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Q4 2016
Growth on track as
Asia Pacific surges ahead
Dear Reader,
2016 finished on a high note, with activity picking up across many of Asia Pacifics property markets.
The highlight of the quarter was Shanghai topping the global ranking of investment destinations for
the first time, driven primarily by domestic investors.
While the uncertain political environment of 2016 is set to continue into 2017, we expect occupier
and investor demand to remain positive with solid optimism around Asia Pacifics long-term
fundamentals.
You can view this report online at http://www.jllapsites.com/research/appd-online/.
I hope you enjoy reading this report and as always, we welcome your feedback on our reports and
service.
Thanks,
Dr Megan Walters
Head of Research Asia Pacific
Hong Kong 14
Jakarta 24
Melbourne 32
Perth 33
Industrial
Retail
35 57
Hong Kong 50 Hong Kong 66
Beijing 51 Beijing 67
Shanghai 52 Shanghai 68
Singapore 53 Tokyo 69
Bangkok 54 Singapore 70
Jakarta 55 Bangkok 71
Kuala Lumpur 72
Sydney 73
Residential
Hotels
49 65
4 FEATURES
Signs of recovery in trade; protectionism casts shadow Most central banks in AP kept rates on hold
January manufacturing PMIs signalled further advancement with In a highly anticipated move, the US Fed tightened its monetary
activity levels expanding in many major markets including a policy at its December meeting, hiking interest rates by 25 bps.
pick-up in new orders. There were also signs that the trade While this move created some anxiety about the path of interest
environment is improving in some of the regions export markets rates, most central banks in the region, including Australia, Korea
including Korea and Singapore. However, the regions largest and India, did not follow the Feds lead and maintained policy
exporter, China, continued to see a patchy performance. Currency rates at or near record lows. However, benchmark rates in Hong
depreciation, in particular following the surprise US election Kong and Singapore rose following the Fed rate hike. In early
result, provided support for a pick-up in shipments in Japan February, Chinas central bank raised its repo rate slightly in
where December exports rose for the first time in more than a what many believe to be an indication of a tightening monetary
year. The recent gains in key markets provides more evidence policy.
that regional trade has likely passed its trough; nevertheless,
Asia Pacific to weather turbulent period
there are still major risks on the horizon with growing rhetoric
about trade barriers. The outlook for the regions economy in 2017 is broadly in line
with the previous year and growth is expected to hover around
Retail sales tread uneven path 5%. While the geopolitical climate and path of US Fed rate hikes
do present risks to the outlook, growth could surprise on the
Consumer spending remains robust in China and is a catalyst for upside as forecasts for many major economies have been revised
solid economic growth. The rapid adoption of shopping at online up on the back of recently strong results. Nevertheless, Asia
marketplaces is helping propel retail sales. The performance of Pacific should remain the primary engine of global growth but
retail sales elsewhere in the region has been less stellar. Japan, with a mixed performance across the region. Chinas economic
the regions second largest economy, saw retail sales return to restructuring will persist and push domestic drivers to the
positive territory towards year-end, rising moderately by 1.7% forefront, while demonetisation presents short-term challenges
y-o-y in November and 0.6% y-o-y in December. In Hong Kong, in India. A weaker Yen has been a boon for Japanese exporters
retail market woes endure as tourists are spending less on big- and could provide a further boost to growth.
ticket purchases. Annual retail sales in the city were down about
8% in 2016.
5 FEATURES
Figure 1: Outlook for Major Economies
Gradual slowdown with growth supported by infrastructure investment and buoyant consumer
China 6.7 6.3
spending.
Weaker JPY to bolster export and tourism sectors, while accommodative policy stance provides
Japan 1.0 1.2
further support.
Demonetisation to have short-term implications but growth likely to pick up as pent-up con-
India 7.1 6.7
sumption demand released.
South Korea 2.7 2.4 Growth to edge lower amid a slowdown in construction investment and private consumption.
Moderate recovery from 3Q16 low point as a low interest rate environment to support growth.
Australia 2.2 1.8
Solid but not remarkable growth in exports.
Indonesia 5.0 5.1 Stable growth supported by government spending on infrastructure and private consumption.
Higher public spending a catalyst for a slight pick-up in growth, while exports see a slow recov-
Singapore 1.8 2.4
ery.
Ongoing weakness in external demand and inbound visitation to weigh on export and retail
Hong Kong 1.5 1.9
sales.
Leasing activity finishes the year on a strong note The Hong Kong leasing market was relatively subdued though
mainland China requirements remained the pillar of demand
Asia Pacifics gross leasing volumes increased 23% y-o-y in 4Q16.
growth, while Singapore saw a seasonal slowdown.
In Australia, volumes rose by a healthy 19% y-o-y, driven in large
part by Sydney which saw the second highest volumes in AP Meanwhile, 4Q16 take-up dropped y-o-y in all three China Tier
while Perth also recorded solid gains although from a low base. 1 cities. Shanghais CBD volumes were impacted by high CBD
Indias volumes surged around 80% y-o-y, improving in all four rentals, a ban on registration of new P2P lenders, and more
Tier I markets. The largest rise (and volume) was recorded in companies becoming cost-cautious. Tenants opted to renew
Delhi where big-ticket transactions were made - largely in recent in Beijing in anticipation of new supply in the CBD over the
completions. Volumes also moved up in Tokyo as landlords began next decade, while fewer units available in the core areas of
pre-leasing new supply due in 2018, completions in 2016 created Guangzhou impacted activity.
more options, and tenants relocated from outside the CBD.
6 FEATURES
Sydney continues to lead office rental growth 1 markets was also impacted by less new supply. In Singapore,
sales volumes in prime districts rose from the same period a
Asia Pacific rents grew 0.7% q-o-q and 2.3% y-o-y on average.
year earlier as market sentiment remained positive. Quarterly
The strongest performers over the last year were Sydney (22%)
leasing conditions remained generally in line with recent quarters
due to a lack of large blocks of space, and Melbourne (13%),
as reduced housing allowances and fewer expat employees
supported by positive leasing activity and competition for space.
continued to impact demand in many markets.
Hong Kong recorded the strongest growth in Asia and was closely
followed by Osaka. Weakest annual results were seen in Perth, Continued appetite for real estate
despite benefitting from higher commodity prices in 4Q16, and
Singapore, although the decline slowed partly due to seasonal Investment volumes finished the year on a high note, with
factors and a brief stabilisation as current low rents attracted volumes for the whole year rising 5% from the 2015 level to
some relocations. USD 130 billion. The full-year performance was lifted by strong
performances in core markets such as China, Singapore and
F&B remains key demand driver South Korea. Chinas strong finish saw it supplant Japan as the
largest market by volume, with total sales of USD 34.4 billion.
Landlords in Chinas major markets are looking to gain a
competitive edge and improve footfall by utilising trendy retailers In 4Q16, commercial investment volumes rose 21% y-o-y to
or pop-up stores. F&B operators remained active in seeking retail USD 43.4 billion, bolstered by record quarters in China (USD
space, while sports brands also expanded. Demand in Hong 15.5 billion) and South Korea (USD 7.4 billion), as well as strong
Kong was underpinned by cosmetics and active-wear retailers activity in Japan, as buyers aimed to close deals before the
taking advantage of declining rents to lock in leases. Retailers in year-end. Australia saw a weaker performance y-o-y with owners
Singapore continued to consolidate and also focussed on their holding on to stock given the limited reinvestment opportunities.
online presence, targeting consumers who prefer to buy online
while using their physical stores as pick-up points. Conditions in Cross-border investors remained active through 2016, accounting
the Australian leasing market softened slightly in 4Q16 given that for more than a third of total investment volumes. Intra-regional
a number of retailers entered into administration. purchaser transactions still dominated and accounted for about
54% of cross-border transactions, while the remainder were
3PLs and e-commerce firms driving demand inter-regional purchaser transactions.
Third-party logistics (3PLs) firms continued to drive demand
in the Asia Pacific logistics market in 4Q16. Retailers and Office capital values maintain growth trajectory
manufacturers expanded into some of the vacant space There was a mixed performance for capital values across sectors
previously occupied by 3PLs in Hong Kong which have relocated and markets in the region. In the office sector, Asia Pacific
to cut costs. In Singapore, leasing demand remained subdued quarterly capital value growth moved higher by 1.2% in aggregate
because of the challenging trade environment. Occupier take-up in 4Q16. Melbourne was the regional outperformer with capital
was robust in Australia in 4Q16; in contrast to the prevailing values rising nearly 10% q-o-q. Strong growth was also recorded
trend, take-up was in existing stock. in Hong Kong (+3.1% q-o-q), Osaka (+2.8%) and Sydney (+2.8%).
Jakarta capital values slid the furthest followed by Singapore.
Recent policy measures impact residential sales activity
Stricter policy restrictions were imposed in China and Hong Kong 2017 office leasing volumes expected to hold up
in 4Q16, denting residential sales. Hong Kong raised stamp duties A strong result for leasing volumes in 4Q16 helped lift the full-year
on purchases in November while many Chinese cities introduced results for 2016, which were down only 2% from the previous
a range of cooling measures including higher down payments for years level. Even though we expect a larger volume of supply
non-commodity homes. Slower sales momentum in Chinas Tier
Figure 2: Office Rental & Capital Value Changes Yearly % Changes, 4Q16 Figure 3: Direct Commercial Real Estate Investment 20072016
2016
25 140 $130 bill
5% y-o-y
20
120
15
100
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USD Billion
80
y-o-y %
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15
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ila
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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
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Figures relate to the major submarket in each city Figures refer to transactions over USD 5 million in office, retail, hotels and
Source: JLL (Real Estate Intelligence Service), 4Q16 industrial
Source: JLL (Real Estate Intelligence Service), 4Q16
7 FEATURES
Figure 4: Rental Property Clocks, 4Q16
Beijing Guangzhou
Beijing
Hong Kong Shanghai, Seoul
Tokyo^
Tokyo, Auckland Jakarta
Shanghai, Auckland
Kuala Lumpur
Manila
Growth Rents Wellington
Growth Rents
Slowing Falling Singapore Slowing Falling
Wellington Bangkok,Jakarta,
Hong Kong^
Manila,
Sydney, Guangzhou Kuala Lumpur
Melbourne
Osaka Rents Decline Rents Decline
Singapore
Rising Slowing Rising Slowing
Bangkok
Canberra Mumbai
Bengaluru
Ho Chi Minh City Hanoi Delhi
Perth Bengaluru
Delhi, Chennai Brisbane Melbourne*, Chennai Sydney*, SE Queensland*
Mumbai Adelaide
Taipei
*Regional
Note: Clock positions for the office sector relate to the main submarket in each city. ^High Street Shops/Multi-level High Street
Bangkok
Wellington
Growth Rents Kuala Lumpur Growth Rents
Slowing Falling Slowing Falling
Manila
Manila
Rents Decline Rents Decline
Rising Slowing Rising Slowing Singapore
(Logistics),
Hong Kong, Singapore
Beijing Singapore (Business Park)
Sydney
Melbourne, Shanghai
Brisbane
Our data reveals that tech companies that design hardware, such
as Cisco and Juniper, were the most active category, followed by
e-commerce companies including Amazon and Flipkart.
Market size is key for tech firms in selecting a new office location.
Across nearly all tech segments we analysed, the potential for
business growth as a result of tapping into big markets has a
substantial impact on location choice within the region. Some
companies have identified India as a key market in part because
of its large consumer base of more than one billion people. For
example, Xiaomi revenues topped USD 1 billion, less than two
years after first entering India. Other advantages such as cost,
skill level and rule of law also play an important role in the
location choices tech firms make across the region.
1,500 14.6% 15
1,000 10
500 5
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Ch njin
Ha ou
Ch ou
Na u
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Sh an
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Gu gha
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in
in
'a
ho
gd
zh
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uh
zh
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gq
nj
Xi
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Foreign JV Australia
The strength of markets such as Bengaluru, Pune and Hyderabad Source: JLL, 4Q16
lies in their competitive rents, quality assets and large floor
plates, as well as the availability of skilled human resources and
an established IT base. Hyderabad has excellent road Overall, low vacancy levels in many Indian cities and rising
infrastructure that adds to the citys attractiveness. All these demand for high-quality Grade A space is likely drive up average
factors have resulted in strong demand for office space in these rents, but at varying degrees for different submarkets. For
markets, which is projected to put upward pressure on office instance, submarkets such as the Secondary Business Districts
rents in those cities thus raising overall rental rates across the (SBDs) of Bengaluru and Pune, and Hi-Tech City in Hyderabad
country (Figure 1). are expected to outperform the average, with rents growing
Apart from each citys own strength, the healthy demand forecast 4-6% y-o-y in the medium term (201718). Meanwhile, the CBDs
is backed by continued occupier interest in the Indian market of all cities, suburbs such as MG Road, Greater Noida in the NCR,
with positive steps from the government towards improving Saltlake in Kolkata among others, will see stability or a small rise
transparency and sustainability in the sector via various real in rents of 0-1% in the same forecast period.
estate and economic policies. In this context, the scarcity of office
space has prompted new projects by developers, particularly
in cities such as Bengaluru, Pune, Hyderabad and Chennai. In
Mumbai, six out of eight submarkets will likely see a decline in ABOUT THE AUTHOR
vacancy rates by the end of 2017, although currently they are Subash Bhola is an Associate Director of
close to the city average of 18%. Research based in Mumbai. He is
responsible for managing the operations of
Its worth noting that the vacancy rate is often very different JLLs Real Estate Intelligence Service
between Grade A assets and superior Grade A assets i.e. those (REIS) in India. Other key responsibilities
that are of higher quality and in prime locations in a city. Our include commercial real estate analysis and
estimates show that the vacancy rate for superior Grade A assets forecasting.
is around 6% at the pan-India level as compared to 15.1% for the
overall Grade A basket.
Office
13 OFFICE
Central rentals continue to recover despite
HONG KONG weak demand.
Denis Ma, Head of Research, Hong Kong
Slowing
105
financial institutions to Kowloon East with JPMorgan pre-leasing 225,000
100
sq ft (gross) at 77 Hoi Bun Road (Link REIT/Nan Fung) in Kwun Tong. The
95 bank intends to consolidate some of its operations outside of Central into
90 the building; scheduled for completion in 2019.
