Staying on course Asia Pacific a key driver of global growth - Q4 2018 - JLL Indonesia
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Asia Pacific Property Digest Q4 2018 Staying on course Asia Pacific a key driver of global growth
13
Office
4 35
14 Hong Kong
15 Beijing
16 Shanghai
17 Guangzhou
18 Taipei
19 Tokyo
20 Osaka
Feature
21
22
Seoul
Singapore Retail
23 Bangkok 36 Hong Kong
Articles 24 Jakarta 37 Beijing
25 Kuala Lumpur 38 Shanghai
26 Manila 39 Guangzhou
27 Hanoi 40 Tokyo
04 Global headwinds still swirling
28 Delhi 41 Seoul
05 Real estate markets show resilience
29 Mumbai 42 Singapore
08 Singapore office market poised for
steady long-term growth 30 Bengaluru 43 Bangkok
09 Will the trade war benefit HK tourism 31 Sydney 44 Jakarta
and retail? 32 Melbourne 45 Mumbai
10 Exciting future for India’s office sector 33 Perth 46 Sydney
11 ‘Prime’ time for logistics 34 Auckland 47 Melbourne
Editor's Note
Despite mounting China-US trade pressures, Asia Pacific’s growth prospects still remain healthy as
domestic demand and supportive policies serve to buffer against challenges from weakening global trade.
Healthy office leasing activity, particularly by flexible space operators, has been a key pillar in upholding
firm performance and keeping supply in check across most markets.
Rental growth in industrial space climbed steadily as supply remained modest and demand stayed strong
from third-party logistics.
Experience-oriented tenants that cater to diversified consumer tastes continue to fuel demand for retail space.
For more detail by asset class, view this report online at http://www.jllapsites.com/research/appd-online/.
The Asia Pacific research team hopes that you find this publication valuable, and we welcome your feedback.
Thanks,
Dr Megan Walters
Head of Research – Asia Pacific
49 59 67
Residential Hotels
50
51
Hong Kong
Beijing
Industrial 68 Hong Kong
52 Shanghai 60 Hong Kong 69 Beijing
53 Singapore 61 Beijing 70 Shanghai
54 Bangkok 62 Shanghai 71 Tokyo
55 Jakarta 63 Tokyo 72 Singapore
56 Manila 64 Singapore 73 Bangkok
57 Sydney 65 Sydney 74 Kuala Lumpur
58 Brisbane 66 Melbourne 75 Sydney
4 – Features
ASIA PACIFIC ECONOMY
Global headwinds still swirling
Uncertainty was a central theme throughout 2018 and it looks likely to continue into at least the early part of 2019, as
protectionism, financial market volatility and Brexit linger overhead. The China-US trade tensions, which have been front
and centre of the uncertainty, have reverberated across markets and weighed on sentiment. Fortunately, the recent re-
engagement of negotiations between the two countries has sparked optimism that a longer-lasting suspension of tariffs
can be reached. Despite some weakening, regional growth has held up relatively well as domestic demand is helping to
counteract softening external demand. With governments and central banks appearing to shift towards a more supportive
growth policy stance, the prospects for growth are still positive with only a slight moderation anticipated.
Trade pressures mount Signs of tightening cycle slowing Healthy prospects but challenges to
endure
Growing external headwinds stemming Weaker oil prices and firming
from the ongoing China-US trade currencies against the USD have seen The outlook for Asia Pacific is
spat have started to take a toll on inflationary pressures ease which still positive despite the dimmer
exports. Most major markets in the has led to a lowering of inflation outlook for external demand due to
region ended the year on a soft note expectations. This situation, coupled protectionist measures. Fortunately,
with exports declining from a year with lingering economic uncertainty, domestic demand and supportive
earlier, and signs point to continued has led to a more accommodative tone policies are expected to act as a buffer
volatility in the early part of 2019. from central banks across the globe, against challenges from weakening
However, there is hopefulness that including from the US Fed, which has global trade. Amid expansionary
a China-US trade agreement can be stated that it will take a more patient fiscal spending and accommodative
reached as negotiations have restarted approach to lifting rates. Here in Asia monetary policy stance, the region is
following a postponement of the US Pacific, the People’s Bank of China expected to maintain its position as the
tariff hike on Chinese goods to March has continued to adjust its policy to engine of global growth.
1. Nevertheless, trade in the region improve liquidity, while the Reserve
is still likely to face challenges in Bank of India unexpectedly cut rates by
the short term amid a slowdown in 25 bps in early February—this followed
Chinese import demand and the likely two rates hikes in 2018. Other central
slow process to unwind protectionist banks in the region, such as Australia,
measures. Korea and the Philippines have all held
rates steady at meetings held this year.
5 – Features
Table 1: Outlook for Major Economies
Real GDP Growth (%)
Country 2019 Outlook
2018E 2019F
Gradual slow down to endure as trade conflict puts pressure on external demand. Policy easing to
China 6.6 6.1
bolster consumption and support services sector.
Softening external demand to weigh on exports while the upcoming GST hike poses a risk. Tight
Japan 0.8 0.9
labour market and pick-up in wages to boost consumption and encourage investment in automation.
Consumption and infrastructure spending key drivers. Reduced inflationary pressures a positive
India 7.4 7.3
factor but tight non-banking sector lending is a challenge.
Slowing export momentum amid weakening global demand. Expansionary fiscal policy and private
South Korea 2.7 2.3
consumption to shore up moderate growth.
Consumer spending challenged by slow wage growth and residential market weakness. Rising export
Australia 3.0 2.5
volumes and service sector to help offset weakness.
Indonesia 5.2 5.1 Private consumption and spending on infrastructure to remain the foundation of stable growth.
Domestic and external trends moderating amid rising uncertainties. Public infrastructure investment
Hong Kong 3.4 2.2
and solid labour market are supportive factors.
Softening export and manufacturing activity against a challenging trade backdrop. Government
Singapore 3.2 2.4
policy to encourage business investment while spending on public works projects to persist.
Source: Oxford Economics, February 2019
ASIA PACIFIC PROPERTY MARKET
Real estate markets show resilience
Healthy occupier demand in the office leasing market helped to uphold a firm performance and kept supply in check across
most markets. Although leasing volumes were stable in the final quarter, a strong first half helped push the annual total to a
record high. Flexible space operators were a notable source of demand, albeit some have shifted the focus from expansion
to existing centres. With a significant weight of capital targeting real estate, investment volumes also reached new heights in
2018; even though activity took a bit of breather in the fourth quarter. With healthy fundamentals for occupational markets,
we maintain a positive outlook for both leasing and investment markets in 2019 despite the prospects of continued economic
uncertainty.
