ASIA PACIFIC

Staying the Course in a

New World Order

JANUARY 2017
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER Cushman & Wakefield Research Publication 2017

KEY TAKEAWAYS:
Contents
2017 Forecasts at A Glance
4
Solid albeit
moderating
Surging demand for
office space has been
Steady Regional Economic Growth amid Rising Uncertainty
8
economic growth fueling a development
has underpinned strong demand
Deal or No Deal: Regional Trade to Continue
gains in most of the 25 major cities
boom, with prime completions
10 expected to reach new highs through
in Asia Pacific over the last five
The Party is Not Yet Over: Office Demand on Track to Be Better
11 2018, which in turn, will push up
years and that trend will continue
vacancies and ease rent increases in
New Supply Brings New Vacancy in Most Markets
12 through 2017. Policy changes will
most parts of the region.
also help shape key themes in 2017.
Muted Rent Increases, while Record Rents Set in 15 Markets
14
Co-Working is Here to Stay. You Have Been Warned!
15
Positive Investment Momentum Remains Entrenched
16 Even so, high rents will persist and even remain
New Guards at the Gate Causing Short-Term Pain but Long-Term Gain
18 at record levels in 15 markets, which could pose as a strain
Foreign Investments Will Remain a Strong Pillar for occupiers seeking to reduce costs in a slower growth and fast-changing
19 environment. Nonetheless, occupiers will have increasing leverage as more than
half of the markets will see vacancies rise to over 14% in 2017.

Landlords will have Co-working space will

the upper hand in
markets with single-
digit vacancies and above-
average rent growth: (core)
Sydney, Melbourne, and Tokyo;
(emerging) Bengaluru, Chennai,
Hyderabad, Pune, and Bangkok.
Sydney and Tokyo will boast
lowest vacancies in the region
and post the highest rent growth
along with Melbourne among
core markets; a still-booming
offshoring industry will allow
Indias leading technology hubs,
Bengaluru, Pune, and Hyderabad,
to record the highest rent growth
among emerging markets.
continue to increase
in prominence in the
region, especially as more
multinational corporations jump on the
creative workspace bandwagon.
Favorable prospects in
the region will continue
to draw investor
interest and ample capital that
will sustain an active investment
marketplace, with cap rates holding
steady or even firming up in a number of
markets through 2017.

2 3
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER

Steady Regional Deal or The Party is

Economic No Deal Not Yet Over
Growth amid Regional Trade Office Demand on
Rising Uncertainty to Continue Track to Be Better

4.8
0%
APAC

5.0
0
5.3
FTAAP? RCEP?

%
5.4

2
5.5

5.3
5.7

4
%

New Supply
1
5.6

%
6.2

0
7%

%
2016
9
7%

2015
%

2014
2013 2017
2011
2012
Brings New Vacancy
in Most Markets

Emerging Core
*RCEP - Regional Comprehensive Economic Partnership
**FTAAP - Free Trade Area of the Asia Pacific
75-80msf 49 2010 19 50 msf
annual average annual average

47 2011 28
Beijing &
Muted Rent Co-Working is Positive Investment 8 out of 17 56 2012 29 Shanghai
account for
Increases, Here to Stay Momentum
emerging markets
will have vacancies 70-80%
Sydney

while Record Rents Set You Have Been Warned! Remains Entrencheds 44 2013 24
above 20%
Melbourne

in 15 Markets 552
Tokyo

508 502 510

Vacancy

Vacancy
446 45 2014 19 Singapore
ru

384 large scale

u

341
new supply
gal

335
ad

Pun

Over a quarter 60 2015 37 in 2017

k

Ben
erab
gko
i

of new projects
nna

236
will be located
Ban
Hyd
Che

173 168
in offshoring 74 2016 46
Rental Grow hubs
th

2009
2008
2007

2010

2014
Hong Kong

2016
2015
2012

2013

2017
2011
Bengaluru,
Hyderabad, a lot of new
77 2017 48
*Values in USD billion
Pune space coming
and Manila up, mostly in
*In US$ billion, rolling 12 months through Nov 2016,
where vacancies non-CBD
Portfolio deals and standalone deals >US$25m 84 2018 51
Source: Real Capital Analytics will be below 7% locations
in 2017 *Values are in million sf.

New Guards at the Gate Foreign Investments

Causing Short-Term Pain Will Remain a Strong Pillar
but Long-Term Gain HOT SAFE
HOT HOT
SAFE

SAFE

4 5
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER Cushman & Wakefield Research Publication 2017

HIGHLIGHTS
120 million sf

RECAP
Supply reached new
high-water mark Solid growth persisted across
the region despite a difficult
macro environment over the
region. Sectors like banking, held up even as an evolving
financial services, and insurance political landscape across the
(BFSI), as well as professional world spurred uncertainty;

