in Japan and increased international arrivals, which have reached record highs. RevPAR growth in the short term is likely to be driven by ADR growth as occupancy has already recovered to a high level.
The volume of hotel sales transactions in Japan is relatively small, which can be attributed to hotel owners' preference to hold onto assets so they can enjoy further gains in cash flow amid improved market conditions. In spite of this situation, investor interest in hotel assets remains strong.
Note: Tokyo Hotels refers to Tokyo's Luxury hotel market.

"Visitor arrivals decline but occupancy improves
Frank Sorgiovanni, Head of Research – Hotels & Hospitality Group, STAGE IN REVPAR CYCLE VISITOR ARRIVALS DECLINE BY 1.7% Y-O-Y AS AT YTD JULY 2015 Luxury Hotel Trading Performance As at YTD July 2015, visitor arrivals from Mainland China increased by 13.6% y-o-y, helping to curb the slowdown in visitor arrivals. Increasing visitor arrivals were also recorded from South Korea, India and USA. Despite this, falling arrivals from other key source markets such as Indonesia and Australia saw total visitor arrivals fall by 1.7% y-o-y.
The Singapore Tourism Board recently launched the SGD 10 million Experience Step-Up Fund (ESF). The scheme aims to encourage businesses to develop new tourism experiences to enhance overall visitor experience and satisfaction in order to attract more visitor arrivals to Singapore. THREE HOTELS OPEN, ADDING 628 ROOMS In 3Q15, three new hotels opened, adding 628 rooms to the market. Hotel openings comprise the 387-room D'Resort @ Downtown East, the 41-room Source: STR Global, JLL Hotel Vagabond Singapore as well as The South Beach hotel which opened Note: MAA - Moving Annual Average partially with approximately 200 rooms. The remaining rooms at The South Beach hotel are expected to open in 2016. New hotel openings as at YTD September total 2,277 rooms, largely due to major hotel openings in 1H15. Major Additions to Hotel Supply Other notable openings planned for 2015 include the 157-room The Patina, Capitol Singapore which will boost luxury hotel stock in Singapore. Hotel openings in 4Q15 also include the 298-room ibis Styles at MacPherson Mall and the 264-room Hotel Grand Central in the Orchard area. SLIGHT IMPROVEMENT IN OCCUPANCY BUT ADR AND REVPAR DECLINE As at YTD August 2015, occupancy for luxury hotels in Singapore was recorded at 79.1%, a 0.3 percentage point y-o-y increase.
No. of rooms 2,000 Average Daily Rate (ADR) declined by 3.5% y-o-y to SGD 399 as visitor arrivals continued to fall and corporate spending remained restrained. Consequently, Revenue per Available Room (RevPAR) dipped by 3.2% y-o-y to SGD 316. In terms of moving annual average, RevPAR levels have shown a gradual decline from SGD 331 in January 2015 to SGD 325 in August 2015.
Additions to Supply Source: Industry sources, JLL OUTLOOK: MINOR GAINS IN HOTEL TRADING PERFORMANCE EXPECTED• We anticipate limited improvement in hotel trading performance over the balance of 2015 due to the decline in visitor arrivals and cautious spending by corporates. However, major events such as the Singapore Grand Prix should help to boost hotel trading performance, while Singapore's position as a key commercial hub underpins demand in a longer time frame. The Singapore economy is expected to grow in the range of 2.0–2.5% in 2015. Moving forward the government's commitment to increase infrastructure spending as well as a gradual improvement in the global economy is likely to support growth and activity in Singapore. Note: Singapore Hotels refers to Singapore's Luxury hotel market.