Steady office leasing activity Office vacancy generally trends Rental growth maintains upward
Overall leasing activity was relatively down despite healthy completions trajectory
stable year-on-year in Asia Pacific in 4Q; Nearly half of all completions in 4Q were Extremely low vacancy and robust
however, it was still up an impressive in India—Bengaluru alone accounted for commitment rates to upcoming supply in
20% for full-year 2018. Financial, more than 25% of the quarter’s total. Tokyo supported landlords’ confidence
professional services and tech firms India and China delivered nearly 60% to raise rents further while tight market
again stood out as key demand drivers, of all new additions in 2018. Despite a conditions allowed landlords in Singapore
while flexible space operators were still healthy volume of completions, vacancy to again raise rents. Modest rental
an important source of leasing activity continued to move lower across much of growth in the Shanghai CBD was largely
in many cities. Indian markets remained the region. The tighter vacancy was led driven by the strength of the Puxi CBD
atop the regional leasing volumes leader by markets such as Taipei and Singapore, that benefitted from declining vacancy,
board with Delhi taking top spot and which continued to observe healthy while stable rents were observed in
followed by Bengaluru in second place. absorption levels. Beijing amid growing caution about the
economy. Rents trended higher across all Investors still searching for The office sector made up half of
6 – Features
Hong Kong submarkets, albeit at a slower opportunities all transaction volumes, while the
pace, while balanced supply and demand industrial/logistics sector recorded
Real estate investment volumes across
saw Delhi and Mumbai SBD rents hold slightly higher transaction volumes
Asia Pacific declined 18% y-o-y in 4Q
flat. Sydney rents rose moderately q-o-q; than the retail sector. Cross-border
to hit USD 42.7 billion. Nonetheless,
however, incentives are likely at or near a investment activity accounted for
a strong first-half performance was
cyclical low. around 40% of total transaction volumes
sufficient to see the region close up 7%
in the final quarter. Amongst the major
Experience-oriented tenants to USD 159.6 billion for full-year 2018, led
markets, cross-border investors were
important demand drivers by a strong performance in South Korea.
most active in China and Australia,
Sports brands, electronics retailers Some of the strongest growth markets accounting for close to half to total
and F&B operators remained active over the first half of the year took a investment volumes in these two
across Tier 1 markets in China. Leasing breather during 4Q with South Korea, countries.
momentum in Hong Kong continued to Australia and Hong Kong all softening.
be driven by pharmacies, mass-market Activity in China also slowed, down 3%
Capital value growth eases
retailers and F&B operators. Although y-o-y after a strong first nine months, Hong Kong capital value growth
retail sales have trended up in the to close the year flat. Along with Japan, slowed as investment activity cooled
city, growth eased in 2H18 amid rising the two biggest markets in Asia Pacific, with investors cautiously watching
headwinds. In Singapore, leasing activity full-year trading volumes were relatively the market. In Shanghai, a tight credit
was underpinned by the expansion of stable in 2018 compared with 2017 at environment and slow rental growth
new-to-market and existing F&B and USD 37 billion. saw capital values hold flat. Rental
entertainment operators.
Retailers in Australia remain selective
Figure 2: Office Rental & Capital Value Changes, Yearly % Changes, 4Q18
about locations with an ongoing focus
on existing store performance as the 15
competitive landscape is still presenting
challenges.
10
Robust logistics demand persists
Across most markets, demand
5
for industrial space continued to
be underpinned by 3PL firms and
manufacturers. Manufacturers were 0
particularly active in Beijing and
Shanghai. Robust demand remained in
Tokyo, with labour market shortages -5
supporting the movement towards
more technologically integrated and
automated industrial facilities. In Hong -10
Kong, while there were a number of
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a
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large expansionary moves, relocation
Se
um
ap
To
i
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Be
M
Sy
bo
Ja
ng
ng
Ba
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Sh
el
comprised the majority of take-up in the
Ho
Si
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quarter. Consolidation and expansion Rental Values Capital Values
of 3PL firms underpinned demand in Figures relate to the major submarket in each city
Singapore’s logistics market. Industrial Source: JLL (Real Estate Intelligence Service), 4Q18
demand remains firm in Sydney and
Melbourne against a backdrop of robust Figure 3: Direct Commercial Real Estate Investment 2009-2018
economic and population growth.
2018
Mixed performance for residential $159.6 bill
markets 7% y-o-y
180
A tight policy stance and reduction in 160
pent-up demand following an influx of
new supply in 2018, appears to have 140
impacted market sentiment in Shanghai; 120
many high-end projects didn’t receive
as strong reception from buyers as 100
anticipated. In Beijing, transaction 80
volumes of luxury apartments held
relatively stable from the previous 60
quarter. There are signs that the primary
40
sales market in Hong Kong has softened
amid growing uncertainty about the 20
economy. The effects of July’s cooling
0
measures coupled with a traditional 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
seasonal lull in demand resulted in a
reduction in transaction volumes in Japan China Australia Hong Kong South Korea Singapore Other
Singapore.
Figures refer to transactions over USD 5 million in office, retail, hotels and industrial.
Source: JLL (Real Estate Intelligence Service), 4Q187 – Features
Figure 4: Rental Property Clocks, 4Q18
Grade A Office Prime Retail
Tokyo* Hong Kong*
Beijing, Hong Kong, Tokyo Beijing, Shanghai Auckland
Kuala Lumpur Shenzhen Wellington
Taipei, Sydney
Growth Rents Growth Rents
Manila, Singapore, Slowing Falling Slowing Falling
Melbourne Kuala Lumpur,
Shenzhen, Jakarta, Manila,
Guangzhou Guangzhou
Osaka Rents Decline Rents Decline
Canberra, Wellington Jakarta
Rising Slowing Rising Slowing
Auckland
Ho Chi Minh City, Mumbai
Shanghai, Bengaluru Bangkok
Seoul*
Bangkok, Delhi Delhi
Chennai, Adelaide Bengaluru
Seoul, Hanoi, Mumbai, Perth Brisbane Chennai, Melbourne Singapore, SE Queensland
(Regional) (Regional), Sydney (Regional)
Note: Clock positions for the office sector relate to the main submarket in each city. *High Street Shops/Multi-level High Street
Prime Residential Prime Industrial
Hong Kong Hong Kong
Bangkok Shanghai Tokyo
Kuala Lumpur Jakarta
Guangzhou
Growth Rents Growth Rents
Manila
Slowing Falling Slowing Falling
Wellington
Singapore Manila, Sydney
Auckland
Shanghai
Rents Decline Beijing
Rents Decline
Rising Slowing Melbourne Rising Slowing
Beijing
Singapore
(Business Park)
Brisbane
Singapore (Logistics)
*Luxurious *Logistics space (Hong Kong, Shanghai, Beijing, Greater Tokyo)
Source: JLL (Real Estate Intelligence Services), 4Q18
growth and investor expectations again Firm real estate activity to persist as key pillars of office leasing activity.
underpinned an uplift in Tokyo capital On the investment front, strong liquidity
After a strong performance in 2018,
values; while the Singapore investment and sustained investor demand should
regional office leasing volumes are
market remained buoyant with market see investment volumes hold up well.
expected to hold relatively stable in
conditions supporting further growth in Core asset yields are likely to stay low
2019. Financial services, technology and
capital values along the same trajectory which may see some investors moving up
flexible space operators should carry-on
as in 3Q. the risk curve as a result.