25%
past year. On aggregate, the
regions economy remained
relatively strong and stable;
Information technology, governments and central banks
quickly responded to the volatile
a major driver of leasing activity global environment with policy
measures which helped prop
up domestic consumption and
investment. Chinas deceleration
to a more sustainable growth
services, were particularly strong
with their take-up levels, while
some companies in industries
like legal services increased
their space efficiency though
not decreasing headcount.
Information technology (IT)
sector remained the leading
industry for real estate
requirements, accounting for
pricing was steady and rising
in some cases, while cap rates
firmed up in many markets. The
year 2017 will inherit a healthy
economy; hence, expect another
year marked by continued
strong occupier demand,
healthy investor flows, and
high transaction volume in Asia
Pacific. In this report, we examine

US$502 billion rate proceeded as expected,

but showed a promising and
strengthening service sector.
Investment volume At the same time, policy
almost 25% of major leases (over
50,000 square feet) across the
region, but the pace of activity
trends that will play a significant
role in shaping the office market
in 2017.
has cooled down. We have

surpassed 2015 challenges emerged. Monetary

easing in Japan appears almost
stretched to its limit, with the
Bank of Japan (BOJ) utilizing
also seen various multinational
corporations (MNCs) experiment
with co-working spaces as a
means to achieve cost savings,

20%
new monetary tools to stimulate
the economy. Indias economy
got choked by Prime Minister
Highest rental Narendra Modis surprise
demonetization program last
growth in Sydney November, after making steady
progress since the start of 2016.
Even the much-awaited Trans-
Pacific Partnership (TPP) trade
pact, the region's hope for
boosting trade and long-term
growth, has disintegrated.
Nonetheless, the property
markets in the 25 major cities
that Cushman & Wakefield
considers in the regional
forecasts exercise have managed
to fare well in 2016. The
expansion in a broad spectrum
of industries across the region
has brought continued demand
growth in most parts of the
6 7
encourage innovation, or simply
use them as footholds until an
expansion is warranted.
Just as we had forecasted, new
supply also reached a new high-
water mark in 2016, adding over
120 million square feet (msf) of
prime stock in the region. As a
result, vacancies edged up, while
rents were hovering at record
highs in most markets. From
an investment perspective, we
estimated real estate investment
volume in the region would
surpass the level in 2015; and we
were right as it remains broadly
on track - investment volume for
the 12 months ending November
2016 totaled US$502 billion
compared to US$446 billion in
2015. Interestingly, commercial
real estate investment activity
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER Cushman & Wakefield Research Publication 2017

Steady World Oil Price (2008-2018)

FORECASTS
time, its recent demonetization1 will
likely hurt short-term GDP growth.
120
Regional This new policy is already causing a
liquidity crunch as currency is taken

Economic
out of circulation, denting business 100
and consumer activity. It is estimated

Growth
that it will take another five to six 80 "The current benign

USD Per barrel

months before invalid notes can be
inflation environment
amid Rising
replaced.2
60
Nonetheless, there are other sources
suggests that higher
Uncertainty of support for this still-solid growth 40 oil prices are not
outlook. Chinas economy will grow
steadily heading into 2017, and move 20
likely to crimp
Asia Pacific is expected to maintain
its respectable growth pace into 2017, closer to transitioning away from domestic demand "
with gross domestic product (GDP) an investment-driven growth model
0
expanding by 5.0%-5.2% in 2017. to one led by consumption. Despite
2008 2010 2012 2014 2016 2018
Collectively, prudent macroeconomic the weak third quarter GDP results
management will continue to in Australia, growth is expected to Source: Oxford Economics

underpin economic performance. bounce back with domestic demand

Furthermore, better growth
prospects for emerging Association
of Southeast Asia Nations (ASEAN)
economies, with strong domestic
2017
drivers, will be the backbone of
this economic strength. Indias GDP
growth will remain high, but has
been revised down from 7.6% to 7.1%
in fiscal year (FY) 2017/2018, largely
stemming from declining investments
and sluggish production. At the same
GDP Growth and Inflation Rate (2016-2018)
6%
5%
Inflation Rate (%)
supported by relaxed monetary
policy while exports benefit from the
drop in the Australian dollar. Export-
oriented economies should also
1 Indias Prime Minister Narendra Modi announced on
November 8, 2016 that he would withdraw the two
highest-denomination banknotes (the 500-rupee
and 1,000-rupee that represents 86% of currency in
circulation) and replace them with new 500 and
2,000- rupee notes. This currency swap move
was implemented to combat corruption, terrorism
financing and inflation.
2 The Ropy Rupee Call, The Economist, December
3, 2016.
India
Vietnam
benefit from the gradual upswing
in external demand, especially with
the expansion in the United States
(U.S.) remaining intact. The price
of oil is expected to show further
signs of improvement in 2017 given
the decision of the Organization of
the Petroleum Exporting Countries
(OPEC) to cut oil production
welcome news for oil-producers
in Malaysia and Indonesia, and
even Japan, as higher energy costs
would help counter deflation. The
consensus outlook calls for the
price of oil to rise from US$44 per
barrel in 2016 to US$55 US$70
per barrel3, though impact on oil
importers in the region is expected
to be modest.
Meanwhile, ongoing political
developments across the region
inflation environment suggests that
such development is not likely to
crimp domestic demand. In the case
of Japan, the U.S. dollar has also
strengthened because of the BOJs
policies. U.S. yields tend to push
other global interest rates higher,
including those in Japan, with the
10-year Japanese Government Bond
(JGB) yield now in positive territory.
However, since the BOJ targets
around 0% for the 10-year JGB, the
interest rate differential has widened
between the U.S. and Japan, causing
the yen to depreciate sharply.
The yens decline, if maintained,
could boost Japans external
competitiveness, increase its export
activity, and in turn, expand the
profit levels of Japanese companies.
However, given that the yen has