85
80 Kowloon East now the citys second largest office market
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
Kowloon East overtook Wanchai/Causeway Bay to become the citys
Arrows indicate 12-month outlook
second largest office submarket after Central, in terms of stock, following
Index base: 4Q12 =100 the completion of Goldin Financial Global Centre (602,400 sq ft) in
Source: JLL Kowloon Bay.
Financial Indicators are for Central.
A business development site in Cheung Sha Wan (NKIL 6505) with a
maximum buildable GFA of 998,200 sq ft was released for sale by the
Physical Indicators government, with a tender closing date in February 2017. Three
300 6
commercial development sites, including Murray Road Multi-Storey Car
Park, were included in the 1Q17 land sale programme.
250 5
The emergence of a two-speed rental market
200 4
A tight vacancy environment contributed to rental markets in Hong Kong
Thousand sqm
150 3
Island outperforming those in Kowloon, with Central rentals closing in on
Percent
100 2 their pre-GFC record highs set in 2008. However, rentals in Kowloon
continued to be weighed down by mounting supply side pressure.
50 1
0 0
Record high prices achieved in the strata-titled office and land sales
markets saw capital values growing at a faster pace in 4Q16. However,
50 1
12 13 14 15 16 17F
most of the growth was recorded before the mainland Chinese
government announced its latest round of capital controls including
Take-Up (net) Completions
tightening measures on outbound real estate investment in late
Future Supply Vacancy Rate
November.
Source: JLL
For 2012 to 2016, take-up, completions and vacancy Outlook: Rental markets to soften outside of Central
rates are year-end annual. Future supply is for 2017.
Physical Indicators are for the Overall market. Rental markets outside of Central are expected to come under further
pressure against weak demand and increasing vacancy in 2017. In
contrast, Central rentals are likely to climb higher, up 05%, on the back
of sustained demand from mainland Chinese firms and limited tenant
options.
Despite a potential faster pace of interest rate hikes in 2017, capital values
should grow in the range of 05% given that investor appetite for office
assets remains high. Growth is likely to be further supported by strong
pricing in upcoming government land sales.
Note: Hong Kong Office refers to Hong Kongs overall Grade A office market.
Landlords accept uncertainty in the market and
the realities of a slower economy.
Steven McCord, Head of Research, North China
BEIJING
15 OFFICE
Stable
CBD benefits from strong domestic finance demand Financial Indices
Under softer demand, particularly from foreign companies, the domestic 120
finance sector continued to dominate the leasing market, accounting for
115
46% of Grade A transactions in the quarter. While many of these deals were
in Finance Street, almost half were in the CBD, where landlords signed 110
Index
100
The IT sector also continued to be a strong source of demand. However,
many tech firms were increasingly interested in Grade B space due to 95
heightened cost sensitivity. After surging in Wangjing over the last two 90
years, IT demand was markedly cooler and shifted to more outlying, low-
85
cost locations.
80
Olympic Area emerges as the next significant submarket 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
North of the city in Olympic Area, Sinotrans Building A (74,000 sqm) was Arrows indicate 12-month outlook
completed for self-use by the state-owned logistics company. Index base: 4Q12 =100
Source: JLL
The A1 Expansion (38,700 sqm) also completed in Finance Street and will Financial Indicators are for the CBD.
be occupied by government-related finance companies. The two new
completions boosted net take-up significantly to 193,500 sqm in 4Q16, up
80.3% q-o-q. Physical Indicators
Overall rents were flat q-o-q due to slow leasing activity 700 7
Accepting market conditions, landlords were more realistic and deployed 600 6
flexible rental strategies at the end of the year. Some maintained lower 500 5
rents to attract foreign tenants; others accepted more domestic tenants
Thousand sqm
400 4
and made modest rental gains. Slower growth in Finance Street suggested
Percent
that sky-high rents in the area may finally be peaking. 300 3
The Grade A market continued to be quiet and investment deals were 200 2
limited to Grade B and strata-titled assets in non-core areas. Huaxia 100 1
Insurance followed earlier deals in the year with the purchase of World
0 0
Chamber Center Building 3 in Tongzhou, currently under construction. 12 13 14 15 16 17F
Outlook: Early completions to edge ahead of future competition Take-Up (net) Completions
Future Supply Vacancy Rate
Managed by experienced landlords, the first high-quality completions
coming from the new supply wave are expected to outperform older Source: JLL
buildings due to their higher quality specifications. The fast leasing Note: Beijing Retail refers to Beijings Urban retail
market.
progress of quality new buildings observed in 2016 reveals that pent-up Physical Indicators are for the Overall market.
demand for high-quality office space remains.
Domestic firms should continue to drive demand as foreign tenants run
under greater cost-sensitivity. Beijing will remain an important base for
North China operations, but slower growth in the country has reduced
urgency in companies China expansion plans.
Falling
105
The CBD market saw slower leasing activity towards the year-end, partially
100
due to competition from decentralised areas. City-level commercial banks,
95 insurance, and securities companies drove demand in Pudong, while
90 technology and communications firms rose as an emerging demand
85 source in Puxi, alongside non-finance professional services and retail
80 firms.
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
Substantial supply additions with seven new completions
Arrows indicate 12-month outlook
Index base: 4Q12 =100 In the CBD, Century Link Tower 2 (64,850 sqm) and SOHO Tianshan Plaza
Source: JLL
Financial Indicators are for the CBD. (72,000 sqm) reached completion in Pudong and Puxi respectively. In the
Decentralised market, five projects with a total area of 284,144 sqm (GFA)
reached completion.
Physical Indicators Vacancy increased 1.5 percentage points q-o-q to 9.1% in the Puxi CBD and
1,200 12
1.4 percentage points to 7.9% in the Pudong CBD. Decentralised vacancy
increased 2.2 percentage points to 18.1% due to new supply.
1,000 10
Strong rental growth in decentralised market despite large supply
800 8
Rents in the Decentralised market increased 4.4% y-o-y in 4Q16, driven by
Thousand sqm
new projects and fringe CBD areas which are benefitting from maturing
Percent
600 6
business environments. The CBD had a strong rental performance in
400 4 1H16, but increasing competition from decentralised areas and supply
pressures caused rents to trend downwards in the second half of the year.
200 2
The investment market was active in 4Q16, driven by domestic capital.
0 0
12 13 14 15 16 17F
Domestic insurers continued to seek investment opportunities and
demonstrated strong interest in office projects in the CBD. The sale of
Take-Up (net) Completions
Century Link was among the largest transactions in Shanghai on record.
Future Supply Vacancy Rate
Outlook: Considerable new supply scheduled for 2017
Source: JLL
For 2012 to 2016, take-up, completions and Both the CBD and the Decentralised market are expecting a large influx of
vacancy rates are year-end annual. Future supply
is for 2017. new supply in 2017. After several years of supply shortage, the Lujiazui CBD
Physical Indicators are for the CBD. is expecting several new completions. In the Decentralised market, a
significant portion of new projects will be concentrated in Hongkou,
Minhang, and decentralised Pudong submarkets.
While strong consolidation and expansion demand is likely to carry over to
2017, the market will need time to absorb the added stock. Vacancy is
expected to increase, causing landlords to adjust their rental expectations.
In the short term, the CBD market is likely to face a rental correction.
Note: Shanghai Office refers to Shanghais overall Grade A office market, consisting of Pudong, Puxi and
decentralised areas.
Investment market active with upcoming projects
being transacted in the absence of core assets.
Silvia Zeng, Head of Research, South China
GUANGZHOU
17 OFFICE
Slowing
Space in new high-quality Grade A office buildings in high demand Financial Indices
Overall leasing demand was generally stable. Certain industries were more 130
inclined to purchase under-construction projects to meet self-occupancy 125
demand. MNC tenants continued to be conservative and preferred lease 120
renewals. 115
110
Leasing demand was largely concentrated in Zhujiang New Town (ZJNT).
Index
105
Three office buildings completed in the previous quarter attracted
100
significant demand for relocation and upgrades, with domestic SMEs in
finance driving most demand. Total net absorption reached more than 95
down by 0.8%.
Percent
300 9
Outlook: Supply-demand rebalance to restore moderate rental growth Take-Up (net) Completions
Future Supply Vacancy Rate
Economic growth is expected to be stable, with the nations industrial
policies promoting finance-related professional services and the Source: JLL
technology sectors creating significant leasing demand. With new supply For 2012 to 2016, take-up, completions and
vacancy rates are year-end annual. Future supply
expected to be low in 2017, supply and demand should rebalance, leading is for 2017.
to a decline in the vacancy rate and an increase in rents. Physical Indicators are for the Overall market.
Stable
110
new buildings in Xinyi and the Non-Core CBD. However, several large lease
100
transactions were recorded as corporate tenants relocated to high-quality
buildings.
90
No supply in 2016
80 No new supply entered the market in 4Q16 as the owner of a project
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
expected to complete further postponed its opening. This delay meant
Arrows indicate 12-month outlook
that there were no new completions in 2016.
Index base: 4Q12 =100
Source: JLL With no new supply and positive take-up, the overall vacancy rate declined
Financial Indicators are for Xinyi. 1 percentage point q-o-q to 9.1% in 4Q16. On an annual basis, the vacancy
rate declined 1.6 percentage points.
Rental growth stalls as landlords soften their stance
Physical Indicators
The average rent for the overall market was NTD 2,643 per ping per
300 12
month, a slight decrease of 0.2% q-o-q. However, rents increased 2.2%
250 10 on a y-o-y basis and this was attributable to higher rental levels at new
buildings.
200 8
Thousand sqm
150 6 stable market conditions, most landlords were weary of raising rents.
100 4 Outlook: Occupiers and investors to remain on the side-lines
50 2 The economy is expected to see some signs of improvement in 2017 with
upside potential for further gains in trade and industrial production. In the
0 0 office sector, demand is likely to remain centred on high-tech, IT and
12 13 14 15 16 17F
finance industries; and with most new leases for small-to-mid sized units.
Take-Up (net) Completions
Future Supply Vacancy Rate On the investment front, insurers funds available for real estate
investment reached NTD 4,400 billion at end-2016, increasing 13% from
Source: JLL
For 2012 to 2016, take-up, completions and 2015. With such a large amount of capital, investors are likely to continue
vacancy rates are year-end annual. Future supply to look for investment opportunities both domestically and abroad.
is for 2017.
Physical Indicators are for the Overall market.
However, economic and political uncertainties are likely to continue to
weigh on investor sentiment in 2017.
19 OFFICE
Slowing
Net absorption in 2016 surpasses the previous year by 30% Financial Indices
A tight labour market persisted with the unemployment rate hovering 170
around 3% in November, while the jobs-to-applicant ratio rose to a 25- 160
year of 1.41. According to the Tankan survey, the business sentiment index
150
for large manufacturers was rated 10, improving for the first time in four
140
quarters.
130
Index
With new leasing and expansion demand from various business sectors, 120
including wholesale and retail, information and communications and 110
professional services, net absorption in 4Q16 registered 127,000 sqm. Net
100
absorption totalled 460,000 sqm in 2016, equivalent to about 130% of the
90
previous year, as major new supply stimulated demand.
80
Vacancy rises slightly but remains below 2% 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
New supply in 4Q16 was 170,000 sqm, increasing total stock by 2.2% q-o-q. Arrows indicate 12-month outlook
Sumitomo Realty & Developments Roppongi Grand Tower (NLA 104,000 Index base: 4Q12 =100
sqm) and Kyobashi Edogrand (NLA 67,000 sqm) completed in 4Q16. Source: JLL
The vacancy rate at end-4Q16 was 1.9%, increasing 50 bps q-o-q but
remaining stable y-o-y. Vacancy rose for the first time in three quarters as
new supply entered the market. Vacant space in existing buildings Physical Indicators
remained limited. 600 6
Capital values at end-4Q16 increased 0.6% q-o-q and 3.4% y-o-y, with 100 1
growth picking up for the first time in three quarters. A notable transaction
0 0
in the quarter was Invesco J-Reits sale of Harumi Island Triton Square 12 13 14 15 16 17F
(partial ownership) for JPY 10.1 billion.
Take-Up (net) Completions
Outlook: Rents and capital values to grow, albeit at a slower pace in 2017 Future Supply Vacancy Rate
Oxford Economics projects that real GDP should grow 1.0% in 2017, largely Source: JLL
in line with the previous year, while the unemployment rate should decline For 2012 to 2016, take-up, completions and vacancy
rates are year-end annual. Future supply is for 2017.
further to below 3%. Bond yields have started to rise gradually, but with
the Bank of Japan essentially fixing the 10-year government bond rate at
0%, further upward movement is unlikely in the short term.
With new supply in 2017 forecasted to be equivalent to about 60% of the
past 10-year average, the vacancy rate is expected to remain below 3%.
Nevertheless, rents should continue to rise but at a slower pace. In the
investment market, strong interest from investors and limited availability
of assets is likely to spur competition and place downward pressure on
yields. Capital values should grow relatively in line with 2016.
Note: Tokyo Office refers to Tokyos 5 Kus Grade A office market.
Major relocations are challenging amid low
OSAKA vacancy and limited supply.
Takeshi Akagi, Head of Research, Japan
Rising
90 6
acceleration. Growth was registered across the CBD.
60 4
Capital values at end-4Q16 increased 2.8% q-o-q and 15.2% y-o-y, with
30 2 growth slowing for the first time in two quarters. Investment yields were
stable and below 4% for the fifth straight quarter. In spite of heightened
0 0
12 13 14 15 16 17F
investor interest, no Grade A sales transactions were witnessed in the
quarter due to a lack of assets for sale.
Take-Up (net) Completions
Future Supply Vacancy Rate Outlook: Rental growth to slow in 2017
Source: JLL Oxford Economics is forecasting real GDP in Greater Osaka to grow by 0.7%
For 2012 to 2016, take-up, completions and vacancy in 2017, a pace mostly in line with the previous year, while the
rates are year-end annual. Future supply is for 2017.
unemployment rate is likely to remain near its current low level. However,
the Greater Osaka Tankan survey indicated that more manufacturers are
cautious about the short-term outlook.
The vacancy rate is expected to rise slightly to above 4% as new supply
comes online. As such, rental growth is expected to slow. In the investment
market, strong interest from domestic and international investors against
limited product on the market should place downward pressure on yields.