Strong investment demand and
healthy fundamentals held Sydney and
Melbourne CBD market yields flat. With
About the author
capital values moving in line with rents,
Dr Megan Walters joined JLL in 2010 and in October 2016 was
Hong Kong yields also held steady in
appointed as Head of Research – Asia Pacific. In this role, Megan
4Q. Tokyo office yields were flat in 4Q
leads a team of 170 professional researchers in the region, which
following the Bank of Japan’s renewed
forms part of a network of over 400 researchers in 65 countries
commitment in 3Q to keeping low long-
around the globe.
term interest rates.8 – Features
Singapore office market set for steady growth
Office assets in Singapore’s CBD have Figure 1: Upcoming future supply in the CBD
remained firmly on the investors' radar,
Million sq ft
who continue to pick up assets at record 2.5
pricing and compressed yields in 2018.
For instance, Twenty Anson and 55 Market
Street were transacted at net property 2.0
Guoco Midtown
yields of 2.7% and 1.7%, respectively. MYP
Central
Plaza is also believed to have changed 1.5 Boulevard Site
10-Yr (2009-2018)
hands at a sub-2% yield. In the strata- CBD Net Take-up
titled market, record prices were set in at Avg, 1.1 mil sq ft
least three developments — The Octagon, 1.0
Springleaf Tower and Samsung Hub. ASB Tower
Afro-Asia i-Mark Redevelopment
0.5 of Hub Synergy
Investors’ optimism is mainly driven by the Major A&A Point
sector’s promising prospects for steady works in Redevelopment
Chevron House CapitaSpring of Shaw Tower
and sustainable growth on the back of 18 Robinson Road
0
an expected low pipeline of supply in the 2019 2020 2021 2022 2023
medium term. Source: JLL Research, 4Q18
Medium-term dynamics 1.1 million sq ft per annum. However, the Coupled with ongoing redevelopment of
materialisation of redevelopment activities ageing assets, CBD Grade A office stock can
Based on known projects, an estimated 4.2
should help rebalance supply with demand be expected to hold relatively stable in the
million sq ft of new supply averaging 0.8
in the medium term. longer term. Economic growth, on the other
million sq ft per annum can be expected
hand, will continue to generate demand
over the next five years (2019-2023) in the Long-term dynamics for office space. JLL’s forecasting model
CBD. This falls below the historical ten-
Beyond 2022, the rate of increase in Grade predicts annual net absorption of Grade A
year annual average net absorption of 1.1
A office supply in Singapore’s densely built office space in the CBD to average between
million sq ft.
CBD will hinge on the Government’s land 0.7 and 0.8 million sq ft in the next ten
Given Singapore’s ageing CBD, withdrawal sales programme for Marina Bay — the only years. The model takes into consideration
of assets for refurbishment can be expected. greenfield district in the CBD. exogenous factors such as US and Singapore
Tenants in Chevron House have been served GDP growth, which are found to be closely
notices and the building will be undergoing In this regard, we expect the government correlated to historical net absorption.
refurbishment in 2019. Written permission to take a slow-release approach in order to
achieve its planning objective of growing In conclusion, barring unforeseen adverse
for the redevelopment of Keppel Towers was external shocks, the combination of stable
renewed in 2Q18, suggesting a possibility commercial nodes outside the CBD,
which would bring work closer to home, CBD Grade A stock and steady demand
of its near-term withdrawal from stock. should pave the way for rents and capital
There are also several other owners known alleviate congestion and relieve pressure on
supporting infrastructure in the CBD. values to chart a path of sustainable growth.
to be considering redevelopments. If these
redevelopments materialise, the balance
could tip further in favour of demand.
About the author
Understandably, the forecast of a slower Jenny Goh is a Manager for JLL, based in Singapore. She specialises
annual GDP growth of 2-3% and the lack on the market analysis and forecast for Singapore’s office sector and
of major demand drivers have led some contributes to quarterly publications. Jenny is also involved in the
to argue that future demand could come production of thought leadership pieces and consultancy projects.
in lower than the historical average of9 – Features
Will the trade war benefit HK tourism and retail?
Hong Kong is caught in the middle of Figure 1: Top Destinations for Chinese likely a contributing factor, the trade war
escalating trade tensions between China Mainland Tourists should also be having an effect.
and the US. However, there is early
evidence to suggest that mainland Chinese Hong Kong is well positioned to take
1 Hong Kong
tourists are increasingly avoiding the US advantage of any reduction in tourism to
as a destination, which could benefit Hong 2 Japan the US, as the city is the top destination
Kong’s tourism and retail markets. 3 Macau for mainland Chinese tourists, accounting
for 34% of all outbound trips. Assuming
On September 24, the US imposed a 10% 4 Thailand that Chinese tourist arrivals to the US
tariff on USD 200 billion worth of Chinese 5 South Korea does decline by 40% over the next 12
goods, in addition to the tariffs on USD 50 months, and Hong Kong captures 34%
6 United States
billion worth of imports already enforced. of those travelers, this would represent
This represents almost half of all Chinese 7 Singapore an additional 450,000 tourists arrivals.
goods exported to the US, with President 8 Taiwan According to Nielsen, the average on-
Trump signaling that tariffs could be location spend for Chinese tourists in Hong
imposed on all goods eventually, unless 9 Australia Kong is USD 2,487 per visitor. Therefore,
an agreement is made between the two 10 France this increase in arrivals could translate to
countries. China has retaliated with tariffs an additional USD 1.1 billion per year of
of its own, yet, it is unable to completely Source: Nielsen spending on accommodation and retail in
match the US as it imports far fewer goods Hong Kong.
than America does. deployed a new missile defense system.