"Continued rise in visitor arrivals leads to
significant occupancy improvement, supporting
Frank Sorgiovanni, Head of Research – Hotels & Hospitality Group, STAGE IN REVPAR CYCLE THB 4,100
VISITOR ARRIVALS TO BANGKOK SHOWING SIGNS OF RECOVERY Luxury Hotel Trading Performance According to the Tourism Authority of Thailand (TAT), international visitors to Bangkok in 2014 showed a y-o-y decline of 11.3% to 15.5 million. However as at YTD July 2015, visitor arrivals to Bangkok recorded a 39.5% y-o-y rise to 11.4 million arrivals. Main source markets to Bangkok are regional markets, with Mainland China strengthening its position as the largest source market with an increase of 148.9% y-o-y as at YTD July 2015, followed by Japan, South Korea and India. Russian arrivals continued to decline, dropping out of the top ten source NEW SUPPLY IS CONCENTRATED IN THE MIDSCALE AND UPSCALE SEGMENTS• As at YTD August 2015, 1,392 new rooms have opened, adding to the 1,442 rooms that opened in 2014. Recently opened hotels include the 297-room Source: STR Global, JLL Mövenpick Bangkok Sukhumvit 15, 132-room Citrus Sukhumvit 11 and the 250- Note: MAA - Moving Annual Average room Amara Bangkok.
The upcoming supply pipeline comprises 3,585 rooms which are expected to be operational by end-2015, with 38.1% of total new supply concentrated in Major Additions to Hotel Supply the midscale segment followed by 35.4% in the upscale segment. The majority of upcoming supply is planned in the Sukhumvit area, accounting for 28.1% of total supply.
HOTEL TRADING PERFORMANCE CONTINUES TO SEE STRONG REVPAR GROWTH• As at YTD August 2015, hotel trading performance of the Bangkok market indicated strong Revenue Per Available Room (RevPAR) growth with a 49.5% y-o-y increase to THB 4,100. Average Daily Rate (ADR) increased by 0.9% y-o-y to THB 5,817 in the same period. The increase in RevPAR was driven by a significant growth in occupancy to 70.5% from 47.6% during the same period in the previous year.
On a moving annual average basis, RevPAR has continued on a growth trend since 3Q14, reaching THB 4,089 in August 2015, largely supported by growth in occupancy levels to 70.0%.
Source: Industry sources, JLL OUTLOOK: POSITIVE OUTLOOK; RECORD TOURIST ARRIVALS EXPECTED IN 2015 • The TAT has announced its "2015 Discover Thainess" campaign in order to promote Thailand's natural and cultural assets to international visitors. The TAT is planning for campaigns targeting high-end and high-spending tourists, specifically from European and Latin American markets.
The effects of the Erawan bombing are expected to be short term only as the rapid response by the government through marketing and social media campaigns has minimised its impact, leading us to anticipate a strong high Note: Bangkok Hotels refers to Bangkok's Luxury hotel market.

"Slowdown in Indonesia's economy is likely to
impact corporate visitation in the short term."
Frank Sorgiovanni, Head of Research – Hotels & Hospitality Group, STAGE IN REVPAR CYCLE INTERNATIONAL VISITOR ARRIVALS DECLINE 5.1% Y-O-Y AS AT YTD JULY 2015 Upscale Hotel Trading Performance As at YTD July 2015, visitor arrivals to Jakarta reflected a 5.1% y-o-y decline A slowing Indonesian economy, depreciation in the Indonesian Rupiah and global economic uncertainty may have affected corporate demand to the capital city, as reflected by the decline in visitor arrivals as at YTD July 2015. MAJORITY OF HOTEL OPENINGS IN ECONOMY AND MIDSCALE SEGMENTS• As at YTD September 2015, approximately 1,922 rooms opened. Hotel openings were primarily economy and midscale hotel brands such as Ibis, Ibis Styles, Zest, Holiday Inn Express and Aston. Two luxury hotels also debuted in the market – Raffles and Fairmont, comprising 173 and 380 rooms, respectively.
Moving forward, an estimated 2,279 rooms are expected to open during the Source: STR Global, JLL remainder of the year. This will result in an increase of rooms stock by 13.0% Note: MAA - Moving Annual Average in 2015 if all projects materialise.
CONTINUAL DECLINE IN TRADING PERFORMANCE AS AT YTD AUGUST 2015 Major Additions to Hotel Supply As at YTD August 2015, occupancy declined by 2.6 percentage points to 60.2% while Average Daily Rates (ADR) recorded an improvement of 2.4% y-o-y to USD 178. On a moving annual average basis, Revenue Per Available Room (RevPAR) showed a gradual decline to USD 111 as at August 2015. Hotel trading performance remains weak in Jakarta and one of the reasons is the slowdown in the Indonesian economy. Moreover, with the addition of two new luxury hotels during the year, the upscale and luxury hotel sector is likely to face steeper competition. OUTLOOK: GAINS IN TRADING PERFORMANCE RELY ON ECONOMY IMPROVING• Indonesia's economic growth slowed to 4.7% in 2Q15, its lowest level since 2009. Growth was weighed down by weak commodity prices, domestic consumption and foreign investments, as well as currency volatility. Since Jakarta is a key business gateway and given the slowdown in the Indonesian and global economy, this is likely to continue to have an impact on corporate Source: Industry sources, JLL inbound travel to the capital city.
However, the introduction of the visa exemption policy for more than 45 countries to Indonesia in 2015 will increase the ease of accessibility to the country. New international luxury hotels will provide greater choice for corporate travellers but improvements in trading performance will be dependent on the global economic environment.
Note: Jakarta Hotels refers to Jakarta's Upscale hotel market.