21 OFFICE
Falling
Reshuffling by major domestic tenants boosts demand Financial Indices
Overall net absorption increased to 45,300 pyung, aided by the relocation 130
of several major domestic tenants including affiliates of Samsung, Mirae 125
Asset Daewoo and Daisha Securities, all of which took up space in the CBD. 120
115
An uptick in expansion activity was also witnessed, led by WeWork which
110
opened its largest office in Asia in the CBD (11,000 pyung) and Amazon
Index
105
leasing an additional 2,000 pyung in Gangnam.
100
Daishin Securities HQ completes in the CBD 95
The only Grade A completion during the quarter was Daishin Securities HQ 90
300 9
Asset Managements purchase of DSME Building.
Overall net effective rents declined 0.8% q-o-q. The largest reduction was 200 6 Percent
seen in the CBD where rents declined 2.3% q-o-q as landlords offered
higher incentives to counteract current and pending vacancy. 100 3
Falling
Financial Indices CBD take-up remains positive on the back of attractive rents
130 Similar to the previous quarter, the overall CBD net take-up remained
125 positive as tenants took advantage of the attractive rents and leasing
120 incentives in the form of longer fitting-out periods. The vacancy rate in
115 existing buildings increased when a number of tenants relocated to Guoco
110 Tower.
Index
105
Overall demand was mixed and came from the business services, finance
100
and insurance, and technology sectors. The slower economic growth and
95 cautious corporate real estate outlook resulted in fewer relocations and/or
90 expansions in 4Q16 compared to 3Q16.
85
80 The vacancy rate could increase as more supply comes on stream
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
Guoco Tower (0.9 million sq ft) was completed in 3Q16 and the building
Arrows indicate 12-month outlook
had a high commitment rate as of end-4Q16. No major en bloc
Index base: 4Q12 =100 developments were completed in the CBD in 4Q16.
Source: JLL
Financial Indicators are for the CBD. Marina One is expected to be completed in 1Q17, providing 1.9 million sq
ft of prime office space in the Marina Bay submarket. The pre-commitment
rate of this project inched up slightly as tenants finalised their leasing
Physical Indicators terms.
250 10 Decline in rents slows as the leasing market briefly stabilised
200 8
The decline in rents slowed during the quarter, partly due to seasonal
factors and a brief stabilisation of the leasing market, as current low rents
were able to attract some tenants to relocate. Buildings with better
Thousand sqm
150 6
technical specifications and higher occupancy rates still commanded a
Percent
100 4
slight rent premium.
Institutional investors continued to be active in the office market and were
50 2
looking beyond the current lacklustre leasing market. The 25 bps increase
in interest rates by the Federal Reserve did not have an apparent effect as
0 0
12 13 14 15 16 17F
yields achieved in recent investment deals have remained fairly tight.
Take-Up (net) Completions Outlook: 2017 leasing market to be similar to that of 2016
Future Supply Vacancy Rate
The competitive leasing packages and the upcoming supply could attract
Source: JLL more tenants particularly those with capital expenditure budget - to
For 2012 to 2016, take-up, completions and vacancy relocate in the next few quarters. However, any expansion plans may be
rates are year-end annual. Future supply is for 2017.
Physical Indicators are for the CBD. modest given the short-term uncertainties faced by companies in a
broader global context.
Office rents are expected to decline further in the next few quarters as
landlords compete with the completion of new supply and the pre-leasing
activity occurring for buildings that are likely to be completed in 2018.
Barring any external shocks, the leasing market in 2017 should be similar
to that in 2016.
Note: Singapore Office refers to Singapores CBD Grade A office market in Marina Bay, Raffles Place, Shenton
Way, and Marina Centre.
Strong investor interest in newly launched REITs
BANGKOK
and weak occupier sentiment duel for supremacy
as 2016 comes to a close.
Andrew Gulbrandson, Head of Research, Thailand
23 OFFICE
Demand contracts amidst weak market sentiment Financial Indices
Net absorption turned slightly negative in 4Q16 as a number of occupiers 150
relocated to buildings outside of the CBA to reduce rental costs. With much
140
of the net take-up in 2016 being driven by occupiers relocating to newly
completed projects that were nearly fully leased by year-end, occupiers 130
looking to relocate must decide whether to renew and wait for new supply
120
in 2017 18 or relocate outside of the CBA.
Index
110
Market sentiment was subdued in the wake of the passing of Thailands
King Bhumibol in October; however, we expect leasing activity to pick up 100
in 2017. 90
acquired two prime office buildings, Mercury Tower (NLA 24,765 sqm,
Percent
60 9
leasehold basis) and Exchange Tower (NLA 42,888, freehold basis) for a
total price of THB 7.22 billion. 40 6
Both gross and net effective rents in the CBA increased by 0.3% q-o-q in 20 3
4Q16. Stronger rent growth was recorded in the Central East submarket
0 0
driven by several newly completed projects that had leased up quickly 12 13 14 15 16 17F
over the past few quarters.
Take-Up (net) Completions
Outlook: Stable demand and vacancy rates expected in 2017 Future Supply Vacancy Rate
Source: JLL
With 46,000 sqm of new supply anticipated to complete in 2017, we expect For 2012 to 2016, take-up, completions and
the vacancy rate to rise slightly in 2017 but remain at a healthy level from a vacancy rates are year-end annual. Future supply
is for 2017.
historical perspective.
Despite sluggish year-end leasing activity, limited supply in prime areas
and continuing strong demand for prime office space in the CBA will likely
drive modest rental growth in 2017.
Note: Bangkok Office refers to Bangkoks Central Business Area (CBA) Grade A office market.
JAKARTA
Rents fall for the sixth successive quarter.
James Taylor, Head of Research, Indonesia
Falling
140
E-commerce remained the stand-out sector in driving demand - several
120
smaller deals were signed in recent quarters in addition to the large deal
mentioned above. This relatively new sector is beginning to expand
100 rapidly. Local and international banks, law firms and professional service
providers also remained active drivers of demand.
80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 No Grade A completions in 4Q16
Rental Value Index Capital Value Index
Arrows indicate 12-month outlook
Strong demand and rapidly increasing rents in the years following the
Index base: 4Q12 =100 Global Financial Crisis in 2008 resulted in a construction boom and a
Source: JLL packed supply schedule. While no Grade A supply was delivered in 4Q16,
there were lower grade completions in the CBD and non-CBD locations.
As the current wave of Grade A supply began to be delivered in early 2015,
Physical Indicators vacancy rates started to rise to the extent that around 27.5% of existing
stock is vacant. However, several recent completed projects skew the
600 30
average and many well-established, well-located buildings continue to
500 25 report healthy vacancy levels.
400 20
High vacancy rates continue to put pressure on rents
Thousand sqm
While 2H16 saw no new Grade A completions, vacancy remained high and
Percent
300 15
rents continued falling. Grade A rents have now declined on a q-o-q basis
200 10 for six consecutive quarters. In 4Q16, Grade A rents fell by 2.3% q-o-q and
about 9% y-o-y; broadly in line with JLLs forecasts for the whole year.
100 5
The Jakarta office market is tightly held and few sales transactions have
0 0 been witnessed in recent years. However, despite high vacancy rates and
12 13 14 15 16 17F
falling rents, interest remains strong and in 4Q16 a Japanese group
Take-Up (net) Completions announced their participation in a project to develop a 46-story office
Future Supply Vacancy Rate
tower on the Rasuna Said thoroughfare in Jakartas CBD.
Source: JLL
For 2012 to 2016, take-up, completions and vacancy Outlook: High volume of supply, high vacancy and falling rents expected
rates are year-end annual. Future supply is for 2017.
2016 was a record year in terms of supply and even more is expected in
2017. As such, even with improving demand, vacancy rates are likely to
remain high and landlords are expected to continue to bring down rents.
Landlords which are willing to be flexible are likely to be best placed to
capture demand.
Investor interest is likely to remain strong but few en bloc transactions are
expected to close. The most likely point of entry for foreign investors is in
the form of forward purchases of under construction assets or land
purchases for development.
Note: Jakarta Office refers to Jakartas CBD Grade A office market.
Average rents in the DC submarket surpass those
of the KLC submarket.
Veena Loh, Head of Research, Malaysia
KUALA LUMPUR
25 OFFICE
Falling
Decentralised take-up makes up for weakness in Kuala Lumpur City Financial Indices
Demand continued to be lacklustre in Kuala Lumpur City (KLC) amid 120
downsizing of oil and gas companies, and this resulted in the submarket
115
recording its largest negative net absorption result on record. As a result,
the vacancy rate for this submarket rose above 14% in 4Q16. In contrast, 110
Index
100
completion of Phase I of MRT Line 1. Capital values fell slightly in the KLC 150 12
Percent
submarket as rents declined further, while capital values in the DC 100 8
submarket grew marginally.
50 4
There was one office sales transaction in 4Q16. Menara AIA Cap Square,
0 0
located in the KLC submarket, was sold by Germanys Union Investment
Real Estate GmBh (UIRE) to Malaysian pension fund Kumpulan Wang 50 4
12 13 14 15 16 17F
Persaraan (KWAP) for MYR 474.3 million.
Take-Up (net) Completions
Outlook: Further rental compression likely in the City Centre Future Supply Vacancy Rate
Demand is expected to remain subdued, especially in the KLC submarket, Source: JLL
as the economy continues to be impacted by both domestic and foreign For 2012 to 2016, take-up, completions and vacancy
rates are year-end annual. Future supply is for 2017.
headwinds. Rents are likely to decline further in the KLC submarket while Physical Indicators are for Kuala Lumpur City
the DC submarket is expected to see marginal rental growth due to Centre.
improved transportation infrastructure and completions of new integrated
developments.
Seven projects are earmarked for completion in 2017, adding about
4.49 million sq ft to total stock, with the majority located in the DC
submarket. Consequently, overall vacancy is expected to rise as the new
supply comes on stream.
Note: Kuala Lumpur office refers to Kuala Lumpurs Grade A office market consisting of Kuala Lumpur City
Centre (KLC) and Decentralised (DC) submarkets.
Strong demand amid large volume of new supply
MANILA maintains upward rent trend.
Claro dG. Cordero, Jr., Head of Research, Philippines
Slowing
300 3
a tight vacancy environment. Growth in capital values slightly exceeded
Percent
that of rents, posting an increase of 1.5% q-o-q to PHP 128,000 per sqm in
200 2
4Q16.
100 1 The strong local economy continues to attract occupiers and investment
into the country. The upward adjustment of the countrys economic
0 0 growth forecasts by the Asian Development Bank further highlights the
12 13 14 15 16 17F
potential attractiveness of the country to investors.
Take-Up (net) Completions
Future Supply Vacancy Rate Outlook: Large incoming supply may temper rent growth
Source: JLL The next two quarters are expected to see the completion of 286,000 sqm
For 2012 to 2016, take-up, completions and of office space from nine developments, which may result in the slowing of
vacancy rates are year-end annual. Future supply
is for 2017. rent growth.
Nonetheless, the office rental market is expected to remain landlord-
favourable due to sustained demand primarily sourced from the expansion
of the O&O sector. Pre-commitment rates for many future developments in
Makati CBD and BGC are at a high level.
Note: Manila Office refers to the Makati CBD and BGC Grade A office market.
Positive market performance with an uptick in
occupancy and average rent.
Trang Le, Head of Research, Vietnam
HO CHI MINH CITY
27 OFFICE
Rising
Gradual take up of space Financial Indices
There was positive net absorption in the office sector of 1,300 sqm in 4Q16. 110
However, this figure was lower q-o-q due to limited available stock. The
largest amount of available office space was recorded in Kumho Asiana 105
Plaza and Bitexco Financial Tower. Vietcombank Tower and Times Square
100
were officially fully occupied as at end-4Q16.
Index
95
New office set-ups and relocation transactions continued to be the main
drivers of office demand in 4Q16. Some notable leasing deals in the 90
quarter included Robert Walters Vietnam, Shin & Kim Law Firm and Credit
Suisse taking up a total of more than 1,300 sqm. 85
In 4Q16, the average net effective rent of the Grade A office market stood 50 20
at USD 38.7 per sqm per month, a slight rise of 0.2% q-o-q. The uptrend in
rent was maintained for the fifth consecutive quarter. 40 16
Thousand sqm
Percent
No investment transactions were recorded in 4Q16. Owners of office 30 12
buildings in the city have shown a preference to hold on to high-quality
20 8
assets. The average capital value of the Grade A office market edge higher
by 0.2% q-o-q to USD 5,099 per sqm, on the back of an improving market 10 4
performance.
0 0
Outlook: Market conditions likely to improve throughout 2017 12 13 14 15 16 17F
Deutsches Haus developer targets to complete the development in August Take-Up (net) Completions
Future Supply Vacancy Rate
2017. Construction of Saigon Centre Phase II is expected to finish in early
3Q17 at the latest. These two projects, when complete, will add more than Source: JLL
58,000 sqm to total stock in 2017. For 2012 to 2016, take-up, completions and
vacancy rates are year-end annual. Future supply
is for 2017.
Strong leasing pre-commitments have been observed in the two upcoming
projects. The average rent of the overall market is forecast to move higher
in 2017, mainly driven by higher rentals at the new supply.
Note: Note: Ho Chi Minh City Office refers to Ho Chi Minh Citys Grade A office market.
Indias capital records its strongest quarter of
DELHI leasing activity in two years.
Ashutosh Limaye, Head of Research, India
Rising
Financial Indices Net take-up climbs to a three-quarter high on the back of strong demand
120 Leasing activity during the quarter was characterised by a high number of
transactions. Smaller, domestic firms were very active during the quarter
115
as evidenced by the number of transactions with an average size of 1,000
110 2,000 sq ft. Take-up was driven by technology occupiers but e-commerce,
105 manufacturing and financial service firms were also observed to be signing
up for additional office space.
Index
100
95 Both the CBD and SBD continued to see sluggish leasing activity with the
90 suburbs, particularly Gurgaon gaining ground at their expense. Net
absorption was significantly up q-o-q in both Gurgaon and Noida. Major
85
lettings involved companies such as MakeMyTrip, Birlasoft, Mankind
80 Pharma, Dell, GlobalLogic and Markit.
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
New supply significantly higher on a q-o-q basis
Arrows indicate 12-month outlook
Index base: 4Q12 =100 Seven completions in Gurgaon and Noida added 1.7 million sq ft of new
Source: JLL supply during the quarter.