China’s response led to outbound tourist Clearly both the retail and hotel sectors
However, China has a trade deficit in numbers to South Korea dropping by up to in Hong Kong will benefit from this influx
services with the US of approximately USD 40%. Overall negative sentiment towards of visitors. In addition, key infrastructure
40 billion. Many have suggested that China the United States amongst Chinese citizens projects connecting Hong Kong to the
could start to target these service sectors as may also reduce tourism to America. mainland including the Express Rail Link
a reciprocal measure to President Trump’s and the Hong Kong-Zhuhai-Macau Bridge
tariffs. Tourism is one such sector that Early evidence suggests that Chinese will further encourage Chinese tourists
could be pursued. China could respond tourists are already starting to avoid the to come to the city. While the recent
by both direct and indirect measures. One US. Flight booking website, Skyscanner, strengthening of the Hong Kong dollar
such direct response could be restricting reported that bookings from China to the against the renminbi may limit some of the
tour operators from selling packages to US had fallen by 42% during the golden uplift, early reports suggest that arrivals to
the US, similar to what was imposed on week holiday period in 2018 compared with Hong Kong during Golden Week were well
tours to South Korea in 2017 after they the previous year. While the strong USD is up on last year.
About the author
Tom Broderick is a Senior Manager at JLL, based in Hong Kong.
He works as part of the local Hong Kong research team to provide
insights across all property sectors. He contributes to a variety
of research publications and is also involved with consultancy
projects.10 – Features
Exciting future for India’s office sector
The prospect of the office sector in India Table 1: Growth in office stock in cities (2018-20)
looks bright with robust activity expected in
many cities across the country. At end-4Q18, Current office stock Projected office stock Growth rate
pan-India office stock stood at 541 million sq (million sq ft as of 4Q18) (million sq ft by 4Q20) (%)
ft and is expected to exceed 700 million sq ft Mumbai 120 133 11%
by 2022. India will likely add about 90 million
sq ft of office space to reach 632 million sq ft NCR-Delhi 106 128 21%
by end-2020. Bengaluru 121 142 17%
Key expected trends Chennai 61 67 10%
Absorption of office space is projected Hyderabad 50 67 33%
to be stronger in 2019-20 with growing Pune 57 67 17%
requirements for space from key occupier Kolkata 25 29 16%
categories like IT, co-working, manufacturing
and banking & finance sector. Due to India’s India 541 632 17%
distinct advantage of offering many things Source: JLL REIS
at a cheaper rate – may it be real estate
space or human resources, many foreign
companies will continue to expand their space almost doubled in 1H18 (9%) over Infrastructure development: Large-scale
base in Indian cities, including domestic CY2017 (5%). Traditional sectors – IT, banking ongoing and upcoming infrastructure
firms. Strong economic fundamentals and and financial services, manufacturing are development across the cities, including
increasing urbanisation will be driving expected to drive real estate absorption in the metros, airports and flyovers, will drive real
the real estate markets in India and draw medium-term, with a growing contribution estate demand in a big way.
investors' interest in a big way. from the co-working sector.
Flexspace: The new working culture will
Mumbai, being the financial hub of the country
Key underlying drivers of office sector likely drive real estate demand. This will
growth bring in several occupiers and businesses
and a diverse office base, will continue to
be preferred by many occupiers. Demand is Resilient economy and strong under the umbrella of Grade A office space.
likely to be similar to the supply expected in fundamentals: IMF predicts India will retain
Competitive rents: Rents in several Tier
Mumbai in 2019-20. Ongoing and upcoming the fastest growing economy tag with growth
II or extended parts of Tier I cities are
infrastructure projects will boost real estate of 7.3% for FY18-19 and 7.5% for FY19-20.
affordable to many MNCs resulting in higher
growth in the city. Bengaluru will likely be the
Improvement in transparency: Structural absorption of space in these markets.
largest office market with stock of 142 million
sq ft and have the lowest vacancy rate of 4.9% reforms like GST, RERA and Benami
Skilled human capital: Availability of
by end-2020. In terms of growth in stock, Transactions (Prohibition) Act have led to
skilled human resources has been a
Hyderabad is likely to grow at the fastest rate of improving transparency and accountability. In
strength in cities.
33% in 3Q19-4Q20, followed by NCR Delhi and JLL’s 2018 Global Real Estate Transparency
Bengaluru showing growth of 21% and 17% Index survey, India’s transparency ranking
respectively in the same period. went up to 35 from 40 in 2014.
New project announcements have been About the author
observed in several markets due to limited Dr. Subash Bhola is a Director of Research based in Mumbai. He
availability and high demand. Firms in the is responsible for managing the operations of JLL’s Real Estate
IT sector occupy most office space (39% in Intelligence Service in India. Other key responsibilities include
1H18) at the pan-India level and co-working commercial real estate analysis and forecasting.11 – Features
‘Prime’ time for logistics
If there is ever a time that logistics was Figure 1: Industrial Take-Up in Australia, by constrained supply of industrial land,
‘in’, the time is now. The reliance and need Industry (2008 to 2018 YTD) has recorded the strongest rate of annual
for logistics space is at an all-time high, take-up of industrial space within the
driven by advancements in the e-commerce Share of Take-Up by Total Floorspace inner submarkets. Between 2013 and
sector. 2008 31% 5% 16% 25% 8% 15% 2017, industrial take-up within Sydney’s
inner locations by transport, logistics and
The heightened emphasis on supply chain 2009 36% 4% 9% 31% 6% 14% e-commerce sectors recorded a five-fold
efficiency and effectiveness over the past 12 increase.
months in a bid to deliver goods with speed 2010 34% 4% 26% 17% 11% 9%
and agility for Australian consumers has, 26% 4% 17% 34% 8% 12%
2011 Figure 2: Sydney Inner West Submarket Take-
and will continue to have, positive spillover
Up (2017)
effects on the industrial property market. 2012 30% 3%13% 33% 7% 14%
A ‘prime’ example of fulfilling this customer 2013 24% 2% 19% 38% 7% 10%
3% 3% Information Media
value proposition is through Australia’s 10% & Telecommunications
2014 25% 2% 21% 33% 8% 12% 3%
newest and most significant entrant — Amazon. Manufacturing
2015 22% 1% 20% 33% 17% 7% Professional, Scientific
In 2018, Amazon Prime Day was one of the 38%
& Technical Services
largest global shopping events in Amazon’s 2016 32% 1% 20% 26% 9% 12%
Retail Trade
history – taking place across 17 countries
with more than 100 million products 2017 21% 2% 19% 32% 18% 7% Transport, Postal
43% & Warehousing
purchased. That is a lot of physical goods 23% 2% 15% 39% 6% 14%
2018* Other
circulating within warehouses and being
transported across local, domestic and Manufacturing Transport, Postal
Source: JLL Research
international distribution networks. Professional, Scientific
& Warehousing
& Technical Services Wholesale Trade
Over 2018, the transport/logistics and retail Retail Trade Other
sectors combined have accounted for just There is no doubt that major e-commerce
over half of the total take-up of industrial Source: JLL Research players will improve their offerings and
floor space in Australia. Major e-commerce further expand their logistics and supply
players, as well as the retailers which have to efficiently fulfil orders – encompassing chain network in Australia. This, along with
adopted a dual strategy (i.e. physical and orders domestically received and/or orders the projected growth of e-commerce will
online retailing), are currently in a bid to that require overseas export distribution. ultimately mean an increasing volume of
differentiate themselves in a market that This has spurred a renewed appetite for physical goods circulating – and industrial
is in an ‘introductory’ e-commerce growth pure industrial space in inner ring locations space is at the forefront in capturing the
phase – unlike the US where e-commerce – optimal for the last leg of delivery. positive spillovers from this expansion.
growth has matured. New entrants
Sydney, being the most densely populated
are doing this by seeking to build their
city in Australia and having the most
consumer base, increase their product
offerings, and reduce the standard delivery
period – which is currently an offset About the author
between higher delivery speed and lower Sass J-Baleh is Director of Strategic Research, based in Sydney. Sass
transport cost borne by the consumer. joined JLL in September 2018 and leads the Industrial Research team
Major e-commerce and logistic players have in Australia. Sass produces white papers and bespoke reports for
been on the move to secure logistics space domestic and global clients.Proptech.