4% shown volatility in recent times, there

Indonesia
pose a slight downside risk to the is a risk that businesses are unlikely
3% Philippines outlook, but these are unlikely to to increase investment meaningfully.
Hong Kong Malaysia undermine growth. Depreciating Thus, even with fewer deflationary
Australia
China currencies in most parts of the
2% pressures, Japans growth is likely to
Taiwan region (due to expectations of be subdued in 2017.
Thailand
tighter monetary policy and
1%
Singapore higher inflation in the U.S.) are also Prior to the Fed's rate hike in
Japan South Korea likely to push up consumer prices December, the Chinese government
0% through higher import prices. has tightened requirements on
0% 1% 2% 3% 4% 5% 6% 7% 8%
Nonetheless, the current benign outbound investments with the
GDP Growth (%) dollar's role in its trade weighted
*Average growth rate 2016-18 3 OPEC Deal Could Be a Boon to World Economy exchange rate basket subsequently
Source: Oxford Economics Amid Shifting Dynamics, The Wall Street Journal,
lessened following it. However,
November 30, 2016.

8 9
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER Cushman & Wakefield Research Publication 2017

capital will continue to drift offshore since 20124. Notably, the U.S. is the a sustainable growth path for all
Annual Absorption 2010-2018
in the medium term as Chinese regions second biggest trading participating countries6. In addition,
investors diversify globally. China's partner, with Asias exports to the other regional negotiations such
monetary authorities will again walk U.S. worth over US$1 trillion in as the Regional Comprehensive
a fine line as it strives to maintain 2015, equivalent to 25% of its total Economic Partnership (RCEP)7 and
currency stability and achieve a exports5. With a newly elected the China-led Free Trade Area of
level of economic activity without president, the U.S. appears to chart the Asia Pacific (FTAAP) are likely
being overly accommodative. While a new course for its ties with Asia. to gain traction. In a speech at the
there are expectations of further Furthermore, with the TPP trade APEC session, Chinese President Xi
depreciation, Chinas Ministry of deal off the table, an agreement Jinping announced his government
Commerce issued a statement which would have linked the U.S. would support both RCEP and 36
33
saying that it does not aim to with 11 Asia-Pacific trade partners, FTAAP, which comes on the heels 29
33

Million SF
support exports by devaluing the there are questions about the ability of his third trip to Latin America to 31
renminbi. of countries in the region to fully promote a series of trade deals.
achieve trade liberalization and 15 16

Deal or No The Party

24
economic integration. Currently, 15
the U.S. has free trade agreements

Deal: Regional with just three countries in Asia

Pacific: Australia, South Korea, and
is Not Yet 46 48
53 55 59
42 43
Trade to Singapore.
Over: Office 35 36

Continue Fortunately, there is no shortage

of trade deals floating in Asia or Demand on 2010 2011 2012 2013 2014 2015 2016 2017 2018

While the economic prospects of

elsewhere. Asia Pacific leaders are
ready to step in to fill the economic Track to Be Emerging Core

Better
the region still look relatively bright, void from the withdrawal of the
there is growing concern about U.S from the TPP. The Asia Pacific

"TPP trade deal ongoing global policy developments

that could alter the economic
Economic Cooperation (APEC)
forum held in Lima last November Given a relatively healthy economic services sectors will underpin this
may be off the landscape in the medium term. The closed with a joint pledge to work landscape across the region, we demand strength. The launch of
the Shenzhen-Hong Kong Stock
table but there
region relies heavily on trade and towards a sweeping new free trade anticipate job gains in office-using
access to global markets. Based agreement that would help achieve employment sectors to drive new Connect is among recent initiatives

is no shortage on our analysis, opening to trade

has the potential to raise overall
office space requirements to record
highs across the region. Top-
of the Chinese government to
improve market access that should
of trade deals
4 The volume of world trade in goods and services
output; every additional dollar has grown by just over 3 percent a year since 2012, performing markets continue to also help reinforce Hong Kongs
less than half the average rate of expansion during
stature as a major international
floating in Asia "
increase in net exports could add the previous three decades. Source: International be those with broad-based growth
nearly 2.5 dollars to GDP. Yet, global Monetary Fund, World Economic Outlook. October
across industries and sectors such financial center. Tokyo Governor
2016.
trade growth has been declining as Shanghai, Beijing, and Tokyo, and Yuriko Koike has launched a drive
5 US Trade in Goods with Asia, https://www.census.
gov/foreign-trade/balance/c0016.html information technology/business to establish the Japanese capital
process outsourcing (IT-BPO) as Asias leading financial center
hubs of Bengaluru, Manila, and that could give a boost to the
Exports by Country Hyderabad. Positive developments BFSI sector in the regions largest
in the BFSI, technology, media and office market. Although detailed
China