Financial Indicators are for the SBD.
The vacancy rate dropped by 30 bps q-o-q to 30.9% in 4Q16. Vacancy in
prime office corridors and superior office buildings continued to decline
Physical Indicators while the peripheral office corridors struggled with high vacancy and low
1,400 35 occupier penetration.
1,200 30 Rents and capital values decline in the CBD but grow in Gurgaon and Noida
1,000 25 Rental declines in old and strata-titled properties were responsible for
the continuing correction in the CBD. In Gurgaon, rental gains in DLF
Thousand sqm
800 20
Percent
Note: Delhi Office refers to Delhi NCRs overall Grade A office market.
As Indias corporate office hub, Mumbai
MUMBAI
continues to see steady demand for
commercial space.
Ashutosh Limaye, Head of Research, India
29 OFFICE
Rising
Leasing activity improves but net take-up declines Financial Indices
In 4Q16, net absorption decreased 23% q-o-q. The decline in net take-up 120
was largely attributed to the limited contribution of pre-commitments,
115
as there were less new completions. Upcoming office projects in the BKC,
SBD North and Navi Mumbai attracted pre-commitments in 4Q16. 110
105
IT/ITeS, BFSI and manufacturing companies drove demand for office space
Index
100
in the quarter and transaction volumes picked up q-o-q.
95
Only two new buildings complete during the quarter
90
In 4Q16, two projects became operational providing a total area of
85
1.04 million sq ft and with a combined pre-commitment rate of 23.0%.
Mumbais total stock grew 1.0% q-o-q and surpassed the 108 million sq ft 80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
level. Rental Value Index Capital Value Index
We have observed a new trend of upcoming office developments including Arrows indicate 12-month outlook
Index base: 4Q12 =100
mixed-use components. Source: JLL
Financial Indicators are for the SBD BKC.
Generally limited movement in rents and capital values
Select submarkets in the Mumbai office market recorded small q-o-q
rental increases, with new leases and renewals closed in the range of Physical Indicators
0.51.0% higher than the previous quarters market average. 1,200 30
In the CBD, rental declines continued to outpace falls in capital values and
1,000 25
this caused yields to compress slightly. However, the core BKC witnessed
quality office space leased at premium rents. In the rental cycle, the core 800 20
Thousand sqm
Percent
600 15
stagnancy.
Outlook: Strong leasing activity expected in upcoming quarters 400 10
Net absorption in 2017 is expected to slightly surpass 2016s level with 200 5
pre-commitments to upcoming quality projects likely to be high. Vacancy
0 0
levels are expected to come down as quality office space is quickly taken 12 13 14 15 16 17F
up.
Take-Up (net) Completions
Occupiers requiring back office space, e-commerce and new start-up Future Supply Vacancy Rate
companies should generate demand along with occupiers from other Source: JLL
sectors. The SBD will witness the launch of non-IT buildings, while Thane- For 2012 to 2016, take-up, completions and vacancy
rates are year-end annual. Future supply is for 2017.
Belapur Road in Navi Mumbai is set to see a plethora of IT developments in Physical Indicators are for the Overall market.
upcoming quarters.
Rising
Financial Indices Net absorption in 4Q16 almost double the previous quarters level
140 Net take-up in 4Q16 rose to 1.9 million sq ft. However, overall net
135 absorption in Bengaluru for the full-year 2016 dropped by about 20% to
130 8.6 million sq ft due in large part to a tight vacancy environment -
125
particularly in prime locations - as demand remained healthy throughout
120
115
the year.
Index
110
Key occupiers who leased space in 4Q16 included Microsoft, Amazon,
105
100
UBER, State Street and Lowes.
95
Vacancy edges up
90
85 Six office buildings commenced operations in 4Q16, adding 2.7 million sq
80 ft to the Grade A office stock which reached 101.1 million sq ft. Most
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
buildings started operations with good occupancy rates.
Arrows indicate 12-month outlook Bengaluru office vacancy increased marginally to 3.8% amid new supply.
Index base: 4Q12 =100
Source: JLL Limited available space and stable demand underpin rent growth
Financial Indicators are for the SBD.
In 4Q16, average rents increased across the city in the range of 13% q-o-q.
Low vacancy rates in key locations supported rising rents.
Physical Indicators
Capital values increased at a similar pace as rents and this resulted in
1,200 12 stable market yields.
1,000 10 Outlook: Yields likely to compress in select areas
800 8 Sustained demand should keep vacancy rates below 5% in 2017. The
Thousand sqm
northern and southern parts of the city are likely to witness increased
Percent
Source: JLL
For 2012 to 2016, take-up, completions and vacancy
rates are year-end annual. Future supply is for 2017.
Physical Indicators are for the Overall market.
31 OFFICE
Rising
Leasing activity concentrated in the prime sector of the market Financial Indices
Sydney CBD net absorption totalled 81,600 sqm over 2016. Multiple sectors 170
were in expansionary mode and net absorption in the Sydney CBD was 160
almost 40% higher than the 40-year average.
150
A large portion of major tenant moves over 4Q16 were in the prime sector 140
of the market. The largest tenant move of the quarter was IAG relocating 130
Index
to Darling Park Tower 2 (35,612 sqm). IAG took up the majority of the 120
backfill space which was vacated by PwC, who relocated to International 110
Towers Sydney Tower 1 (26,500 sqm).
100
Completions in 2016 the highest since 1992 90
Sydney CBD rental growth is the strongest of all the Australian CBDs 250 10
Limited quality contiguous space options across Grade A and secondary 200 8
assets resulted in strong face rental growth, and a sharp drop in
Thousand sqm
150 6
incentives. Prime gross effective rents increased by 17.6% y-o-y, the
Percent
strongest growth figure since 2007, and secondary gross effective rents 100 4
increased by 30.0%, the strongest figure since 1997.
50 2
Sydney CBD investment volumes totalled AUD 3.87 billion in 2016. The 0 0
largest sale in 4Q16 was two AMP funds (AMP Capital Diversified Property
50 2
Fund and AMP Capital Wholesale Office Fund) acquiring 33 Alfred Street 12 13 14 15 16 17F
from AMP Life for AUD 430.0 million.
Take-Up (net) Completions
Outlook: The Sydney CBD will contract in size in 2017 Future Supply Vacancy Rate
Office withdrawals are expected to be higher than completions in 2017 Source: JLL
which will result in the Sydney CBD contracting in size. Of the 129,800 sqm For 2012 to 2016, take-up, completions and vacancy
rates are year-end annual. Future supply is for 2017.
of assets earmarked for withdrawal in 2017, approximately 63,000 sqm
(49%) will be demolished to make way for the Sydney metro infrastructure
project.
The Sydney CBD vacancy rate is expected to trend down over 2017. A
total of 44,800 sqm of office space is expected to complete in 2017, of
which 56% has already received a pre-commitment. This, combined with
displaced tenants from office withdrawals, should result in tightening
market conditions over the next 12 months.
Note: Sydney Office refers to Sydneys CBD office market (all grades).
Strong demand throughout 2016 results in the
MELBOURNE
strongest CBD annual net absorption
(188,700 sqm) since 1978.
Annabel McFarlane, Associate Director - Research, Australia
Rising
Financial Indices Expansionary moves drive the strong leasing market in 4Q16
150 CBD net absorption totalled 33,800 sqm in 4Q16. Serviced office and
co-working businesses were active throughout 2016. Legal co-working
140
operator Barristers Chambers, for example, expanded into an additional
130 5,802 sqm at 420 Lonsdale in 4Q16. A number of tenants centralised from
fringe locations to the CBD in the quarter.
120
Index
110
Net absorption was positive in Melbournes CBD, Fringe and Suburban
office markets as expansions outweighed contractions in the final quarter
100 of 2016.
90 Vacancy declines further to 8.1%
80 Prime and secondary vacancy in the CBD office market declined to 7.9%
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
and 8.4% as a result of no new supply and strong demand. PwCs move
Arrows indicate 12-month outlook
into its newly completed Southbank development early in 2017 is one of
Index base: 4Q12 =100 two projects expected to complete in 2017.
Source: JLL
Pre-commitments secured over the second half of 2016 will kick off the
next wave of office supply. Four or five major office projects are likely to
complete in 2018 and 2020. Withdrawals for conversion to residential use
Physical Indicators continue to be a feature of the fringe office markets which is particularly
200 12
concentrated on the St Kilda Road precinct.
Prime CBD yield range narrows to 5.00%6.25%
150 9
The sales of ANZ HQ, 100 Queen Street for AUD 275 million and One
Melbourne Quarter, Collins St Docklands for AUD 250 million reset pricing
Thousand sqm
100 6
benchmarks in the quarter. The spread between prime and secondary
Percent
50 3
asset yields (upper end) narrowed rapidly over the year as investors
moved up the risk curve to acquire assets.
0 0 Strong occupier demand and limited supply fuelled strong prime (10.5%
y-o-y) and secondary (6.4%) gross effective rental growth in the CBD.
50 3
12 13 14 15 16 17F
Fringe office markets have performed strongly with gross effective rents
increasing on average 10.3% y-o-y in prime and 13.2% in secondary grade
Take-Up (net) Completions
assets.
Future Supply Vacancy Rate
Outlook: Yields expected to stabilise at or close to current record lows
Source: JLL
For 2012 to 2016, take-up, completions and vacancy Vacancy is forecast to decline to a cyclical low in 2017 and rise as supply
rates are year-end annual. Future supply is for 2017.
increases through 2020. Demand is expected to normalise over 2017 and
2018 following very high levels recorded over the previous 24 months.
Solid rental growth is anticipated in 2017, with landlords expected to
continue to ease incentives to match improving business sentiment.
Note: Melbourne Office refers to Melbournes CBD office market (all grades).
Signs of recovery in Perth as iron ore
prices rebound.
Andrew Ballantyne, Head of Research, Australia
PERTH
33 OFFICE
Slowing
Strongest quarterly net absorption result in four years Financial Indices
Several positive contributions to net absorption were made in 4Q16 as a 110
number of occupiers centralised from the suburbs and leased space in the
CBD. Some sub-lease space was withdrawn from the market. 100
Attractive rents, incentives and the availability of high quality office space 90
remain the drivers of leasing enquiry and activity in the Perth CBD. Net
Index
80
absorption for 2016 totalled 12,700 sqm. While there were a number of
occupier moves within the CBD during the year, a downsizing trend was 70
evident throughout 2016.
60
Vacancy remains elevated at 24.1%
The Perth CBD recorded a 0.6 percentage points fall in vacancy over 4Q16, 50
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
reaching 24.1%. This was the first decline in vacancy in 19 quarters. Over Rental Value Index Capital Value Index
the last four years, vacancy has increased by an average of 0.9 percentage Arrows indicate 12-month outlook
points per quarter. Index base: 4Q12 =100
Source: JLL
The supply pipeline has cooled following a record year of completions in
the Perth CBD in 2015. Two projects are currently under construction in the
Perth CBD. The largest is Woodsides new office building at Capital Square
(48,484 sqm), anticipated for completion in 2018. New supply is unlikely to Physical Indicators
begin construction without pre-commitment. 200 40
the six transactions occurred in the first quarter of 2016, and the full-year
Percent
50 10
volumes were a significant increase over 2015.
0 0
The most recent sale was in July 2016 when The Insurance Commission of
Western Australia sold Westralia Plaza at 167 St Georges Terrace to Zone Q 50 10
Investments of China, for AUD 87.0 million. While opportunities are limited,
100 20
investment interest remains robust from local, national and offshore 12 13 14 15 16 17F
buyers, looking to invest in the Perth CBD.
Take-Up (net) Completions
Outlook: Perth CBD starting to stabilise Future Supply Vacancy Rate
Note: Perth Office refers to Perths CBD office market (all grades).
Market conditions remain tight at the top end of
AUCKLAND
the market with premium grade space in
short supply.
Tom Barclay, Head of Research, New Zealand
Slowing
120
rental growth has been weaker than that observed for the premium and
110 Grade A buildings. A number of refurbished Grade B buildings have space
100 available and struggled to gain traction in the market.
90 Vacancy sits near record low but new supply is imminent
80 Vacancy at end-2016 was virtually non-existent across Aucklands four
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
premium towers, whilst Grade A vacancy held flat at 2.8%. Additional
Arrows indicate 12-month outlook
Grade B space following refurbishment added some capacity with vacancy
Index base: 4Q12 =100 increasing to 7.8%, with a number of floors yet to be leased by end-4Q16.
Source: JLL Overall CBD vacancy firmed to 7.1% in December largely as a result of
strong take-up within new developments in the Wynyard precinct.
The delivery of 125 Queen Street (15,000 sqm) following refurbishment will
Physical Indicators add further capacity in the secondary CBD market in 2017.
50 15 Yields approaching cyclical low
Investors remained interested in acquiring premium and Grade A office
40 12
assets but were hindered by the small pool of assets being tightly held at
this point in the cycle. Yields compressed to new lows in 4Q16, with
Thousand sqm
30 9
average prime yields firming to 6.25%, the lowest point on record.
Percent
Take-Up (net) Completions Outlook: Relief for pent-up demand on the horizon
Future Supply Vacancy Rate
Whilst vacancy is tight at the top for premium and Grade A space, relief is
Source: JLL around the corner with a substantial amount of high quality floors being
For 2012 to 2016, take-up, completions and vacancy
rates are year-end annual. Future supply is for 2017. advertised for occupation in 2018 and 2019. This is occurring
Physical Indicators are for the Overall market. predominantly in buildings where larger occupiers have committed to the
new Commercial Bay development (due for completion in 2019).
Whilst the upcoming Commercial Bay will provide relief in the premium
portion of the market in the core CBD, there remains a number of Grade A
buildings in the Wynyard precinct to be delivered in the interim including
Precinct 5A, the Datacom building and 44 Sale Street which together will
contribute over 30,000 sqm of space. The delivery of these projects over
2017 and early 2018 will likely see the vacancy rate increase in the core
CBD as more tenants are drawn to Wynyard.
Note: Auckland Office refers to Aucklands CBD and Viaduct Harbour office market.
Retail
35 RETAIL
Rental decline slows as slump in retail
HONG KONG sales narrows.