"Sydney's hotel market continues to perform in
line with strong market fundamentals."
Frank Sorgiovanni, Head of Research – Hotels & Hospitality Group, STAGE IN REVPAR CYCLE STABLE DEMAND SUPPORTED BY MAJOR EVENTS AND CORPORATE SECTOR Marketwide Hotel Trading Performance As at YTD August 2015, Sydney maintained a steady occupancy of 88% with major events including the Netball World Cup and Bledisloe Cup supporting 8070 Occupancy (%) Despite the closure of the Sydney Convention and Exhibition Centre and the traditionally lower yielding winter months, demand is expected to remain strong through year-end.
MODEST SUPPLY INCREASE IN FIRST THREE QUARTERS OF 2015 In 3Q15, two new hotels and one hotel extension added 367 rooms to the Sydney market. The largest hotel opening was the Tank Stream Hotel which added 281 rooms in the budget/economy segment. Other hotels that opened in the quarter were the Old Clare Hotel (62 rooms) in the luxury segment and an extension of the Holiday Inn Darling Harbour (24 rooms).
Source: STR Global, JLL Note: MAA - Moving Annual Average Room stock growth is anticipated to average 3.7% per annum between 2015 STRONG MARKET FUNDAMENTALS UNDERLIE POSITIVE HOTEL PERFORMANCE Major Additions to Hotel Supply As at YTD August 2015, occupancy increased by 0.8% y-o-y and this coupled with ADR growth of 5.8% resulted in RevPAR rising by 6.6% to AUD 205.
The moving annual average recorded in Sydney for RevPAR as at YTD August 2015 was AUD 204, a new record high. OUTLOOK: POSITIVE OUTLOOK DESPITE TRADITIONAL SLOW PERIOD IN 4Q The accommodation market is expected to continue to perform strongly for the remainder of 2015, despite traditionally softer corporate demand at year- Whilst 367 rooms entered the Sydney market in 3Q15, these additions are not anticipated to place significant downward pressure on hotel trading performance. Occupancy is expected to remain at a high level and this in Additions to Supply combination with continued ADR increases should further push RevPAR Source: Australian Bureau of Statistics, JLL Note: Sydney Hotels refers to all grades of accommodation and includes both hotels and serviced HOTELS

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KINGDOM OF SAUDIA ARABIA Saudi Standards, Metrology and Quality Org.(SASO) Standard No. Reference No. Cement -- Test methods -- Part 2: Chemical analysis by X-ray NATIONAL FOREWORD The Saudi Standards, Metrology and Quality (SASO) has adopted without any technical changes the International Standard: Issue Year Cement -- Test methods -- Part 2: Chemical analysis by X-ray fluorescence

MODELLING THE SPATIAL-TEMPORAL EVOLUTION OF THE 2009 A/H1N1 INFLUENZA PANDEMIC IN CHILE URGERA, GERARDO CHOWELLB, PEP MULETC, AND LUIS M. VILLADAD Abstract. A spatial-temporal transmission model of 2009 A/H1N1 pandemic influenzaacross Chile, a country that spans a large latitudinal gradient, is developed to characterizethe spatial variation in peak timing of the 2009 A/H1N1 influenza as a function of spatialconnectivity assumptions across Chilean regions and the location of introduction of the virusinto the country. The resulting model is a SEIR (susceptible-exposed-infected-removed)compartmental model with local diffusion and optional non-local terms to describe themigration of individuals of the S, E and R classes and the effect of a "hub region". Thismodel is used along with epidemiological data to explore the spatial-temporal progressionof pandemic influenza in Chile by assuming a range of transmission scenarios. Numericalresults indicate that this relatively simple model is sufficient to characterize the south-northgradient observed during the 2009 influenza pandemic in Chile, and that the "hub region"corresponding to the capital region plays the critical role in keeping the population wellmixed in a relatively short period of time.