2500 telecommunications (TMT), and plans are still emerging, U.S.

other professional and business President-Elect Donald Trump has
USD Billions

2000 expressed his intent to ease banking

6 Pacific Rim Nations Push Back on Free-Trade regulations and roll out financial
i
South Korea

1500 Skepticism, The Wall Street Journal, November 20,

2016. industry reforms that should help
Hong Kong

revitalize global financial institutions;

Japan

Singapore

7 i The RCEP is a Free Trade Agreement (FTA) under

1000
negotiation between ASEAN Member States and
Australia

2015 especially as the long period of ultra-

Indonesia

Philippines
Taiwan

Thailand

Malaysia

ASEANs FTA partners: ASEAN (Brunei, Cambodia,

2016 - 2020
500 Indonesia, Lao PDR, Malaysia, Myanmar, The low interest rates has strained their
India

Annual Average Philippines, Singapore, Thailand, and Vietnam) and

their FTA partners (Australia, China, India, Japan, profitability.
Korea, and New Zealand). When completed, the
0 agreement will be between 16 countries, which make
Further, emerging markets in
Source: Oxford Economics up 45% of the world population and contribute a
third of the worlds GDP. (Source: Ministry of Trade the region still require a financial
and Industry Singapore.)
10 11
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER Cushman & Wakefield Research Publication 2017

system that will create new
offerings and services to fuel
growth in various industries and
sustain their dynamism.8 Case in
point, HSBC Holdings Plc recently
announced plans to step up hiring
in China as the bank expands in
areas from mortgages to credit
cards, personal lending, and wealth
services.9 2017 will also witness
the office sector benefit from the
continued growth of the sharing
economy, as demand for shared
office spaces and less conventional
workspaces become more
widespread across the region.
There are, of course, headwinds.
Prospects of increased protectionism
across the globe could impinge
on offshoring activities and have
repercussions for Asias export-
oriented manufacturing and service
sectors, especially in emerging
markets. Nonetheless, technology
and BPO hubs in the region are
gearing up to weather such risks.
The Information Technology and
Business Process Association of
the Philippines (IBPAP) projects
the industry to account for US$39
"Top-performing
billion in revenue and employ 1.8
markets continue
million workers by 202210. In India,
government initiatives to boost
to be those with
the manufacturing sector and the
demand will induce sourcing of
components from local suppliers.
E-commerce is also expected to
be a future growth catalyst, with
online sales in India likely to grow
tenfold in a decade from about
US$11 billion in 2016.12 Case in point,
Amazon,is aggressively ramping
up office facilities in India, with
annual requirements exceeding 1.0
msf. Besides accommodating rapid
growth in India, the global e-tailer
is also strengthening its support
services for its cloud-based platform
that is gaining popularity.
New Supply
Brings New
Vacancy in
Most Markets
The majority of the core markets
will see their vacancies inch up
as more new supply, totaling an
annual average of 50 msf, will be
added through 2018. Tier I cities
in China, Beijing and Shanghai, are
expecting the bulk (70-80%) of
total office completions in the next
two years. As a result, even with
still relatively high absorption rates,
vacancies in both markets will rise
CPF building are scheduled to be
completed.
A similar trend is expected in
Hong Kong. The delivery of several
lower-cost options with larger
floor plates in non-core locations
will add to availabilities and be
a welcome respite for occupiers
who have been constrained by
the chronic supply shortage in
the island. Notably, there will also
be prime office sites available in
Greater Central for sale beginning in
2017. Meanwhile in Seoul, elevated
supply in recent years will keep
vacancies at their all-time highs
through 2018 and thus continue
to allow corporate occupiers to
enjoy greater opportunities to meet
both expansion and relocation
requirements under negotiable
terms.
Still, some core markets will have
solid demand that, combined with
low supply, will generate a landlord-
friendly office environment. In
Upcoming Supply vs Availability
6.6%
12.3%
4.1%
7.2%
6.1%
10.5%
Sydney, the expansion of its service
sector, combined with limited
new construction and further
stock withdrawals associated
with the Sydney Metro and other "Vacancies to inch
up in core markets as
developments, will keep vacancies
in this market the lowest in the
region, sinking to around 2.0%-3.0% more new supply gets
through 2018. In Melbourne, leasing
added through 2018"
activity is likely to accelerate and
sustain declining vacancies. In Tokyo,
vacancies will remain ultra-tight in
2017, with high pre-leasing rates "New completions
noted on new projects. However,
market conditions stand to shift, with
through 2018 to
more options provided to occupiers average at 50 msf in
by the high volume of supply slated
in 2018.
core markets, 75-80
msf in emerging"
Emerging markets will also witness
a wave of new office completions,
with an annual average of 75-80
msf that will be delivered through
2018; leading to higher vacancies,
shifting the leverage in tenants
favor for most markets. Eight out of
the 17 markets tracked are even set
to post vacancies above 20%, led
Beijing
40.4
Shanghai 36.5
Tokyo 10.7
Hong Kong
4.4
Singapore 3.1
Seoul 2.4