It’s changing our homes, work and cities.
Start-up funding for proptech in Asia Pacific
will reach US$4.5 billion in 2020.
How will it change your life?
We’ve done the research. Download
Clicks and Mortar:
The Rising Influence of Proptech at –
access.jll.com/proptech-report-2017Office
Hong Kong
“Tight vacancy will extend
rental growth in spite of
expected slowdown in
14 – Office
demand in 2019.” Stage in Cycle
Rental Growth Y-O-Y sq ft per month,
Denis Ma, Head of Research,
8.1%
net effective on NLA Growth
Hong Kong HKD 128.1 Slowing
Financial Indices Co-working footprint grows despite economic uncertainty
• Co-working providers continued to be a major source of office demand as they
170
sought to expand their operations across the city. WeWork reportedly leased
160 59,100 sq ft at Lee Garden One and Hysan Place in Causeway Bay.
150
• Net absorption amounted to just 35,300 sq ft in 4Q18, the lowest level in six
140
quarters. With vacancy in core areas remaining tight, tenants continued to show
130 a preference towards new decentralised Grade A office projects, particularly on
Index
120 Hong Kong Island.
110
Two commercial/hotel sites in Kai Tak to be tendered in 2019
100
• The government announced that two development sites on the old Kai Tak
90
Airport Runway will be tendered in 1Q19 (1.5 million sq ft). Remaining unsold
80
4Q14 4Q15 4Q16 4Q17 4Q18 4Q19
sites in the 2018/19 land sale programme, are likely to be rolled over to the
Rental Value Index Capital Value Index 2019/20 programme.
Arrows indicate 12-month outlook • No Grade A Office buildings were issued with occupation permits in 4Q18. Total
Index base: 4Q14 = 100 new supply in 2018 amounted to 1.9 million sq ft, while 2019 is expected to yield
Financial Indicators are for Central. 3.2 million sq ft of new Grade A office space. This is the highest amount of new
Source: JLL
supply since 2008, although government buildings account for 520,000 sq ft of
this supply.
Physical Indicators
Capital values advance despite slowdown in transaction numbers
350 6 • Despite some weakening demand, rents in the overall market advanced 1.3%
300 q-o-q against a tight vacancy environment. Capital values grew by 0.6% q-o-q,
5
underpinned by robust prices attained in strata office sales.
250
4 • A subsidiary of Hopson Development, a Guangzhou-based real estate company,
Thousand sqm
200
Percent
150 3
has reportedly acquired the 49/F of The Center for HKD 1.12 billion (HKD 43,510
per sq ft), a new lump sum record high for a floor in the building.
100
2
50 Outlook: Market reaching a tipping point
1
0 • The tight vacancy environment is expected to lend support to rents despite
-50 0 slowing demand. Rents are expected to grow 0-5% in 2019 though downside
14 15 16 17 18 19F pressure is expected to gradually increase over the course of the year.
Take-up (net) Completions
Future Supply Vacancy Rate • Capital values are forecast to retreat 5-10% amid an increasingly uncertain
economic outlook and weakening investment appetite. Higher borrowing costs
For 2014 to 2018, take-up, completions and vacancy rates are year-end and a slowing rental market should see yields decompress over the next
annual. Future supply is for 2019.
Physical Indicators are for the overall market. 12 months.
Source: JLL
Note: Hong Kong Office refers to Hong Kong’s overall Grade A office market.Beijing
“Despite stable demand,
landlords are becoming
more conservative due to
15 – Office
Stage in Cycle
the economic uncertainty.”
Rental Growth Y-O-Y sqm per month,
4.6%
net effective on GFA Rents Mi Yang, Acting Head of Research,
RMB 402 Stable Beijing
Overall demand slows, but IT sector remains strong Financial Indices
• Apart from the IT sector, growth momentum slowed in the quarter under 150
increased economic uncertainty. As a result, some upgrade and expansion
demand was put on hold. Demand continued to come primarily from IT firms, 140
which was an exception to the general market trend. TMT companies continued 130
to expand with supportive government policies.
120
Index
• Landlords have generally become more conservative, with most lowering
expectations for 2019 at end-2018. Even in the tight-vacancy market, landlords 110
exercised caution, diligently checking the reputation and reliability of tenants as 100
they prioritised stability over high rents.
90
Three new buildings come online 80
• Three new additions to stock came online this quarter: one building in Wangjing 4Q14 4Q15 4Q16 4Q17 4Q18 4Q19
was wholly for self-use; two other buildings opened in emerging Lize, which has Rental Value Index Capital Value Index
yet to develop and attract widespread attention in the market. As such, the new Arrows indicate 12-month outlook
projects did not weigh on the market. Index base: 4Q14 = 100
Financial Indicators are for the CBD.
• The overall vacancy rate increased to 4.9%, driven by the two new buildings Source: JLL
in Lize that entered the market largely vacant. However, across most other
submarkets, vacancy rates remained low.
Physical Indicators
Rents remain stable across submarkets
1,000 8
• Rents were flat across most submarkets, as landlords acted more conservatively
900
due to the uncertain economic environment. Likewise, many tenants preferred 7
800
to renew contacts and stay put under the current environment. Zhongguancun 6
700
was the only submarket to see a significant rental increase (1.7% q-o-q), as
Thousand sqm
600 5
leasing demand from IT firms remained strong.
Percent
500 4
• A few deals were rumoured to be purchased by foreign investors, as some 400 3
domestic landlords were reported to be under greater financial pressure due 300
2
to the tight monetary environment. A small handful of other projects were also 200
100 1
said to be under negotiation in the quarter.
