Asian rental growth outpaces Europe

With fears of sovereign debt persisting in Europe and economic growth in both Europe and North American remaining low, Asia has a number of economies still showing notable signs of growth. Real GDP growth in the Asia-Pacific region stands at over 6 per cent per annum, whilst in the more developed European and North American markets growth stands at only 3 per cent.

One of the consequences of the economic growth that has been witnessed in Asia is a rise in office rents in the region. Office rental levels in the Asia-Pacific region increased by 13.47 per cent year on year at the end of the second quarter 2011, compared to 2.38 per cent in Europe, Middle East and Africa (EMEA) and just 1.51 per cent in the Americas.

Nick Axford, head of research for Asia-Pacific, said: “We continue to see occupier demand for the major markets in Asia, as organisations seek to benefit from the continued strength of the region’s economies. Markets which have seen notable increases in rental levels include Hong Kong and Singapore, along with the major cities in China”.

“Demand in China has been driven by both domestic and foreign companies, whilst in Hong Kong and Singapore the demand for space has been driven by banks who have increased their headcounts,” said Axford.

Comparing these markets to Vietnam, Axford said: “The market movement that has been seen in Vietnam is in contrast to that witnessed elsewhere in Asia, growing supply, coupled with a softening in demand throughout 2011 has put downwards pressure on rents”.

The potential for future rental growth is a key determining factor for investors, and it is therefore interesting to note that investment transactional activity in the Americas and EMEA is still notably ahead of that in Asia-Pacific. The second quarter of 2011 saw investment activity in the Americas of  over $53 billion, compared to over $40 billion in EMEA and just over $20 billion in the Asia Pacific region.

Axford said: “Whilst it is clear that transactional activity in the region is less than either the Americas or EMEA, it is apparent that investors have appetite for Asia should the right properties be available. The CBRE Asia Pacific Capital Value Index grew by 24.4 per cent year on year in the second quarter of 2011, emphasising the possibly range of returns which investors may have access to and whilst the market continues to perform in this manner it is likely we will see growth in the investment market”.

The strong growth in capital values in Asia-Pacific contrasted to a 12.7 per cent year on year growth in the CBRE Americas Capital Value Index and 8.6 per cent year on year growth in the CBRE EMEA Americas Capital Value Index  in the second quarter.

Vietnam’s institutional investment is still in its formative stage though there has been notable institutional activity in both Ho Chi Minh City and Hanoi over the past 18 months, with investors from Asia most notably Japan and Singapore acquiring assets.