broad-based growth countrys digital infrastructure are by 2-3 percentage points from 2016
9.7%
7.9%
Taipei
Melbourne
2.3
0.8
being designed to counter the
across industries and dip in demand for traditional IT/
to 9-10% for Beijing and 14-15% for
Shanghai through 2018. Singapore
18.0%
5.3%
Brisbane
Sydney
-1.1
-1.2

sectors" Information Technology enabled will witness the completion of

13.3% Shenzhen 24.6
Services (ITeS) sector. Notably, two marquee projects that will 2.3% Manila 22.3
India surpassed the U.S. this year cause vacancies in the core 3.5% Hyderabad 18.8
to become the worlds second- 6.2% Bengaluru 16.1
central business district (CBD) to
"Technology and largest smartphone market by climb to their seven-year highs
26.7%
17.9%
Delhi-NCR
Mumbai
15.8
10.8
BPO hubs in the users and is projected to generate at 9-10%. However, this will likely 14.3% Guangzhou
Jakarta
10.2
a billion smartphone sales in the be temporary as top-grade space 22.3% 9.0
region are gearing up next five years.11 Such surging continues to benefit from a flight-
9.9%
36.4%
Pune
Chengdu
7.8
7.6
to weather 8 Winds of Change, Cushman & Wakefield, December
to-quality approach. Post 2017, 8.2%
48.3%
Chennai
Ahmedabad
7.0
3.4
the supply of new office space in
global risks " 2016.
Singapores CBD will be modest
41.8% Kolkata 2.9
9 HSBC to Accelerate Hiring in China Next Year, 14.2% Kuala Lumpur 2.9
Defying Challenges, Bloomberg, December 4, 2016. until 2020/2021, when the Central 20.9% Hanoi 1.2
10 IT-BPM seen growing into $39B industry by 2022, Boulevard site and redevelopment 5.7% Ho Chi Minh 0.7
The Manila Times, Oct 28, 2016. 6.0% Bangkok 0.3
of the Golden Shoe car park and
11 Worlds Fastest-Growing Smartphone Market 50 40 30 20 10 0 0 10 20 30 40 50
Could Become a Manufacturing Hub, Bloomberg,
November 21, 2016. 12 Source: Goldman Sachs 2016 Vacancy rate(%) 2017-18 Supply (Million SF)
12 13
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER Cushman & Wakefield Research Publication 2017

Muted Rent
CO-WORKING
by Ahmedabad, where vacancies
will remain over 50% through 2018.
Vietnam will witness the completion
Increases,
Is Here to Stay
of several Grade A projects, but

while Record
higher rents in the CBD will push
some tenants to explore lower-cost

Rents Set in
options.

While over a quarter of new projects

will be located in offshoring hubs, 15 Markets YOU HAVE BEEN WARNED!
Bengaluru, Hyderabad, Pune,
and Manila will boast among the Against a backdrop of rising
lowest vacancies (circa 5%) in vacancies, rents are expected to Not long ago, the concept of are keen to attract bigger
2017. A booming IT-BPO, services, be largely flat in core markets co-working seemed to be the companies. Nascent co-working
and manufacturing sectors will through 2018, with eight out of 10 latest brainwave in the so-called firms are willing to use their
continue to fuel rapid absorption core markets likely to eke out flat to new ways of working. While the pots of seed funding to persuade
in those cities and allow landlords increasing rents. Rents are expected kinks in the business model and corporate occupiers to take up
to strengthen leverage. However, to grow the fastest in Sydney and the segmentation of the market space with them and become
Melbourne through 2018 as tight
questions over the long-term are still being ironed out, this anchor tenants in a larger and
prospects of the IT-BPO sector market conditions allow landlords
is not just a passing fad. The well-positioned co-working
have emerged, especially with to push up rates. Notably, this
follows substantial rent increases
ripples of what it means for facility by paying for the fit
the changing political landscape
inciting protectionism across the of nearly 20% and 8% for Sydney corporate occupiers, landlords, out. A large occupier also gives
globe. Though none of the major and Melbourne, respectively, seen and tenants will resolve the co-working firm a stronger
"Highest rental tenants have pulled out or put off in 2016. In Tokyo, rents will continue themselves during the course revenue platform to grow its
of 2017 as more firms follow own business. As before, a
growth in Sydney expansion plans even with all the to edge up to their eight-year highs
political noise, a setback in IT service through 2017. However, new supply the pioneers who have blazed corporate occupier will still
and Melbourne exports growth could trigger an is set to enter in 2018 and could hold the trail in 2016. Whenever have to commit to a certain
through 2018" oversupply in those cities as their
office inventory will expand by 7-22%
back rent gains seen over the last
five years.
a lease comes up for renewal amount of space for a certain
and a corporate is considering amount of time, but with much
"Rent growth in per year through 2020. Meanwhile,
Meanwhile, the uptick in vacancy in relocating, they will inevitably more flexible terms that allow
the lack of new options will sustain
emerging markets the low vacancies in Bangkok. relatively tight markets of Shanghai, ask the same old questions of for rapid and relatively painless
real estate: what if we take expansion and contraction, as
will further
Beijing, Hong Kong, and Singapore
too much space?, or what if well as avoidance of up front
decelerate as new Rent Growth (2016-18) we take too little space? The capital expenditures, complex
supply heightens uncertainties in the economic lease terms, and managing a
outlook, to which with the new design-and-build project. It
competition " regime in the U.S. is already be is not a perfect world for the
contributing, will inexorably corporate as they are likely to
26% lead to asking about how to compromise, to some extent, on
achieve greater flexibility in this the branding of the space. And
Hong Kong (Kowloon)