Terence Chan, Head of Retail, Hong Kong
Financial Indices Inbound tourism and retails sales show signs of stabilisation
120 Total visitor arrivals slid by just 2.3% y-o-y in October-November after a
3.6% y-o-y fall in 3Q16. The improvements were buttressed by a more
110 modest 6.5% y-o-y drop in Individual Visit Scheme (IVS) arrivals. The
ongoing slump in retail sales also showed signs of stabilisation, down just
100
4.2% y-o-y in October-November from 7.5% y-o-y in 3Q16.
Index
90
Leasing activity slowed down ahead of the holiday season, with landlords
80
turning more accommodative towards short-term leases to minimise void
36 RETAIL
periods. Mass retailers, notably cosmetics and active wear retailers, as well
70 as F&B operators, continued to underpin leasing demand, whilst luxury
retailers resorted to downsizing strategies.
60
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 Retailing in the New Territories gets a big lift
RV Index (High Street Shop)
CV Index (High Street Shop) YOHO Mall extension below Grand YOHO was issued with its Occupation
RV Index (Premium Prime Shopping Centres)
RV Index (Overall Prime Shopping Centres) Permit in December, adding 471,000 sq ft to the market. The new phase is
Arrows indicate 12-month outlook part of the 1.1 million sq ft YOHO Mall project, the largest retail podium
Index base: 4Q12 =100
Source: JLL
since 2010.
A commercial development site (NKIL 6557) in the Kai Tak Development
Physical Indicators Area was acquired by Lifestyle International Holdings, the operator of
200
SOGO department store via the governments land sale programme. The
buyer intends to open a 546,000 sq ft SOGO department on the site,
expecting to complete in 2021.
160
Rental downslide of High Street shops moderates
Thousand sqm
120 Amid stabilising sector indicators, High Street shop rents continued to
drop in 4Q16, albeit at a slower pace. Base rentals in Prime and Premium
80 shopping centres continued to trend downwards, given ongoing tenant
reshuffling activity and the growing profile of F&B and mass retailer
30 tenants against a slight increase in vacancy.
A wide expectation gap between buyers and sellers continued to limit sales
0
12 13 14 15 16 17F
transactions on high streets. Nevertheless, sales evidence on secondary
Completions Future Supply
streets suggests that capital values continued to soften over the quarter.
Outlook: Market to bottom out in 2017
Source: JLL
For 2012 to 2016, completions are year-end annual. The retail sectors two year slump is likely to end in 2017. Still, this recovery
Future supply is for 2017.
is unlikely to materialise until 2H17. Hence, we forecast that rents will
likely end the year at a lower level, albeit the decline will be less than in
recent years; down 05% for High Street shops and down 0-5% in Prime
shopping centres amid a changing tenant mix.
Riding on the gradual recovery of the retail sector, we expect local
seasoned investors to actively seek out bargains and value-added
opportunities, driving up investment volumes over the near term. Capital
values are thus forecasted to decline by a more moderate 510% in 2017.
Note: Hong Kong Retail refers to Hong Kongs Overall Prime shopping centres and High Street retail markets.
Trendy brands further boost destination malls as
shoppers continue to flock to these projects.
Steven McCord, Head of Research, North China
BEIJING
Index
located projects which tended to be slow to fill up. Near Taikoo Li, the
100
project managed to raise its commitment rate to 92% by year-end, only
37 RETAIL
two quarters after opening.
90
Two new Wanda malls open near each other in south Beijing
Two new Wanda malls opened, adding to the 2016 supply boom in south 80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Beijing. Wanda Fengtai (approx. 170,000 sqm) and Wanda Huaifang Rental Value Index Capital Value Index
(approx. 230,000 sqm) opened just over 5 km from each other. Traditionally Arrows indicate 12-month outlook
underserved for retail, south Beijing saw nearly 1 million sqm of new Index base: 4Q12 =100
supply enter the area in 2016. Source: JLL
Outlier Fun Capital Outlet opened at a theme park with just 60%
commitment, in contrast to the near full-commitment typically achieved at
other newly opened suburban projects. Physical Indicators
Quarterly rental growth flat, while annual growth is lowest in 10 years 700
Rental growth remained slow, with the Urban market growing just 0.2% 600
q-o-q. Full-year rental growth reached only 2.0% in 2016, the lowest in ten
years. This was due to less spending by visitors from nearby provinces and 500
400
from the three Os: online, overseas, and outlet shopping.
300
Key properties with a strong reach across the city continued to thrive,
while others were squeezed between these thriving malls and the booming 200
suburban market, which has come into its own as a mature alternative for
100
most shopping needs. Suburban rents grew 0.7% q-o-q, while y-o-y growth
also outperformed the Urban market at 3.8%. 0
12 13 14 15 16 17F
Outlook: 2017 to be peak supply year, partially due to 2016 delays Completions Future Supply
We may see more non-traditional tenants appear as landlords seek to Source: JLL
differentiate their malls from competitors. However, chasing fads is For 2012 to 2016, completions are year-end annual.
Future supply is for 2017.
difficult to sustain, and more long-term solutions such as locating co-
working space in malls serves to create a captive audience that will help
boost spending.
The year 2017 will be a peak supply year as delayed projects from 2016
comprising approximately 20% of the total GFA for new supply in the
coming 12 months are expected to enter the market by year-end.
However, projects set to open in 2017 may also be subject to delays.
Financial Indices Continued strong demand from F&B and experience-oriented brands
130 Sentiment improved among fashion retailers as several brands
experienced y-o-y sales increases after a weak first half of 2016. However,
120 this did not translate into increased leasing activity as brands remained
cautious about overcommitting themselves. Overall leasing patterns
110 remained similar to earlier in the year.
Index
400 Prime open-market ground floor base rental growth decelerated from 2.8%
y-o-y in 3Q16 to 1.3% in 4Q16, reaching RMB 51.6 per sqm per day. Prime rents
300
have been impacted by weak or falling rents in struggling submarkets like
200 West Nanjing Road. Decentralised rents held up better, with growth slowing
from 3.0% y-o-y in the previous quarter to 2.9% to reach RMB 20.4 per sqm per
100 day.
0
12 13 14 15 16 17F
Retail investment activity was strong in the quarter. China Life acquired
Completions Future Supply
Century Link for RMB 20 billion. Joy City acquired Parkside Plaza for
RMB 2.2 billion. Xuebao Mansion was acquired by Blackstone, while Carlyle
Source: JLL sold the commercial part of Richgate to CSI Properties.
For 2012 to 2016, completions are year-end annual.
Future supply is for 2017. Outlook: Rental growth expected to moderate further
Physical Indicators are for the Prime market.
Supply pressures and rising competition in both prime and decentralised
markets indicate that rental growth is likely to further decelerate in 2017.
Established downtown malls and maturing decentralised malls in good
locations will drive rental increases.
F&B and experience-oriented brands will remain major drivers of demand
for retail space. Fashion retailers are expected to remain cautious in their
expansion plans, though sports and casual wear brands will remain active.
Note: Shanghai Retail refers to Shanghais overall Prime and Decentralised retail markets.
Stiff competition among malls with similar
GUANGZHOU
positioning prompts landlords to improve
differentiation.
Silvia Zeng, Head of Research, South China
Index
110
newly completed malls was observed to have higher occupancy relative to
space dedicated to other trades. Sportswear retailers, being an exception 100
39 RETAIL
among fashion retailers, also performed relatively well during the quarter.
90
Substantial new supply leads to rising vacancy rates
Parc Central on Tianhe Road, Seasons Mall IV and IGC in Zhujiang New 80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Town entered the market in the quarter, adding a total of 259,103 sqm of Rental Value Index Capital Value Index
new space. Arrows indicate 12-month outlook
Index base: 4Q12 =100
The three new malls were all positioned as mid-to-high range malls, Source: JLL
targeting with similar tenants and customers. The intense competition
resulted in large amounts of vacant space upon opening and pushed up
the overall vacancy rate from 2.0% in 3Q16 to 4.4% at end-4Q16.
Physical Indicators
Rentals remain flat, suppressed by weak demand
400
Weak overall leasing demand along with substantial new supply
contributed to rising vacant space and created downward pressure on 350
rents. However, most landlords did not soften their stance and requested 300
the same asking rents. In general, overall rents continued to be stable.
Thousand sqm
250
No en bloc investment transactions were recorded in 4Q16, although there 200
was a constant influx of enquiries from domestic investors. Capital values
150
trended upwards while market yields were mildly compressed.
100
Outlook: Slow rental growth is predicted
50
Overall leasing demand is expected to remain stable in 2017. We anticipate
that experience related retailers (including F&B) are most likely to be 0
12 13 14 15 16 17F
tenants continuing their expansion, while demand from general retailers is
Completions Future Supply
likely to remain flat or even decline slightly in part due to a conservative
sales outlook for 2017. Source: JLL
For 2012 to 2016, completions are year-end annual.
Four projects in the pipeline are expected to complete over the next 12 Future supply is for 2017.
months. In contrast with 2016, when most new projects opened in core
precincts, supply in 2017 will be much more dispersed. In general, the
vacancy rate should slowly decline and overall rents will remain flat.
140
Although healthy demand persisted for prime retail space in 4Q16, an
120
increasing number of retailers were cautious about new store openings
40 RETAIL
8 Rents grow for the seventeenth consecutive quarter but at a slower pace
6 Rents in the prime retail area averaged JPY 78,783 per tsubo per month at
end-4Q16, rising 0.6% q-o-q and 2.1% y-o-y. This was the seventeenth
4
consecutive quarter of rental growth but the increase slowed for the first
y-o-y (%)
2 time in two quarters. Growth was strongest for upper floor space in Ginza.
0
Capital values at end-4Q16 increased 0.3% q-o-q and 4.7% y-o-y. Growth
2 was largely in line with the previous quarter, reflecting moderate rental
4
growth and stable investment yields. Investment transactions in the
quarter included Japan Prime Realtys acquisition of Ginza Gates, a retail
6 building fronting Namiki-dori, for JPY 10.1 billion (NOI cap rate of 3.2%).
3Q11 3Q12 3Q13 3Q14 3Q15 3Q16
Sales Growth of Large-Scale Outlook: Rental growth to slow further in 2017
Retail Stores in Tokyo
Source: Ministry of Economy, Trade and Industry According to Oxford Economics, nominal private consumption is expected to
rise 0.8% in 2017, supported by rising disposable income which is forecasted
to grow 1.8%. The number of visitor arrivals is anticipated to increase further,
but the slowdown in tourist consumption could persist given the shift in
spending away from luxury goods.
Despite the tight-demand supply environment, rental growth is expected to
be moderate as rents near the previous peak level. In the investment market,
strong interest from investors including institutional and high net worth
individuals should continue against limited availability of assets on the
market, and this could place further downward pressure on yields.
Note: Tokyo Office refers to Ginza and Omotesando Prime retail markets.
Retail market continues to soften as retailers and
consumers brace for stronger headwinds.
Angelia Phua, Associate Director -
SINGAPORE
Research & Consultancy, Singapore
Index
Despite the slight drop in tourist arrivals in 2Q16, there was encouraging 95
growth in tourism expenditure driven by shopping and F&B. This was likely 90
41 RETAIL
fuelled by the growing number of first-time mainland Chinese visitors, as
well as Indonesian visitors, who frequent Singapore as a destination for 85
holidays or as short-haul trips to attend to personal needs.
80
Concentration of new retail supply in the Marina submarket 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
The Marina submarket welcomed two newly constructed retail podiums Arrows indicate 12-month outlook
during the quarter. The first, South Beach, opened with full occupancy, while Index base: 4Q12 =100
the newly constructed retail component of Guoco Tower, Tanjong Pagar Source: JLL
Financial Indicators are for Orchard Road.
Centre, opened with 85% occupancy. Both retail podiums have an F&B-
centric tenant mix.
In the Suburban submarket, the scheduled opening of Hillion Mall has been Physical Indicators
delayed from 4Q16 to 1Q17. Owing to its direct connection to the Bukit 200
Panjang MRT and LRT, it reported a healthy occupancy rate of 90%,
entrenching the lure of retailers to malls in the Suburban submarket.
150
Correction of rental and capital values to continue
Thousand sqm
Besides the expected influx of new retail supply due in 2017, which
contributed to further rent correction across all submarkets in 4Q16, a 100
steeper decline in rents within the Marina submarket was underpinned by
retailers seeking pre-termination of their leases because of weak
50
performance.
Investment sales volumes for the quarter rose sharply from 3Q16. Notable
transactions were mostly in the Suburban submarket, as these properties 0
12 13 14 15 16 17F
generate more resilient rental income. Besides marginal compression of Completions Future Supply
yield in the Suburban submarket, yields stayed stable as the capital value
correction was in line with the rental decline. Source: JLL
For 2012 to 2016, completions are year-end annual.
Outlook: An equally challenging year ahead for retail Future supply is for 2017.
Physical Indicators are for the Overall market.
Compared to 2016, a greater volume of supply in retail space is due to
complete in 2017. Despite the possible spike in retail sales due to the
festivities in 4Q16, the sentiment of consumers and retailers alike is
expected to remain weak following the Fed hike and this is likely to weigh
on spending in 2017.
Vacancy rates are therefore likely to inflate, in light of weak occupier
demand and tenant consolidation by retailers. Rents and capital values
will continue to correct.
Note: Singapore Rtail refers to Singapores Orchard, Marina and Suburban retail markets.
Re-investing in the health and competitiveness
BANGKOK
of existing assets trumps searching for new
greenfield opportunities.
Andrew Gulbrandson, Head of Research, Thailand
100
market as well as expanding existing footprints. In 4Q16, at least five
95 international retailers opened their first stores in Thailand, most of which
42 RETAIL
300 Gross rents in 4Q16 remain unchanged from the previous quarter. Retail
landlords have struggled to raise rents in recent months owing to a
200 slowdown in consumer spending caused by the passing and subsequent
mourning period of Thailands King Bhumibol.
100
Bangkoks retail market has become relatively saturated in recent years from
a supply perspective. Major developers have pushed back new greenfield
0
12 13 14 15 16 17F
projects in the metro area by three to four years (or more in some cases) and
Completions Future Supply
are focusing on renovating existing assets to enhance competitiveness.
Outlook: Thin supply pipeline as developers move up-country
Source: JLL
For 2012 to 2016, completions are year-end annual. Two new retail projects are expected to complete in 2017. The largest is
Future supply is for 2017.