0 0
Outlook: First CBD Core Area projects slated to finally open 14 15 16 17 18 19F
Take-up (net) Completions
• With a temporary substation in the CBD Core Area rumoured to be completed Future Supply Vacancy Rate
in the first half of the year, delays related to power supply are expected to be
For 2014 to 2018, take-up, completions and vacancy rates are year-end
addressed in time for the first building to enter the market by end-2Q19. These annual. Future supply is for 2019.
new projects are expected to add pressure to nearby landlords, causing rents in Physical Indicators are for the overall market.
the submarket to dip. Source: JLL
• TMT companies are expected to drive demand going forward, as IT continues
to be a major source of demand. Many domestic IT giants were still set on
expansion at end-2018, a trend that is expected to carry into 2019.
Note: Beijing Office refers to Beijing’s overall Grade A office market.Shanghai
“The decentralised market
continues to flourish.”
16 – Office
Daniel Yao, Head of Research, sqm per day, Stage in Cycle
Rental Growth Y-O-Y
China net effective on GFA Rents
2.2% RMB 10.5 Rising
Financial Indices Overall Grade A net absorption reaches 1.3 million sqm in 2018
140
• In 4Q18, leasing demand remained robust in the Shanghai office market.
Financial services drove the demand in Pudong CBD. Retail companies’
130 upgrade and expansion requirements largely drove demand in Puxi CBD.
• Demand from TMT companies remained strong as well. Flexible space
120
remained popular as co-working operators continued to expand their
Index
110 footprints, and corporates have been increasingly embracing a flexible working
culture to attract young talent.
100
New additions to stock in 2018 reaches 1.3 million sqm
90 • In 4Q18, Foxconn Building and Ruiming Tower reached completion in Lujiazui
CBD. In the decentralised market, three projects added 155,200 sqm to the
80
4Q14 4Q15 4Q16 4Q17 4Q18 4Q19
market, including EBA Center in the Dalian Road submarket, and Qiantan
Rental Value Index Capital Value Index Oriental Plaza and New Bund Times Square in the Qiantan submarket.
Arrows indicate 12-month outlook • Pudong CBD vacancy edged up 2.0% y-o-y to 12.1% as a result of vacancy in
Index base: 4Q14 = 100 new completions. Puxi CBD vacancy decreased 1.5% y-o-y as core projects saw
Financial Indicators are for the CBD. strong leasing performance. Decentralised market vacancy edged down 3.5%
Source: JLL
y-o-y as leasing demand improved.
Puxi CBD rents rebound, while Pudong CBD faces competition
Physical Indicators
• Falling vacancy has boosted sentiment for Puxi CBD landlords, allowing rents to
700 12 increase 3.1% y-o-y. Premium Grade A buildings led rental growth in the core of
Puxi CBD. Pudong CBD’s dominant demand driver of financial services exhibited
600 10 stable demand, but the market faces increasing challenges due to new stock
500 additions and the emergence of new decentralised submarkets in Pudong.
8
Thousand sqm
400 • Foreign investors dominated the investment market in 2018. Several
Percent
6
300
transactions closed towards year-end, including Star Harbour in North Bund,
4 MixC and Mapletree Business City in Minhang, and Ocean Towers in People’s
200 Square.
100 2
Outlook: Large influx of stock expected to limit rental growth
0 0
14 15 16 17 18 19F • Decentralised submarkets will continue to see a large volume of supply come
Take-up (net) Completions online, especially in the Pudong decentralised market and Puxi’s Xuhui Bund
Future Supply Vacancy Rate submarket. New additions in the CBD areas will be more limited in 2019,
especially in the Pudong CBD.
For 2014 to 2018, take-up, completions and vacancy rates are year-end
annual. Future supply is for 2019. • The government’s focus on financial market opening-up as well as efforts to
Physical Indicators are for the CBD.
Source: JLL make Shanghai a technology and innovation hub is expected to boost office
demand from related sectors. At the same time, while Shanghai’s service sector
growth remains healthy, lingering global economic uncertainty may weigh on
corporates’ office leasing strategies.
Note: Shanghai Office refers to Shanghai’s overall Grade A office market, consisting of Pudong, Puxi and
decentralised areas.Guangzhou
“Demand and economic
factors are catalysing a
shift to a tenant-favourable
17 – Office
Stage in Cycle
market.”
Rental Growth Y-O-Y sqm per month,
7.1%
net effective on GFA Rents Silvia Zeng, Head of Research,
RMB 190 Falling South China
Demand evidently losing steam Financial Indices
• Due to the unsettling US-China trade war and tight domestic credit, some 150
early contract terminations were noticed, mainly attributable to peer-to-peer
(P2P) lending firms, which had felt the effects of the slowing economy and the 140
government’s reduction of P2P registrations. The uncertain economic outlook
made companies in numerous industries temporarily halt their expansion 130
plans. Some approached co-working operators for more flexible terms.
Index
120
• The majority of Grade A office properties received fewer enquiries and visits
by prospective clients. However, tech companies and insurance firms inked 110
new deals this quarter.
100
Influx of new stock not yet causing fluctuation in vacancy
90
• A new office property, called Skyline Plaza, was delivered in 4Q18. Located 4Q14 4Q15 4Q16 4Q17 4Q18 4Q19
in the Pazhou submarket, it added more than 100,000 sqm of high-quality Rental Value Index Capital Value Index
space to Guangzhou’s Grade A office stock.
Arrows indicate 12-month outlook
Index base: 4Q14=100
• Despite the introduction of the large new office asset, there was a satisfactory Financial Indicators are for Zhujiang New Town.
level of pre-leasing. Incentives introduced by landlords elsewhere in the city Source: JLL
induced stronger leasing activity in other locations. Consequently, a minor rise
in the overall vacancy rate to 6.8% was recorded.
Physical Indicators
Tenants seizing more bargaining power
600 14
• Many landlords in the quarter either offered discounted rents or a longer rent-
free period, to quicken the reabsorption of space. Zhujiang New Town (ZJNT) 500
12
witnessed declining rents in 4Q18, in contrast to the rental increases observed
10
in recent quarters. Net rents dipped by 1.0% q-o-q in 4Q18, after steady 400
Thousand sqm
appreciation over seven consecutive quarters. 8
Percent
300
6
• It was observed that developers facing financial pressure were willing to spend
200
more time negotiating. They were prepared to accept price adjustments for 4
uncompleted assets in emerging locations. Guangzhou’s Grade A office capital 100 2
values fell slightly in 4Q18.
0 0
Outlook: Tipping point on the horizon 14 15 16 17 18 19F
Take-up (net) Completions
• The unresolved trade dispute between the top-two economies points to a Future Supply Vacancy Rate
clouded economic outlook. Most corporations are expected to exercise much
caution, when evaluating business strategies. It may be challenging for many For 2014 to 2018, take-up, completions and vacancy rates are year-end
annual. Future supply is for 2019.
landlords to maintain current rents, resulting in static or declining market rents. Physical Indicators are for the overall market.