19% uncertain climate. their staff may just have to cope

Ho Chi Minh City

15%
with the burden of free-flowing
Kuala Lumpur

11%
Co-working firms offer coffee and fresh fruit.
Shenzhen
Shanghai

Chengdu

7% 7% 6%
occupiers the flexibility that
Jakarta

5% 5% 4%
Seoul

3% 2% 2% 3% 2% 2% 2% 2%
1% 1% traditional landlords and lease
structures do not. While this
Sydney

Melbourne

Brisbane

Beijing

Singapore

Taipei

Tokyo

Bengaluru

Hyderabad

Chennai

Bangkok

Hong Kong (Central)

Manila

Hanoi

Pune

Delhi-NCR

Guangzhou

Kolkata

Mumbai

Ahmedabad

-1% -1%
-2%
-3% -3% is particularly appealing to
-4%
-8% small and medium enterprises
-12% (SMEs), start-ups, and sole
traders, co-working firms

*Rents in Singapore are expected to drop in 2017, but will rebound in 2018.
14 15
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER Cushman & Wakefield Research Publication 2017

is welcome news for occupiers,

but the perpetuation of premium 2017 Occupier Conditions
rates means that value-conscious
tenants are unlikely to feel relief. TAIWAN
In Tier 1 cities of China, rents are Tenant Favorable
expected to remain relatively Taipei
steady, with modest growth in core
locations. Furthermore, rents in
Singapores core CBD are expected
to rebound once again in 2018 as VIETNAM
new supply recedes. Even in Hong
Tenant Favorable
Kong, it will be another four to five Hanoi GREATER CHINA
years before any prime/Grade A Ho Chi Minh City SINGAPORE Tenant Neutral
office can be delivered in Greater Tenant Favorable
PHILIPPINES Favorable Beijing
Chengdu Hong Kong
Central, so high rents are likely to Singapore Neutral Guangzhou Central - Landlord favorable
be sustained through 2018. In Seoul, Manila Shanghai Kowloon - Tenant favorable

ample availabilities and continued Shenzhen

construction in Yeouido and the CBD INDIA
will still induce landlords to offer Tenant Landlord
generous incentives. Favorable Favorable
Ahmedabad Bengaluru
Rent growth in emerging markets KOREA Delhi-NCR Chennai
Kolkata Hyderabad
will further decelerate as new supply Tenant Favorable Mumbai Pune
heightens competition. Vacancy Seoul
"Office transaction
volumes in South
increases across most markets will
lead to negotiable rents in nearly AUSTRALIA MALAYSIA JAPAN
half of the 18 emerging markets. In Tenant Favorable
Brisbane
Tenant Favorable
Kuala Lumpur
Landlord Favorable
Tokyo
Korea surges to new
Jakarta, the addition of nearly 9 msf
highs with a near
through 2018, amid softer demand, Landlord Favorable
THAILAND INDONESIA
will support elevated vacancies, Melbourne
Sydney Landlord Favorable Tenant Favorable
three-fold
and in turn, keep rents sliding
down to nearly 30% of their peak
Bangkok Jakarta increase from
2015 "
levels in 2014. High availabilities in
Ahmedabad, Kolkata, and New Delhi Positive billion and the Central Boulevard
GLS site for US$1.8 billion. Similarly
Korea also surged to new highs, with
total volume potentially recording
will continue to support significant
incentives. Meanwhile, rent growth in Investment in Hong Kong, overall investment
volumes have surged to record
a three-fold increase from 2015.
Numerous buying opportunities
"Singapores 2016
Momentum
tight markets will remain unabated, highs. Office properties recorded have emerged, as pressure to secure
office investment consistent with 2016, led by a banner year as Chinese capital liquidity have led to record disposals

Remains
Bengaluru, Pune, and Hyderabad. At defied the low yield rates to spend by conglomerates. However, it was
volume was the the same time, rents in Bengaluru, over US$3.5 billion in acquiring office the sale of Seoul IFC by AIG, which
highest ever at nearly
Entrenched
Hyderabad, Manila, and Guangzhou spaces. Of the estimated twelve includes a trio of office buildings for