Siam Piwats ICONSIAM, which consists of a large super regional centre and
a separate smaller specialty centre focusing on luxury brands. Both should
complete in late 2017. The second is the retail component at Gaysorn Tower.
As developers like Central Pattana PCL (CPN) focus investment efforts in
Bangkok on renovating existing assets, they also continue to introduce
greenfield projects in provincial markets. CPN has three new centres
expected to complete in 2017 outside of Bangkok, while other developers
such as The Mall Group and Siam Retail have projects underway in the resort
markets of Phuket and Pattaya.
Note: Bangkok Retail refers to Bangkoks Prime retail market.
JAKARTA
No completions and vacancy edges down.
James Taylor, Head of Research, Jakarta
Index
110
families and leisure seekers. As such, F&B has been the most active retail
segment for some time with entertainment playing a supporting role and 100
43 RETAIL
driving demand for retail space. Several local and international brands
expanded in 4Q16. 90
Given the lack of options for developers, the most likely point of entry in
core areas of the city is retail portions of mixed-use developments, with
sites close to the upcoming MRT an attractive proposition for some Physical Indicators
developers. Decentralised projects in Greater Jakartas townships also 400
present opportunities in areas unaffected by the moratorium.
350
Rents unchanged q-o-q; no investment deals close
300
Given the lack of available space in Jakartas prime retail market and
Thousand sqm
250
limited supply pipeline, occupancy levels have been healthy for some time.
In such a situation, landlords of top performing malls have been well- 200
placed to raise rents steadily. Rents were flat in 4Q16 but rose by 2.7% 150
y-o-y.
100
Steady rental growth, low vacancy rates and limited supply are such that
50
retail is consistently on the radar for investors. However, for the same
reasons, existing owners are often unwilling to offload and few en bloc 0
12 13 14 15 16 17F
transactions have historically closed in Jakarta no deals were announced Completions Future Supply
in 4Q16.
Source: JLL
Outlook: One new completion expected; vacancy to remain low For 2012 to 2016, completions are year-end annual.
Future supply is for 2017.
Aeon Mall is earmarked for delivery in late 2017. This project is part of an
aggressive Greater Jakarta expansion plan by Aeon and will be the groups
second delivery in the Jakarta area following their 2015 project in the BSD
Township in the Tangerang area.
Space in 2017s only new completion is expected to be absorbed quickly
and the average market vacancy rate is likely to remain low. As such,
landlords are expected to continue increasing rental quotations and
investor interest will remain strong.
DELHI
causes net absorption to slip to a
six-quarter low.
Ashutosh Limaye, Head of Research, India
Financial Indices Retailer activity being hindered by limited availability in quality malls
120 With vacancy in established premium malls low and recent quality
completions having achieved healthy occupancy, leasing activity remained
115
limited. This coupled with retailer exits from lower quality malls resulted in
110 negative net absorption during the quarter.
105
Despite healthy leasing activity in the recently refurbished Ansal Plaza, an
Index
100
active churn among retailers resulted in negative net take-up in the Prime
95 South during the quarter. Older, strata-titled retail properties in the Prime
44 RETAIL
90 Others are facing retailer exits while the Suburban submarket saw space
take-up restricted by a lack of vacancy in recent, quality completions.
85
Fast fashion, entertainment and F&B retail categories should drive demand
150
for quality retail space in 2017. Relaxed foreign direct investment rules are
100 likely to result in the entry of new global retailers.
The high occupancy rates in quality malls are likely to continue to limit
50
take-up and leasing activity in the absence of new completions. Selected
0
upcoming, quality retail projects have garnered some pre-commitments
12 13 14 15 16 17F but retailer interest is likely to grow as they move closer to completion.
Completions Future Supply Average-quality projects may struggle to attract retailer interest and this
Source: JLL could result in project delays.
For 2012 to 2016, completions are year-end annual.
Future supply is for 2017.
Physical Indicators are for the Overall market.
Note: Delhi Retail refers to Delhi NCRs overall Prime retail market.
With a shortage of prime space and limited
supply, landlords are adjusting tenant mixes to
boost the presence of tenants with high
rental affordability.
MUMBAI
Ashutosh Limaye, Head of Research, India
Index
100
Retailers in the fashion, F&B and entertainment categories were the most
active in the quarter. 95
45 RETAIL
90
No new mall openings
85
Total stock of prime malls in Mumbai was 17.6 million sq ft at end-4Q16,
4.5% lower than a year earlier. 80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
No new supply and positive net absorption contributed to a slight decline
in vacancy to 12.5% in 4Q16. Arrows indicate 12-month outlook
Index base: 4Q12 =100
Rents rise in Suburbs and Prime South Source: JLL
Financial Indicators are for the Prime South.
Overall, prime mall rents grew 0.9% q-o-q to INR 121 with the Suburbs
witnessing the fastest pace of growth, followed by the Prime South. There
was no change in rents in the Prime North. Physical Indicators
Yields held steady in 4Q16 as rents and capital values moved in tandem. 80
60
More quality space is expected to become available in the Suburbs and
the Prime South in 2017 as several new malls are scheduled to reach
Thousand sqm
50
completion.
40
International retailers in the lifestyle and premium categories are likely 30
to continue to look for opportunities to open stores in Mumbai given its
20
strong long-term fundamentals.
10
0
12 13 14 15 16 17F
Completions Future Supply
Source: JLL
For 2012 to 2016, completions are year-end annual.
Future supply is for 2017.
Physical Indicators are for the Overall market.
100
Competition in the supermarket (and specialty food) sector is weighing on
leasing demand in neighbourhood centres. Spending on cafes, restaurants
46 RETAIL
150 Significant sales in 4Q16 included: Ballina Central Shopping Centre (7.24%)
and Goulburn Central Shopping Centre (8.80%) which provided yield
100 benchmarks for non-metropolitan Sydney assets. With only three sub-
regional and regional shopping centres trading in 2016 across NSW,
50 investors are considering a broader range of retail assets, resulting in
almost a third of all retail transactions over the year being classified as
0
other typically comprising standalone retail premises.
12 13 14 15 16 17F
Completions Future Supply
Yields continued to compress as competition for assets remained firm. We
recorded 13 bps of compression across the shopping centre formats
Source: JLL (unweighted) in 4Q16. Yields are close to the trough in this cycle and we
For 2012 to 2016, completions are year-end annual. expect to record limited yield compression over 2017 and 2018.
Future supply is for 2017.
Outlook: Strong NSW economy supportive of retail spending
Supply is likely to be marginally above the long-term average in 2017 and
2018, but solid population growth suggests the market is likely to remain
relatively undersupplied on a per capita basis. Landlords are likely to
remain focussed on the refurbishment of existing space.
As yields approach their low for the current cycle, rental growth is likely to
become the primary driver of the movement in capital values over the next
12 months.
Note: Sydney Retail refers to Sydneys overall retail market.
Retail conditions in Melbourne remain positive
MELBOURNE
and were starting to see evidence of positive
rental growth.
Annabel McFarlene, Associate Director - Research, Australia
state.
Index
100
Melbournes CBD super-prime retail market remained at full occupancy,
resulting in a spillover of retailer demand to the broader CBD. International
47 RETAIL
retailers continue to be attracted to the strong fundamentals. Local 90
retailers are seeking ways to differentiate their retail offering to compete
with new entrants and online retailers.
80
Supply is relatively low by historical standards 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index
Pacific Werribee, a major regional shopping centre in Melbournes western
Arrows indicate 12-month outlook
growth corridor, is expected to complete its AUD 370 million Index base: 4Q12 =100
redevelopment in early 2017. Australias largest shopping centre, Source: JLL
Financial Indicators are for regional shopping
Chadstone, is also undergoing an AUD 666 million staged redevelopment, centres.
with the major component, the West Mall, opening in October 2016. The
development will see the first Legoland Discovery Centre open in the
Physical Indicators
Southern Hemisphere and is expected to reach final completion in 2Q17,
adding a further 19,800 sqm of retail floor space. 350
Only one project completed in 4Q16, a bulky goods multi-unit centre, 300
Waurn Ponds Homemaker Centre (13,405 sqm). Supply for 2016 (79,500
250
sqm) was the second lowest figure in 15 years, reflecting the focus on the
Thousand sqm
Yield spreads remained wide in 4Q16, reflecting variance in the quality of 100
stock in the market. Investors are pricing secondary grade assets more
conservatively, but are chasing low-risk assets more aggressively. Yield 50
49 RESIDENTIAL
The governments latest efforts to cool the
HONG KONG
housing market seem to be having little effect
on prices.
Denis Ma, Head of Research, Hong Kong
95
The opening of new MTR linesKwun Tong Line Extension and the South
90
Island Line (East)helped boost rental demand in Homantin and the
Southside. Elsewhere in the market, leasing activity remained subdued
85 leading up to a seasonal year-end slowdown.
Note: Hong Kong Residential refers to Hong Kongs Overall Luxury residential market.
The market shows signs of cooling, and
BEIJING
government policy is set to control prices
in 2017.
Steven McCord, Head of Research, North China
Index
110
stable, following the trend from the previous quarter. Serviced apartments
saw an increase in the number of short-term tenants driven by business 100
travellers towards the end of the year.
90
Fewer pre-sales certifications given; new supply drops
With the cooling measures in place, developers held back in launching new 80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
projects. At the same time, there was speculation that the Beijing Rental Value Index Capital Value Index
government tightened pre-sales certification for high-priced projects. This Arrows indicate 12-month outlook
had a subsequent impact and only 579 luxury apartment units and 181 Index base: 4Q12 =100
Source: JLL
high-end villas entered the market in 4Q16, down by 67% and 62% q-o-q, Financial Indicators are for the Overall Luxury
respectively. market.
51 RESIDENTIAL
One new serviced apartment project, Damei Oakwood outside the East 4th
Ring Road, entered the market with 171 units. Somerset Shunyi planned to Physical Indicators
open by end-4Q16, but postponed its completion to 2018. The serviced
9,000
apartment vacancy rate increased to 11.2% due to low occupancy at the
new project. 8,000
7,000
Primary capital value growth stable
6,000
Although demand was restrained, primary capital values for luxury
5,000
apartments recorded q-o-q growth at 1.7%. Meanwhile, the primary capital
Units
values growth rate for high-end villas accelerated q-o-q to 7.9% in the 4,000
quarter, as landlords of mature villa projects still managed to raise prices. 3,000
2,000
Rents rose by 1.8% q-o-q for luxury apartments and decreased slightly by
0.3% for high-end villas. Serviced apartment rents were flat q-o-q. 1,000
0
Outlook: Both demand and supply likely to be restrained 12 13 14 15 16 17F
After the Beijing mayor vowed in late 2016 that housing prices would not Completions Future Supply
rise in 2017, we anticipate strict implementation of the cooling policy and Source: JLL
possibly even follow-up measures. As such, we do not expect demand and For 2012 to 2016, completions are year-end annual.
Future supply is for 2017.
supply to recover rapidly in the high-end market. Financial Indicators are for the Overall Luxury
market.
Three serviced apartment projects are expected to open in 2017, which
is likely to drive up market vacancy. However, two of them are far from
the core urban area. Therefore, new supply will not put much pressure on
the market and overall rents are still expected to rise moderately due to
increasing costs.
Note: Beijing Residential refers to Beijings Overall Luxury and High-end residential market.
Tightening policies tame price growth and
SHANGHAI impact sales volumes.
Joe Zhou, Head of Research, China
Financial Indices Declining sales due to limited new supply and restrictive measures
140 Following a buying spree in 3Q16, Shanghai announced a series of
tightening measures to cool the market. Coupled with limited new supply,
130 these new policies led to a plunge in sales volumes. Mass market and high-
end sales fell 50% and 29% q-o-q, respectively, in 4Q16.
120
Buoyant demand from upgraders prevented a steeper decline in sales
Index
110
momentum, with strong sales in the quarters newly launched projects. For
100
example, One Majesty launched 138 units, of which 84 units were sold in
4Q16. In the leasing market, rents declined by 0.9% q-o-q as demand
90 softened slightly towards the year-end.
6,000
Price growth decelerates
Despite the new tightening policy, most developers remained upbeat given
5,000
low inventory levels and solid demand from upgraders. Growth in high-end
4,000 apartment prices in the primary market rose a further 1.0% q-o-q in 4Q16,
Units
down only moderately from the 1.6% growth recorded in 3Q16. High-end
3,000
prices surged 14.3% from 2015 to 2016.
2,000
In the secondary market, prices rose a further 2.7% q-o-q after recording
1,000 3.0% growth in 3Q16. For the full-year of 2016, the average secondary price
surged 21.3% y-o-y, driven by strong buying demand. The rise in capital
0
12 13 14 15 16 17F
values, coupled with the slight dip in rents, led to further compression in
Completions Future Supply
yields in 4Q16.
Outlook: Sales expected to remain low; prices to stabilise
Source: JLL
For 2012 to 2016, completions are year-end annual. The Shanghai governments housing policy stance is likely to remain
Future supply is for 2017.
tight throughout 2017, as stabilising the housing market is a top political
priority. As such, sales in the mass market will likely stay low over the next
12 months.
In the high-end segment, sales are also expected to remain low in 2017,
mainly due to limited new supply in the pipeline. However, given solid
demand from upgraders, we expect prices to remain stable in the months
to come.
Index
developers perceive that the market may be closer to the bottom.
80
Supply in prime residential districts tapers during the quarter
Cairnhill Nine, a 268 unit condominium in the Orchard area, was the largest 70
project completed in 4Q16. The project was launched for sales in March
2016 and achieved 82% take-up as at December 2016. 60
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
RV Index (Prime) RV Index (Luxury)
Annual new completions in 2016 were 20% lower than that in 2015 and
CV Index (Prime) CV Index (Luxury)
37% lower than the annual average from 2011 to 2015. Future supply in
Arrows indicate 12-month outlook
the prime districts over the next five years are likely to remain moderate Index base: 4Q12 =100
and continuity in supply would depend mainly on the availability of private Source: JLL
land as prime district sites tend to be limited under the Government Land
53 RESIDENTIAL
Sales programme.
Physical Indicators
En bloc deals generate interest among developers
5,000
Rents continued to decline in 4Q16. Leasing activity slowed down during
the quarter due to a lacklustre economic performance and uncertainties in
4,000
the job market.