Source: JLL
• About 600,000 sqm of new office space is anticipated to come online in 2019.
A high proportion of this space, situated in mature precincts, is pre-committed.
Thus, the actual total amount of vacant space combined with waning demand
should not cause the vacancy to rise much in the core areas.
Note: Guangzhou Office refers to Guangzhou’s overall Grade A office market.Taipei
“Office leasing reaches
record high while the
investment market is slowly
18 – Office
gaining momentum.” Stage in Cycle
ping per month,
Rental Growth Y-O-Y
Jamie Chang, Head of Research, net on GFA Growth
4.5% NTD 3,262
Taiwan Slowing
Financial Indices New completions continues to attract demand
130 • Net absorption reached a record high with no major owner-occupancy taking
place in the year. One newly released building reached full commitment upon
completion and this in combination with additional relocations and upgrades
120 pushed the quarterly net absorption to 20,100 ping. Annual net absorption
totalled 61,600 ping, the highest value on record.
Index
110 • Demand in 2018 mainly came from the finance, professional/consulting
services, high-tech/IT, and mobile gaming sectors. Most of these tenants
originally had offices in several locations or ageing buildings of Grade B quality
100
or lower, while some sought space for expansions.
One new completion reaches full occupancy
90
4Q14 4Q15 4Q16 4Q17 4Q18 4Q19 • One new building came online in the quarter, providing 10,605 ping of leasable
Rental Value Index Capital Value Index space in Xinyi.
Arrows indicate 12-month outlook • The new addition was fully occupied right after launching and coupled with
Index base: 4Q14 = 100
Financial Indicators are for Xinyi. new leases signed in other buildings pushed the overall vacancy down by 3.2
Source: JLL percentage points y-o-y to 5.5%, the lowest on record. Vacancy in Xinyi dropped
below 5%, while the Non-Core CBD reached 0.4%.
Physical Indicators Quality new stock and low vacancy supports rent growth
• New stock with high asking rents and decreasing vacant space continued to
200 12
result in increasing rents. Leases signed in the newly released supply pushed
180
10 overall rents up by nearly 2.9% y-o-y to NTD 2,728 per ping per month, the
160
140
highest level in history.
8
Thousand sqm
120 • Domestic banks and corporate investors dominated investment activity in
Percent
100 6 4Q18. The quarterly transaction volume for all property types was recorded
80 at NTD 32.6 billion, taking the total annual amount to NTD 88.1 billion, an
60 4
increase of 43.9% y-o-y. The majority of transactions were for owner-occupancy
40 2 purposes; yields and capital values remained rather level on an annual basis.
20
0 0 Outlook: Limited supply pipeline expected in 2019
14 15 16 17 18 19F
Take-up (net) Completions • New additions to stock peaked in 2018, and no large-scale completions are
Future Supply Vacancy Rate scheduled in the near term. As available space in new buildings continues to be
absorbed, future tenants may start seeking space in Dunhua North and South.
For 2014 to 2018, take-up, completions and vacancy rates are year-end Space released from relocations is likely to attract the attention of tenants from
annual. Future supply is for 2019.
Physical Indicators are for the overall market. Grade B or lower quality buildings. Aged buildings in the city are facing the need
Source: JLL of refurbishment.
• Lack of supply in the major submarkets is likely to continue driving investors’
attention to other commercial property niches or public land development projects.
The U.S.-China trade conflict may drive Taiwanese businesses to repatriate.
Note: Taipei Office refers to Taipei’s overall Grade A office market.Tokyo
“Leasing market sees
new stock almost entirely
absorbed; investment
19 – Office
tsubo per month, Stage in Cycle market remains robust.”
Rental Growth Y-O-Y
gross on NLA Growth Takeshi Akagi, Head of Research,
3.9% JPY 38,178 Slowing Japan
Net absorption in 2018 second largest on record Financial Indices
• According to the Tankan survey in December, the business sentiment index of 150
large manufacturers was 19 points, remaining flat q-o-q, while that of large non-
manufacturers was 24 points, a q-o-q increase of 2 points. The gain marked the 140
first improvement in two quarters and ran contrary to the previous outlook.
130
• Net absorption in 4Q18 totalled 116,000 sqm. This was a slowdown from the
Index
previous quarter due to limited available space. Thus, demand continued to 120
funnel to the expected oncoming supply in 2019 and 2020. Net absorption
in 2018 totalled 714,000 sqm, the second highest level after the take-up of 110
787,000 sqm in 2003. Demand came from industries including information and
100
communication, professional services and manufacturing.
90
Vacancy dips to 1% 4Q14 4Q15 4Q16 4Q17 4Q18 4Q19
• In 4Q18, the Marunouchi Nijyubashi Building (71,000 sqm NLA) came online, Rental Value Index Capital Value Index
increasing total stock by 1% q-o-q. For the full-year 2018, total stock increased
Arrows indicate 12-month outlook
by 8%, as a total of ten buildings with 601,000 sqm (NLA) entered the market. Index base: 4Q14 = 100
Source: JLL
• The vacancy rate stood at 1.0% in 4Q18, decreasing 50 bps q-o-q and 150 bps
y-o-y. Vacancy decreased across the CBD except for Shibuya, which continued
to reflect virtually no vacancy. With limited vacancy in existing buildings,
forward commitment activity for future additions has been increasing. Physical Indicators
Rent and capital value growth continues 700 5
• Rents averaged JPY 38,178 per tsubo per month in 4Q18, increasing 1.4%
600
q-o-q. Rent growth was 3.9% in 2018, marking the third strongest gain since 4
the uptrend started in 2012. Rent growth was driven by Shinjuku in addition to 500
Thousand sqm
submarkets that saw new additions, such as Hibiya, Nihonbashi and Shibuya. 400 3 Percent
• Capital values increased 1.9% q-o-q and 7.2% y-o-y in 4Q18 driven by the 300 2
increase in rents in most submarkets. In spite of strong interest from investors,
200
limited opportunities were offered on the market, resulting in no Grade A office 1
sales transactions announced in 4Q18. 100
0 0
Outlook: Rents and capital values to grow but pace to slow 14 15 16 17 18 19F
• According to Oxford Economics, Japan’s real GDP is forecast to grow by 1.0%, Take-up (net) Completions
and CPI is likely to rise 1.1%, in 2019. Rising trade tensions and uncertainties in Future Supply Vacancy Rate
the global economy remain major downside risks.
For 2014 to 2018, take-up, completions and vacancy rates are year-end
annual. Future supply is for 2019.
• Upcoming supply to be delivered in 2019 and 2020 is equivalent to 130% and Source: JLL
200%, respectively, of the previous ten-year average. Robust demand has already
brought the forward commitment rate to 80% in 2019 and 40% in 2020. This
suggests the impact of new supply on the vacancy rate should be limited, and as
a result, rents are likely to see modest growth. Capital values are expected to rise
in the wake of rent growth, and further cap rate compression is possible.