US$7 billion"
are expected to record new highs
through 2018. Even in the absence of
robust new demand, the paucity of
new supply has aided in generating
landlord-favorable market conditions
that have led to rental rate growth in
Bangkok. In Chennai, low vacancies
will allow landlords to maintain their
rents at their peak levels through
2018, after hiking rates to nearly 10%
in 2016.
The year 2016 has seen a fresh wave
of deals that has led to real estate
transaction volumes (over the 12
months ending in November 2016)
to surpass 2015s levels; with several
landmark transactions seen across
the region. Singapores 2016 office
investment volume was the highest
ever at over US$7 billion, bolstered
by big ticket transactions such as
Asia Square Tower 1 for US$2.4
en bloc deals over US$25 million,
transactions involving Chinese
investors set new price benchmarks
with Guangzhou-based Evergrandes
purchase of the Mass Mutual Tower
in the Wan Chai district being the
most significant transaction. With
average residential prices more
than double compared to those
in Shanghai, Hong Kongs land
auctions have also elicited record
bids from Mainland developers.
Office transaction volumes in South
over US$2.1 billion, which sealed a
banner year for Seouls office market.
Similarly, 2016 office volumes in
Beijing and Shanghai also set fresh
peaks. Meanwhile, we have seen a
pullback in Australia and Japan given
the continued rise in office values
and the ongoing shortage of stock,
with office transactions in both
markets down by a fifth from 2015.
However, a switch to the retail and
industrial sectors are supporting deal
volumes in Australia.