Capital values improved slightly during the quarter. In 4Q16, a portfolio of 3,000
three apartment buildings near Orchard Road was sold for
Units
Note: Singapore Residential refers to Singapores overall Prime and Luxury residential markets.
More new condo units complete in 2016 than in
BANGKOK
all of 2013-15 combined, but demand
remains strong.
Andrew Gulbrandson, Head of Research, Thailand
110 Eight new projects were launched during the quarter with a combined
pre-sales rate of 28%. Four of the eight projects were in the ultra luxury
105
segment and achieved a combined pre-sales rate of 30%. Only Khun by
Index
100
Yoo from Sansiri PCL, a 148 unit ultra luxury project in the Thong Lor
95 neighbourhood performed well with a pre-sales rate of 60%.
90
Significant volume of new completions
85
Nearly 5,900 new condo units across 14 projects completed in 4Q16, leading to
80 a 16% q-o-q increase in stock, which now stands just shy of 42,000 units. With
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index the strong number of pre-commitments in these newly completed projects,
Arrows indicate 12-month outlook
the unsold rate in the prime condo segment remains below 3%, meaning
Index base: 4Q12 =100 there exists very little primary market inventory available for sale.
Source: JLL
In the luxury apartment sector, Tonson Court, was withdrawn from the market
as the owner sold the land to a residential developer who will demolish it and
54 RESIDENTIAL
build a new condominium project on site. The vacancy rate in the luxury
Physical Indicators apartment sector stands at 8.2%, with many larger 2 bedroom and 3 bedroom
units available in the market.
9,000
Well-known listed developers continue acquisition spree
8,000
In 4Q16, condominium net effective rents increased by by 0.7% q-o-q while
7,000
luxury apartment rents increased by 4.0% q-o-q. Rental growth in the
6,000
prime condo segment remains muted as there exists stiff, growing
5,000 competition as supply continues to increase and many owners are seeking
Units
Note: Bangkok Residential refers to Bangkoks CBA High-end and Luxury residential market.
Luxury sales remain weak but sentiment begins
to improve.
James Taylor, Head of Research, Indonesia
JAKARTA
Index
140
Many oil & gas and mining firms contracted significantly in 2015 and 2016. 120
This led to a shrinking expatriate population and consequently weaker
demand for serviced apartments. Serviced apartment net absorption was 100
negative for the fourth successive quarter in 4Q16.
80
No physical completions in 4Q16 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
No new serviced apartments or luxury condominiums were completed in Arrows indicate 12-month outlook
4Q16. Given negative net absorption throughout 2016, serviced apartment Index base: 4Q12 =100
vacancy rates hit 24% by year-end, despite no new supply during the year. Source: JLL
55 RESIDENTIAL
luxury products were launched in 4Q16. Two lower-end projects entered
the sales market, including the first phase of a large development in West Physical Indicators
Jakarta developed by a mainland Chinese group.
600
Luxury condominium prices remain largely flat
500
Despite improving sentiment due to better macroeconomic fundamentals
and government support, buyers have not yet returned to the market 400
en-masse. As such, luxury condominium prices remained flat. Serviced
apartment rents edge up marginally q-o-q (0.7%).
Units
300
Note: Jakarta Residential refers to Jakartas luxury condominium and serviced apartment markets.
Industrial
57 INDUSTRIAL
Leasing demand remains focused on cost-saving
HONG KONG
relocation amid lagged effects in
improving trades.
Denis Ma, Head of Research, Hong Kong
300 warehousing options. In the New Territories, steady demand from 3PLs
250 targeting lift access warehouses saw rents increase by 0.3% q-o-q.
200
150 Few notable transactions were recorded in the investment market with
100 investors primarily focused on smaller strata-tilted units in new industrial
50 buildings owing to the smaller lump sums involved.
58 INDUSTRIAL
0
12 13 14 15 16 17F Outlook: Rents face downside risks despite improving trade volumes
Completions Future Supply In view of new supply over the next six months, rents in the higher end of
the market will likely face increased downward pressure in 2017. Rental
Source: JLL
For 2012 to 2016, completions are year-end annual. growth, if any, should mainly be driven by growth in cargo lift access
Future supply is for 2017. warehouses where rents are still trading at a relative discount. Overall, we
forecast rents to end 2017 down 05%.
While the new stamp duty measure in the residential sector could boost
interest for industrial properties, the recent announcement of capital
controls on outbound PRC capital and rising interest rates could taper
investment appetite. All-in-all, capital values are expected to grow by 05%
in 2017, moderating from the 9.6% increase recorded in 2016.
Note: Hong Kong Industrial refers to Hong Kongs industrial warehouse market.
Large-size commitments support net absorption
in 2016, and this is likely to continue in 2017.
Steven McCord, Head of Research, North China
BEIJING
Index
100
Demand showed a polarisation in 2016. Big players remained active in
95
looking for modern facilities better able to meet their requirements. On the
other hand, some small tenants were forced to downsize or relocate to 90
low-end or remote facilities to save costs under the slower economy. This 85
trend is expected to continue in 2017.
80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
One new project in an emerging area pushes up vacancy Rental Value Index Capital Value Index
GLP Park Pinggu Phase II entered the market on schedule. The single-storey Arrows indicate 12-month outlook
Index base: 4Q12 =100
project brought 29,200 sqm of new supply to the market and increased total Source: JLL
stock to 1.97 million sqm.
0.3% q-o-q. At end-4Q16, the rental figure rested at RMB 1.14 per sqm per
day. 150
Dongbai Group, a Fujian based retail operator, acquired a project in Beijing 100
59 INDUSTRIAL
to enable smooth entry into Beijings competitive and thinly supplied 0
warehouse market with limited future supply. 12 13 14 15 16 17F
110
3PLs continued to play a dominant role in the leasing market. For example,
100 China Post leased 20,000 sqm in the Goodman PVG project. Other
international and domestic 3PLs leased over 100,000 sqm across the city.
90 In addition, automobile companies seeking space for whole car storage
also contributed to the quarters take-up.
80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index No completions
Arrows indicate 12-month outlook
Index base: 4Q12 =100
Two projects planned for 4Q16 were pushed back to early 2017. With
Source: JLL leasing activity strong and no new projects completed in the quarter, non-
Financial Indicators are for the Non-bonded bonded vacancy dropped from 10.8% to 7.3%.
market.
Among all submarkets, PVG saw the largest decline in vacancy, falling from
Physical Indicators 29.1% to 4%. The decline was mostly due to strong leasing in Goodmans
project there. In addition, strong leasing in GLPs Baoshan project helped
600
reduce vacancy in Baoshan by 10 percentage points.
500
Rents remain relatively flat despite large take-up
400
Rents edged up only slightly as landlords of projects with vacancy
Thousand sqm
300
continued to be cautious. Rental growth continued to diverge in the city -
average rents increased by 0.6% q-o-q in West Shanghai, compared to a
200 0.2% increase in East Shanghai, where vacancy tends to be higher.
10 Yields have not compressed as quickly as expected, with foreign investors
demanding higher returns following the US Feds interest rate increase.
60 INDUSTRIAL
0
12 13 14 15 16 17F However, some further compression is still possible as the role of domestic
Completions Future Supply investors in the investment market continues to grow.
With new leasing and expansion demand from businesses including third 120
Index
party logistics players (3PL), net absorption in 4Q16 registered 208,000 110
sqm. For the full-year, net take-up totalled 1.1 million sqm, equivalent to
100
about 140% of the previous year. New supply in 2016 was equivalent to
200% of the past 10-year annual average, and this major new supply 90
helped stimulated demand.
80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Vacancy dips to around 5% Rental Value Index Capital Value Index
No new supply entered the prime industrial logistics market in Tokyo in Arrows indicate 12-month outlook
Index base: 4Q12 =100
4Q16. Source: JLL
The vacancy rate at end-4Q16 was 5.3%, decreasing 270 bps q-o-q and 120
bps y-o-y. Both Bay and Inland areas saw significant decreases in vacancy
of 120 bps and 370 bps q-o-q, respectively. Physical Indicators
61 INDUSTRIAL
these two properties along with the sale of AZ-COM MK OSAKA located in 0
Osaka was 4.3%. 12 13 14 15 16 17F
100
Park space continued to be supported by the biomedical sector, which
95
continued to power the nations manufacturing output.
90
85
Vacancy rate tightens amid tapering supply and steady absorption
80 Supply stayed low in 4Q16 with GSK Asia House (12,000 sqm) at 23
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 Rochester Park being the only new completion.
Rental Value Index Capital Value Index
Arrows indicate 12-month outlook The 2016 full-year net increase in supply is the highest annual net increase
Index base: 4Q12 =100 since 2003. This was attributed to the large completion in 1H16 contributed
Source: JLL
mainly by Mapletree Business City II, as well as the re-zoning of factory
space in Technopark@Chai Chee to Business Park in 1Q16.
Physical Indicators Tightening vacancy rate supports yet another quarter of mild rent decline
300 24
The gradual easing of supply overhang amid limited new projects and
steady demand saw rents post another quarter of mild retreat.
250 20 Nonetheless, 2016 posted a full-year rent decline that was a little faster
than in 2015.
200 16
Thousand sqm
150 12
improved investment sales momentum provided support for values to
100 8 hold up marginally better than rents, thus keeping yields relatively
unchanged in 4Q16.
50 4
The largest amount of space taken up over the quarter was in the Inner
Index
110
West precinct (71,300 sqm), closely followed by the Outer West precinct
(69,400 sqm). The largest move of the quarter was retail trader, Lesso Mall 100
Holdings leasing 21,740 sqm in Chullora, in the Inner West precinct.
90
Completions concentrated in Outer West precincts
80
Five projects completed in 4Q16 totalling 70,700 sqm and with a 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17
Rental Value Index Capital Value Index
pre-commitment rate of 64%. The largest facility to complete was a
speculatively constructed warehouse at Building 1 in Mirvacs Calibre Arrows indicate 12-month outlook
Index base: 4Q12 =100
Estate (18,935 sqm). Source: JLL
Financial Indicators are for Outer Central West.
Completions totalled 516,700 sqm in 2016 the strongest result since 2012.
Developments in 2016 had an 85% pre-commitment rate upon completion,
and nearly two-thirds of construction activity (62%) was concentrated in Physical Indicators
the Outer Central West.
1,000
600
Partnership IIs purchase of 205231 Fairfield Road, Yennora. The asset 500
transacted for AUD 46.6 million and is tenanted by The Iconic, who recently 400
committed to a seven year lease in the asset. 300
200
Prime yields compressed in all precincts with the exception of the Outer 100
Central West and Outer North West. The precinct with the tightest prime
63 INDUSTRIAL
0
yield range is South Sydney (5.50%6.00%), with average prime yields 12 13 14 15 16 17F
(5.75%) being 75 bps below the previous record low (6.50%) achieved in Take-Up (gross) Completions
4Q07. Future Supply
MELBOURNE
illustrated by the strongest annual industrial
sector take-up since 2005.
Annabel McFarlane, Associate Director Research, Australia
110
diverse range of industries in 4Q16. The most significant lease transaction
100 was a 15 year lease to Premoso, part of the Walkinshaw Automotive Group
for a facility in Clayton.
90
A strong run of completions provides 196,070 sqm to the market
80
4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 Sixteen new projects totalling 196,070 sqm completed in the quarter and
Rental Value Index Capital Value Index
with 84% leased on completion. Nine of the completions are located in the
Arrows indicate 12-month outlook South East (41%). A further 402,920 sqm is currently under construction
Index base: 4Q12 =100
Source: JLL and due to complete in 2017.
Financial Indicators are for South East.
A 37,765 sqm facility was completed for The Reject Shop and a large new
facility for retailer Target (62,870 sqm) is under construction at Charter
Physical Indicators Halls Drystone Industrial Estate in Laverton North. The Reject Shop is
relocating from its existing facility at Tullamarine in the North to the West
800
precinct at lease expiry in early 2017.
700
500
400
this figure is down on the peak recorded in 2015, this represented a third
consecutive year that transaction volumes were close to double the long-
300
term annual average (20002015). Portfolios, large scale assets and assets
200
with long WALEs have attracted investor interest.
100
Prime investment yields compressed to 6.00%6.50% in the South East
64 INDUSTRIAL
0
12 13 14 15 16 17F and remained stable in the North at 6.25%7.50%. The sale of the Coles
Take-Up (gross) Completions distribution facility at Truganina in July 2016 is an example of a rare super
Future Supply prime asset with a very long weighted lease (16 years) which sold with an
analysed yield of 5.50%.
Source: JLL
For 2012 to 2016, take-up and completions are year-
end annual. Futures supply is for 2017. Outlook: Investors demand quality lease covenants and long WALEs
Supply levels are anticipated to be high in 2017, above the strong supply
levels of 20142016. However, 92% of projects under construction have
secured tenant pre-commitment.
65 HOTELS
Subdued market outlook due to decline in visitor
arrivals and broader global
HONG KONG economic uncertainty.
Frank Sorgiovanni, Head of Research, Asia Pacific
Hotels & Hospitality Group
Luxury Hotel Trading Performance Visitor arrivals declining, but showing signs of bottoming
4,000 100 Visitor arrivals to Hong Kong fell 5.7% y-o-y to 46.7 million as at YTD
3,500 90 October 2016, primarily due to the decline in visitors from mainland China.
80 Mainland Chinese visitors dipped by 8.2% y-o-y to 35.4 million arrivals,
3,000
ADR / RevPAR (HKD)
2,500 60 tensions with mainland China and the strengthening Hong Kong Dollar.
2,000 50
1,500 40 On a brighter note, we observed signs of bottoming despite the decline of
1,000
30 the mainland China market. Meanwhile, as at YTD November 2016, both
20 the long-haul and short-haul markets (excluding mainland China)
500 10
experienced growth in overnight visitors, recording growth of 3.0% y-o-y
0 0
and 9.1%, respectively.
May 11
Nov 11
May 12
Nov 12
May 13
Nov 13
May 14
Nov 14
May 15
Nov 15
May 16
Nov 16
3,000
2,500 arrivals from mainland China continued to contract. Likewise, Upscale
2,000 hotels recorded a 3.3% y-o-y decline in RevPAR, primarily driven by a 4.2%
1,500
decrease in Average Daily Rate (ADR).