Note: Tokyo Office refers to Tokyo’s overall Grade A office market.Osaka
“Rents continue to steadily
grow, while activity is
strong in the investment
20 – Office
market.” Stage in Cycle
Rental Growth Y-O-Y tsubo per month,
Yuto Ohigashi, Director - Research,
10.1%
gross on NLA Rents
Japan JPY 20,694 Rising
Financial Indices Negative net absorption in spite of robust demand
240 • According to the December Tankan survey for Greater Osaka, the business
sentiment index for large manufacturers was 17 points, increasing by 3 points
220
q-o-q and the first recorded improvement in the past four survey periods. The
200 index for non-manufacturers was 28 points, an increase of 1 point q-o-q. This
180 reflected strengthening internal and external demand as well as reconstruction
Index
demand following natural disasters.
160
140 • Net absorption totalled -900 sqm in 4Q18, the first negative figure in eight
quarters. Healthy demand from industries including information and
120
communication and professional services has encountered extremely limited
100 supply, reflected in a sub-3% vacancy rate for seven consecutive quarters and
80 new supply in 2018 constrained to 50% of the previous 10-year annual average.
4Q14 4Q15 4Q16 4Q17 4Q18 4Q19
Rental Value Index Capital Value Index Tight-vacancy environment persists
Arrows indicate 12-month outlook • No new supply entered the market in 4Q18. In 2018, total stock increased by
Index base: 4Q14 = 100 2%, as only one new building added 35,000 sqm (NLA) of supply to the market.
Source: JLL
• The vacancy rate stood at 1.1% in 4Q18, increasing 5 bps q-o-q and decreasing
80 bps y-o-y. The slight increase reflected tenant turnover in submarkets
including Umeda and Midosuji.
Physical Indicators
Double-digit rental growth for third consecutive quarter
160 9
• Rents averaged JPY 20,694 per tsubo per month in 4Q18, increasing 2.1% q-o-q
140 8
and 10.1% y-o-y. Rental growth was recorded for the 18th straight quarter.
120 7
6 • Capital values grew 7.2% q-o-q and 27.9% y-o-y in 4Q18. This marked the 21st
Thousand sqm
100
consecutive quarter of growth. In the investment market, Hankyu Hanshin Reit
Percent
5
80 acquired partial ownership (4.9%) in Grand Front Osaka’s Umekita Plaza and
4
60
3
South Building for JPY 9.21 billion (NOI cap rate of 4.3%), and also a stake (4.9%)
40 in Grand Front Osaka’s North Building for JPY 6.57 billion (NOI cap rate of 4.6%).
2
20
The seller was the REIT’s sponsor Hankyu Railway.
1
0 0 Outlook: Rent and capital value growth to continue
14 15 16 17 18 19F
Take-up (net) Completions • Although economic growth for Osaka is expected to be limited in 2019 amid
Future Supply Vacancy Rate global headwinds, underlying demand in the office sector is expected to remain
healthy.
For 2014 to 2018, take-up, completions and vacancy rates are year-end
annual. Future supply is for 2019. • Net absorption shall remain constrained by the lack of available space as no
Source: JLL
new completions are in the pipeline for 2019. Further tightening of vacancy
should drive positive rent growth momentum. Capital values should also rise on
the back of rent growth and with further compression of cap rates probable.
Note: Osaka Office refers to Osaka’s 2 Kus Grade A office market.Seoul
“The Seoul market turns in
weak net absorption.”
21 – Office
pyung per month, Stage in Cycle Sungmin Park, Head of Research,
Rental Growth Y-O-Y
net effective on GFA Rents Korea
0.5% KRW 92,142 Stable
Healthy demand in Yeouido continues Financial Indices
• Overall net absorption was recorded at 4,804 pyung in 4Q18, with relatively mild 120
take-up in the CBD and Gangnam. During the quarter, the CBD saw several large
relocations including Shin & Kim departing State Tower Namsan for D Tower
(9,000 pyung) and Kumho Asiana Group leaving Concordian for Centropolis
(6,100 pyung). 110
Index
• Yeouido continued to observe healthy leasing demand with strong momentum
seen at IFC and FKI. IFC secured prominent deals during the quarter including
Meritz Security (6,400 pyung) and Carrier (910 pyung). FKI drew new tenants such 100
as Teachers Pension (940 pyung) and KDB Infra (750 pyung).
Vacancy decreases with no new Grade A supply 90
• Seoul’s overall vacancy rate dropped by 30 bps q-o-q to 12.8% amid no new 4Q14 4Q15 4Q16 4Q17 4Q18 4Q19
supply during the quarter. Strong take up of space in Yeouido during the quarter Rental Value Index Capital Value Index
drove its vacancy rate down by 200 bps to 12.5%, while Gangnam and the CBD Arrows indicate 12-month outlook
saw vacancy hold steady. Index base: 4Q14 = 100
Financial Indicators are for the CBD.
• No new Grade A completions were recorded during 4Q18. Source: JLL
Rents rise in Yeouido and Gangnam as incentives decline
• Overall rents in 4Q18 increased 0.7% q-o-q, as several landlords in Yeouido and Physical Indicators
Gangnam lowered incentives following the healthy take up of space. The CBD saw
300 14
rents decline 0.4% q-o-q, due to a small uptick in the rent-free level.
250 12
• The largest investment deal concluded during the quarter was M&G’s acquisition
of Centropolis, a twin tower complex in the CBD, for KRW 1.12 trillion, the largest 10
200
Thousand sqm
transaction since the sale of IFC. Another notable deal involved Yongsan The 8
Percent
Prime Tower, which traded from a REIT by Koramco to Shinhan REIT for KRW 150
6
165.1 billion. 100
4
Outlook: Rent growth to improve further with steady take up 50 2
• Overall net absorption in 2019 is expected to remain steady as Yeouido’s positive
0 0
leasing momentum should continue into the first half of the year. Gangnam’s 14 15 16 17 18 19F
net take-up is likely to pick up on the back of new stock supplied in 2018, which Take-up (net) Completions
provides new options for occupiers in the tight vacancy submarket. Future Supply Vacancy Rate
• Rental growth will likely continue but may be limited by the existing vacancy For 2014 to 2018, take-up, completions and vacancy rates are year-end
levels of the CBD and Yeouido. Gangnam will likely continue to outperform annual. Future supply is for 2019.
Physical Indicators are for the overall market.
in terms of rental growth as limited vacant space will most likely put some Source: JLL
downward pressure on rent-free incentives.
Note: Seoul Office refers to Seoul’s Grade A office market.You can also read
