Asian cities to suffer less new office space stock in 2015

Lessees must prepare to bear the brunt of rent hikes.

It has been noted by Colliers International’s 2015 Property Outlook that the outlook for the office real-estate market in Asia looks optimistic for 2015, with an increasing number of multinationals poised to expand both in terms of human resources and corporate acquisitions. That will naturally lead to increased demand for office space.

According to a release from Colliers International, companies are also placing a greater focus on cost management and cost consciousness, leading to a drive to reduce operating costs.

Rents are set to rise in the region in 2015, Colliers International forecasts. Many companies will therefore look to expand in decentralised locations to save on costs and help them consolidate operations.

Another trend to expect in 2015 is for multinational occupiers to favour disposing of real estate that they own and diverting capital to other business-investment options.

“Conversely, many domestic occupiers see real-estate acquisitions as an investment strategy, as well as an effective way to manage expenses, and so they are likely to increase their buying activity,” Mark Lampard, Managing Director of Corporate Solutions, Asia Pacific, said.

Here's more from Colliers International:

Many markets in Asia are set to see less new stock added in 2015 than the annual norm. In markets such as Hong Kong, that will lead to more-pronounced increases in rents.

But not all Asian cities are capacity-constrained. Markets such as Chengdu, Bangkok and Ho Chi Minh City “are all cities that are expected to see a significant increase in new supply, which will more than likely lead to flat rental environments,” Lampard said.

With governments continuing with their stimulus measures in Japan and Europe, it is likely that demand for exports will improve. Asia, still heavily dependent on exports, is set to benefit from any pickup in global growth. The election of pro-business governments in India and Indonesia should also be positive factors for those nations.

The office-leasing market in Asia should remain healthy in the year ahead. Although Colliers anticipates a rise in U.S. interest rates in 2015, rates remain low by historical averages. Multinationals are also benefitting from declining energy costs, with oil having slumped considerable in 2014.

Both factors are helping to improve profit margins, a welcome sign at a time that top-line revenue growth is expected to be only mildly positive. Colliers forecasts that gross domestic product will pick up by an average of 40 basis points across Asia in 2015.

In China, Colliers anticipates that companies in the e-commerce and finance industries are set to show exceptional growth in 2015, thanks to supportive government policies. In India, energy and construction groups will be expanding, and demanding more office space.

On the policy front, Colliers predicts that some of the cooling measures introduced in various markets in recent years will be relaxed, particularly when more-realistic levels of supply lead to an increase the existing office stock.

With the cost of borrowing rising and yields largely compressed for prime assets in core locations, investors will have to behave differently to produce returns. Value-added opportunities will achieve that purpose with landlords repositioning existing projects or converting them for other use.