1,000 As at YTD November 2016, occupancy for luxury hotels improved by 1.1%
500 to 78.2% while ADR dipped 2.5% y-o-y to HKD 3,369. The decline in ADR is
0 likely to be a compromise by hotel operators to sustain occupancy. As a
12 13 14 15 16 17F
result, RevPAR declined by 1.5% y-o-y. On a moving annual average basis,
Additions to Supply Future Supply
RevPAR declined from HKD 2,698 in November 2015 to HKD 2,666 in
Source: Industry sources, JLL November 2016.
Outlook: Increase in supply and economic uncertainties limit growth
2016 set the stage for further uncertainty in 2017, with a lack of clarity still
surrounding Brexit and the policy stance of the new US government.
As a major corporate hub, Hong Kong is likely to be affected by broader
global economic uncertainties. In addition, investment banks are cutting
jobs in Hong Kong, which is likely to result in weaker corporate demand.
66 HOTELS
Note: Hong Kong Hotels refers to Hong Kongs Luxury hotel market.
Hotel performance driven by balanced supply
additions and the Jing-Jin-Ji regional
economic strategy BEIJING
Frank Sorgiovanni, Head of Research, Asia Pacific -
Hotels & Hospitality Group
Continued lack of growth in international visitor arrivals Upscale Hotel Trading Performance
As at YTD November 2016, Beijing Statistics Bureaus data showed 1,200 100
relatively stable international visitor arrivals, with a minor decrease of 90
1,000
1.0% y-o-y to 3.9 million. There was a decline in visitor numbers from both 80
Occupancy (%)
fell 7.0% and 3.9% y-o-y respectively, while French visitors decreased 60
600 50
14.3% amid a depreciation of the Euro.
40
400
Air pollution caused a dent in Beijings tourism market. Figures from 30
Beijing Tourism Bureaus data indicate that visitor numbers fell by 2.8% 200
20
10
y-o-y to 11.2 million during national holidays in China. The Jing-Jin-Ji
0 0
economic strategy is an ongoing action plan to address air pollution issues,
May 11
Nov 11
May 12
Nov 12
May 13
Nov 13
May 14
Nov 14
May 15
Nov 15
May 16
Nov 16
with the government targeting reduced coal use, cleaner manufacturing
and less private car usage. ADR RevPAR
Occupancy (%)
Supply additions moderated by development restrictions
Source: STR Global, JLL
Six hotels became operational in 2016, bringing 1,479 rooms to the Note: MAA - Moving Annual Average
market and increasing stock by 4.3%. Strict restrictions on commercial
developments within the 4th Ring Road slowed the pace of hotel
development in Beijing.
Major Additions to Hotel Supply
In 2017, nine hotels are slated to launch, adding 2,204 rooms or 6.1% of
3,000
existing stock. Post-2018, new projects will add 3,100 rooms if all projects
all materialise.
2,500
Occupancy improvement continues to drive trading performance
2,000
As at YTD November 2016, occupancy continued to improve, growing 3.2
No. of rooms
percentage points to 71.4%. During the same period, Average Daily Rate 1,500
(ADR) remained stable at RMB 1,019. Driven by occupancy, Revenue Per
Available Room (RevPAR) demonstrated a 3.7% y-o-y growth to RMB 727. 1,000
800 60
50 Despite soft economies in major Asian source markets such as Japan and
600 40 Korea, visitors from these countries continued to grow. Visitor arrivals from
400 30 key European source markets likewise registered improvements.
20
200
10 Large addition of hotel developments in Shanghai
0 0
2016 saw the addition of 18 hotels, contributing almost 5,500 rooms to
May 11
Nov 11
May 12
Nov 12
May 13
Nov 13
May 14
Nov 14
May 15
Nov 15
May 16
Nov 16
Inbound visitors build a solid base for lodging demand Luxury Hotel Trading Performance
As at October YTD 2016, visitor arrivals to Japan exceeded 20 million for the 60,000 100
first time in history. Although the rate of growth at 24.7% is softer than the 50,500 90
50,000
49.1% recorded during the same period in 2015, the larger number of 80
40,500
inbound visitors forms a strong base for lodging demand in Tokyo.
Occupancy (%)
30,500 60
A total of 37.9 million visitor nights were observed in Tokyo as at YTD 30,000 50
September 2016, representing 12% of all visitor nights across Japan. 20,500 40
20,000
International guests, which account for 32% of total guests in Tokyo, 10,500
30
May 11
Nov 11
May 12
Nov 12
May 13
Nov 13
May 14
Nov 14
May 15
Nov 15
May 16
Nov 16
There were no luxury hotel openings in 4Q16. Over the balance of 2016, the ADR RevPAR
84-room Hoshinoya Tokyo opened in July as a Ryokan style lodging facility Occupancy (%)
in the Marunouchi area, and the 250-room Prince Gallery Tokyo Kioicho Source: STR Global, JLL
launched as part of a redevelopment project, also in July. Note: MAA - Moving Annual Average
300
there was a y-o-y decrease in monthly Revenue per Available Room
(RevPAR). The recovery was supported by growth in monthly Average Daily 200
Rate (ADR) despite occupancy remaining lower than that of 2015. On a
moving annual average basis, RevPAR has been on a growth trajectory 100
since 2Q12.
There were no investment transactions in the luxury hotel sector in Tokyo 0
12 13 14 15 16 17F
in 4Q16. The hotel investment market in Japan was generally inactive
Additions to Supply Future Supply
during the quarter with the exception of the transaction of Sheraton
Okinawa Sunmarina in December 2016. Source: Industry sources, JLL
Luxury Hotel Trading Performance Major events support growth in tourist arrivals
450 100 International visitor arrivals continued to rise steadily as at YTD September
400 90 2016, with the number of international visitors increasing by 9.3% y-o-y to
350 80 12.4 million. Major events such the Singapore Airlines Formula 1 Grand Prix
ADR / RevPAR (SGD)
300
70 in September helped to attract visitors and support hotel trading
Occupancy (%)
250
60 performance.
50
200
40 Growth in international visitor arrivals from mainland China continued
150
30 apace, rising 40.7% y-o-y as at YTD September 2016 and remaining the top
100 20 source market comprising 18.3% of total visitor arrivals. Growth was also
50 10
recorded from other top 10 source markets including Indonesia (+5.7%
0 0
y-o-y), India (+8.8%), Thailand (+10.9%), the Philippines (+4.7%), South
May 11
Nov 11
May 12
Nov 12
May 13
Nov 13
May 14
Nov 14
May 15
Nov 15
May 16
Nov 16
3,000
2,500 As at YTD November 2016, occupancy for luxury hotels in Singapore fell
2,000 0.4% y-o-y to 78.9%. Average Daily Rate (ADR) reached SGD 404, a fall of
1,500
1.3% y-o-y.
1,000 As a result of falling occupancy and ADR, Revenue Per Available Room
500 (RevPAR) fell by 1.6% y-o-y to SGD 318. On a moving annual average basis,
0 RevPAR fell by 1.5% from SGD 322 in November 2015 to SGD 317 in
12 13 14 15 16 17F
November 2016.
Additions to Supply Future Supply
Outlook: Hotel performance expected to remain stable
Source: Industry sources, JLL
Strong growth in international visitor arrivals, supported by good growth
from top source markets such as China and India, will likely support the
growth of the hotel industry in 2017.
The new Hotel Industry Transformation Map (ITM), which was launched
in November 2016, will help to further support the growth of the hotel
industry through four strategies for sustainable growth building
manpower-lean business models, developing new solutions through
innovation, growing business through internationalisation and building a
strong pipeline of quality talent.
70 HOTELS
Most key source markets continue to drive growth Luxury Hotel Trading Performance
International visitor arrivals continued to grow as at YTD October 2016, 7,000 100
increasing by 9.8% y-o-y to 17.3 million, setting a new high in visitor 90
6,000
arrivals. As the government crackdown on zero-dollar tours was launched 80
Occupancy (%)
attributed to the 13% y-o-y increase of Chinese visitors. 4,000 60
50
Japan, India, and South Korea remained key source markets for Bangkok, 3,000 40
growing at 6.5%, 5.3% and 5.2% y-o-y respectively, and accounted for 2,000 30
17.0% of international visitor arrivals. While Russia remained outside the 1,000
20
10
top ten source markets, there was an 8.6% y-o-y pickup in visitors as at YTD
0 0
October 2016.
May 11
Nov 11
May 12
Nov 12
May 13
Nov 13
May 14
Nov 14
May 15
Nov 15
May 16
Nov 16
Over 3,000 keys expected to open in 2017
ADR RevPAR
2016 saw the addition of almost 2,000 rooms. Key openings included the Occupancy (%)
442-key Grande Centre Point Hotel Thonglor, 248-key AVANI Riverside Source: STR Global, JLL
Bangkok Hotel and 240-key Novotel Sukhumvit 20. Midscale and Upscale Note: MAA - Moving Annual Average
hotels dominated openings, with no luxury supply additions in 2016.
2017 is expecting to see an even greater amount of supply additions with
over 3,000 rooms if all projects materialise, over 45% of which is outside Major Additions to Hotel Supply
the Sukhumvit area. While openings are concentrated in the upscale
6,000
segment, notable openings for 2017 include luxury projects carrying over
from prior years, including Park Hyatt Central Embassy and The Bangkok
5,000
EDITION Hotel by Ritz-Carlton.
Assets perform well across all key measures 4,000
No. of rooms
As of November 2016, the Bangkok luxury market saw Revenue Per 3,000
Available Room (RevPAR) growth of 7.9% y-o-y to average THB 4,341.
While Average Daily Rate (ADR) experienced improvement of 2.6% y-o-y, 2,000
the increase in RevPAR was largely driven by occupancy growth of 5.1% to
72.9%. 1,000
Upscale Hotel Trading Performance Visitor arrivals improve but corporate demand remains subdued
550 100 International visitor arrivals in Malaysia increased by 3.8% y-o-y to 17.6
500 90 million as at YTD August 2016. Mainland China and Thailand were two key
450 80 growth markets from the top ten source markets, increasing by 26.3% and
400
ADR / RevPAR (MYR)
350
60
300
50 However, weak demand from the corporate sector, especially the oil and
250
200
40 gas segment, as well as meeting, incentives, conventions and exhibitions
150 30 events, continued to put downwards pressure on hotel trading
100 20 performance in a predominantly corporate demand-driven market.
50 10
0 0 Large number of new rooms enter the market in 2016
May 11
Nov 11
May 12
Nov 12
May 13
Nov 13
May 14
Nov 14
May 15
Nov 15
May 16
Nov 16
The market remains under pressure from the extensive supply pipeline and
ADR RevPAR in 2016 approximately 1,950 hotel rooms were added across all market
Occupancy (%) segments. In addition, close to 700 new serviced apartments also boosted
Source: STR Global, JLL stock.
Note: MAA - Moving Annual Average
New openings in the luxury and upscale segments included the 208-room
St Regis Hotel in Kuala Lumpur Sentral and its adjoining 160-residences.
In addition, the completion of Ritz-Carlton Residences added a further 296
Major Additions to Hotel Supply units. Looking ahead, upcoming openings in 2017 include the Sofitel Kuala
Lumpur Damansara, Banyan Tree Signatures Pavilion and Royale Pavilion
3,000
Hotel.
2,500 Hotel performance improves as ADR and occupancy rise
2,000
As at YTD November 2016, Revenue Per Available Room (RevPAR) grew
by 1.0% y-o-y to MYR 336. Growth was supported by increasing flight
No. of rooms
1,500 connectivity between major key source markets and Kuala Lumpur, higher
international visitor arrivals as well as destination marketing initiatives by
1,000 the government.
Note: Kuala Lumpur Hotels refers to Kuala Lumpurs Luxury and Upscale hotel market.
Sydney continues to strengthen in a constrained
market amid rising demand.
Troy Craig, Managing Director
SYDNEY
Hotels & Hospitality Group, Australia
Strong corporate demand and busy events calendar fuel high occupancy Marketwide Hotel Trading Performance
Sydney maintained a high occupancy rate of 88.7% as at YTD November 300 100
2016. 275 90
250
80
The opening of the AUD 1.5 billion International Convention Centre Sydney 225
ADR/RevPAR (AUD)
70
200
Occupancy (%)
in 4Q16, which has the capacity to hold 8,000 delegates, will help create 175 60
further meetings, incentives, conventions and exhibitions (MICE) demand 150 50
throughout the city. 125 40
100
30
A net decrease in rooms in 2016 but new supply in the pipeline 75
20
50
10
In 2016, two hotels comprising a total of 673 rooms closed, while two hotel 25
0 0
extensions and one new build hotel were completed totalling 335 rooms,
May 11
Nov 11
May 12
Nov 12
May 13
Nov 13
May 14
Nov 14
May 15
Nov 15
May 16
Nov 16
resulting in a net decrease of 338 rooms.
ADR RevPAR
Room stock growth is anticipated to average 3.7% per annum between
Occupancy (%)
2016 and 2021, with major additions during this period to include the
Sofitel Sydney Darling Harbour (590 rooms), Crown Hotel at Barangaroo Source: STR Global, JLL
Note: MAA - Moving Annual Average
(352 rooms) and the Ribbon Hotel and Residences (402 rooms).
Strong fundamentals continue to support positive trading performance
As at YTD November 2016, occupancy levels increased 1.0% y-o-y, which Major Additions to Hotel Supply
coupled with Average Daily Rate (ADR) growth of 4.8% resulted in a 5.9%
increase in Revenue Per Available Room (RevPAR) to AUD 222. 800
700
The moving annual average for RevPAR in Sydney for the 12 months to
November 2016 was AUD 224, which is a record high. 600
400
Stable occupancy and ADR growth are expected to further push RevPAR
upwards. 300
While a relatively large number of rooms are anticipated to enter the 200
Sydney market in the next three years, demand created by the recent 100
opening of the International Convention Centre Sydney and the remaining
0
two commercial office towers at Barangaroo should help support the 12 13 14 15 16 17F
additional supply. Additions to Supply Future Supply
Note: Sydney Hotels refers to all grades of accommodation and includes both hotels and serviced
apartments.
JLL Research - Asia Pacific
Note: All physical indicators charts are based on the local measurement standard - GFA or NLA.
Office rental figures at the top of each market page refer to the main submarket in each city.
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