16 17
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER
For 2017, the prospect of solid
economic growth in the region will
continue to draw investor interest
and ample capital that will sustain
steady investments in the region.
Spurred by fund expiries from
the 2006-09 vintage, a number
of existing AUM is coming on the
market and will drive investment
volumes in the next couple of years.
We estimate commercial real estate
investment volume to rise by 1-3%
in 2017. PERE estimates that as of
the third quarter of 2016, there were
91 Asia-focused funds in the market
looking to raise a total of US$33.9
billion.
Furthermore, financial conditions will
remain favorable. Some countries
may need to keep their looser
monetary stance for longer. In
Hong Kong, banks have lowered the
mortgage rates five times in 2016,
even as the U.S. Federal Reserve
raised interest rates in December,
indicating their supportive stance
towards the property market. In
India, the short-term downside risks
to economic growth will compel
the Reserve Bank of India (RBI) to
maintain its accommodative policy
setting, albeit the central banks
ability to cut rates will depend
largely on the inflation backdrop.
In Japan, growth is barely picking
"Recent policy
changes in China
up. Thus, the BOJ has expressed
its intent to maintain ongoing
and India could
monetary stimulus measures in
order to regain economic traction
have significant and fight deflation. Meanwhile, the
ramifications for real
Reserve Bank of Australia (RBA)
will maintain its accommodative
estate in the short
monetary policy stance to aid the
term" economys transition from a mining-
driven growth. Similarly, below-
trend growth will keep the Bank of
Indonesias finger on the stimulus
button.
For the most part, the end of the
easing cycle has been reached, and
we see a slight tightening bias in
some parts of Asia. Already, the
Peoples Bank of China (PBOC) has
18 19
been using open market liquidity
tools to squeeze leverage and
tighten monetary conditions. Such
a condition could accelerate the
development of domestic capital
markets. In India, Embassy Group,
a partner of private equity giant
Blackstone on a large part of its
portfolio, filed a REIT application
with the Securities and Exchange
Board of India, which is estimated to
raise more than US$600 million from
its initial public offering (IPO).13
It is also noteworthy that most
countries in Asia are well placed
to handle any capital flight as the
quantitative easing (QE) in the U.S.
winds down, thanks to low current
account deficits, lower inflation,
and larger foreign exchange reserve
stockpiles. All together, we expect
relatively low interest rates to persist
through 2017. Yield spreads across
the region will remain compelling
relative to other global markets and
support pricing. We thus expect cap
rates to hold or even firm up in a
number of markets through 2017.
New Guards
at the Gate
Causing Short-
Term Pain but
Long-Term
Gain
Asia Pacific has also seen some
recent policy changes in the regions
large economies that could have
significant ramifications for real
estate. In India, where 98% of total
economic transactions, by volume,
are done through cash14, two big
structural changes are impacting
13 Blackstone Plans Indias First REIT, The Wall Street
Journal, December 6, 2016.
14 Here are the Top Cashless Countries in the World,
Business Today, November 30, 2016.
the real estate market. Recent
demonetization has impaired
liquidity and is creating a downward
pressure on prices in secondary
sales markets where cash is heavily
utilized. We foresee the lack of
liquidity further curbing land sales,
which in turn, can lower asset
values especially in secondary or
tertiary markets where cash also
accounts for a high proportion of
total transactions. However, this
policy development, along with the
formation of a real estate regulator15,
provides upsides by creating more
transparency and accountability
in real estate transactions over the
longer term, more buyer and investor
protection, and potentially inducing
more capital flows into the sector
that could eventually lead to a lower
cost of capital.
In China, capital control measures
have been introduced in order to
contain outflows.16 Notably, Chinese
companies have quickened their
pace of overseas investments
fromJanuary to October 2016,
increasing 53.3% to US$145.96
billion compared to the same
period in 2015, as per the Ministry
of Commerce. The depreciation of
the renminbi, along with a slowing
economy, have been a significant
impetus for moving money out of
the mainland. While the U.S. dollar
expected to appreciate further,
there is an increasing scrutiny
15 The Real Estate Regulatory Bill was passed in the
upper house of the Parliament on March 10, 2016.
16 Based on government directives circulated on 28
November 2016: Domestic customers must check
with the Beijing regulator, Chinas central bank,
before transferring $5 million or more in dollars
or renminbi out of the country. The rules will also
cover renminbi that is sitting in overseas accounts,
which had previously escaped most regulation.
On cross-border renminbi transfers: net renminbi
transfers by China-domiciled companies will be
restricted to 30% of shareholders equity. Previously,
there was no limit on the value of such transfers as
long as they were for an approved purpose. Based
on draft rules that have been circulated within
Chinas financial community on 29 November 2016:
any acquisition would require prior approval if it
is valued above US$10 billion. Prior approval must
also be obtained for deals exceeding US$1 billion
in real estate or in industries outside the Chinese
companys main area of business. There may be a
halt to foreign real estate purchases above US$1
billion by state-owned enterprises.
Cushman & Wakefield Research Publication 2017
on Chinese citizens US$50,000
annual foreign-exchange quotas
starting from January 2017, thus
mounting pressure on outflows.
While these new measures will
help to stabilize the renminbi, we
expect this capital to be channeled
to domestic commercial real estate.
Additionally, the recent curbs could
impact corporations seeking to
"Expect markets
remit dividends and profits to their in India and in
international shareholders.
Southeast Asia, led by
Foreign the Philippines and
Vietnam, to benefit
Investments from strong foreign
Will Remain a interest"
Strong Pillar
Needless to say, Chinas new rules
are not meant to ban overseas
investments but simply to slow
down the buying binge seen in
the last two years. Chinas interest
in foreign markets to acquire
overseas expertise, as they try to
shift the economys focus to high-
tech industries, is still growing. In
addition, we still maintain the view
that Chinese insurers will continue to
increase their real estate allocation,
as they are allowed to invest up to
15% of their assets overseas; to date,
only 2% of their assets represent
overseas investments. Consequently,
more cross-border transactions will
be inevitable. However, the days
of mega-deals are likely over. We
also view Chinese investments in
the region to remain unaffected by
the new threshold of US$1 billion
for real estate transactions; the
average outbound transaction
seen over the last three years was
in the US$100-200 million range.
China has become the top investor
in the region, overtaking the U.S.
Chinese capital accounted for 25%
of foreign investments in the regions
commercial real estate, up from 15%
in 2015. As such, Chinas investments
into the region will be sustained
ASIA PACIFIC: STAYING THE COURSE IN A NEW WORLD ORDER
given its large capital base and
relative shortage of investible quality
assets at home.
Additionally, more sovereign funds
from oil producing countries will
look to increase their exposure to
real estate to diversify their reserves.
In 2016, capital from the Middle East
made up close to 10% of total foreign
investments, largely reflecting Qatar
Investment Authoritys purchase of
Asia Square Tower 1 in Singapore.
The adjacent second tower could
likely be snapped up by a foreign
entity as well.
Indeed, while globalization appears
to be in retreat, there are still
many reasons to believe that cross
border activity is here to stay, will
continue to step up, and even drive
a sizable share of transactions in
the region. Historically, foreign
capital has accounted for 25% of
total transactions (excluding land
and residential) between 2000 and
2010, and has climbed to about 32%
in 2016, having fueled some of the
most significant transactions in the
region. In India, 2017 is expected
to be a record year on the back of
Yield Spreads
300
240
Values in basis points
250
204
174
200
150
100
CORE
50
0
2015
20 21
Cushman & Wakefield Research Publication 2017
two ongoing high-profile, foreign-
funded, private equity, real estate
transactions valued at nearly US$3
billion.
Recent macro developments are
creating some anxiety and market
volatility as economic priorities and
alignments have been reshuffling
across the world. Such a scenario
provides an opportunity for capital
to be funneled to the region, where
long-term economic and property
fundamentals are intact. Most core
markets in the region are viewed as For more information about Cushman & Wakefield
Research, please contact:
safe havens and will remain popular
destinations. However, with yields
in most core markets already pass SIGRID G. ZIALCITA
their 10-year lows, investors will be Managing Director
Research and Investment Strategy, Asia Pacific
compelled to take a longer view with +65 6232 0875
their investments. As such, markets sigrid.zialcita@cushwake.com
such as Singapore, at a cyclical low,
are perceived as good investment
targets. This will also fuel higher KAPIL KANALA
risk investments into the emerging Associate Director
Occupier Research and Forecasting, Asia Pacific
markets. We expect markets in India +91 40 4040 5555
and in Southeast Asia, led by the kapil.kanala@cushwake.com
Philippines and Vietnam, to benefit
from strong foreign interest.
For all occupier and investor related business
requirements across Asia Pacific, please contact:
CHRIS BROWNE
Managing Director
Global Occupier Services
Asia Pacific & Greater China
+65 6232 0828
chris.browne@cushwake.com
226
JAMES QUIGLEY
Head of Capital Markets
195 182
Australia and New Zealand
+61 2 8243 9974
james.quigley@cushwake.com
EMERGING
STEVE SAUL
Managing Director
Singapore
+65 6232 0878
steve.saul@cushwake.com
2016 2017
About Cushman & Wakefield:
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