Colliers International, Asia Pacific

Rising Funding Cost & Yield Compression Were Concerns in Sales Market

According to Colliers International's Asia Pacific Office Market Overview – July 2008, the quarterly report covering 25 locations in the region, the prevailing expectation on prospective business growth held by most enterprises in Asia Pacific was challenged in 2Q 2008.  This was attributed to the anticipated global economic slowdown triggered by the consolidation of the US economy.   Other challenges clouding the region's office market included the expectations of slowing demand, soaring energy prices and growing inflationary pressure that created uncertain outlook on the interest rate direction.

On the leasing front, seeing the external uncertainties mentioned above, more office occupiers were sidelined and turned less aggressive in executing their expansion plans.  In 2Q 2008, many locations in the region still saw a general lack of supply, and completion schedules of some developments in the cities such as Mumbai and Ho Chi Minh City were deferred amid the uncertain external environment.  With the wait-and-see attitude held by occupiers and a limited supply, office rentals kept on edging up but at a tapering off rate, seeing an average growth of  3.1% quarter-on-quarter in 2Q 2008.

On the sales front, the decrease in the number of sales transactions in Asia Pacific reflected the slowdown in investment demand in 2Q 2008.  Although prospective investors remained keen to increase their exposure in the region, the general rise of funding costs and sustained yield compression were their major concerns over the near term.  One of the benchmark sales transaction by institutional investor in 2Q 2008 was the sale of an uncompleted office project at 71 Robinson Road in Singapore to Commerz Real for over US$546 million, representing the most expensive office development to date on a per sq ft basis in Singapore.  "In 2Q 2008, cash-rich local purchasers were the major players in several cities' investment market in the region," said George McKay, Managing Director, Corporate Services of Colliers International, Asia Pacific Region. "Individual examples included the sale of Trade Square (a decentralized office development) in Hong Kong to a local investor for US$195 million and the purchase of Metro Centre in Beijing by SOHO China for RMB 5.5 billion."

In the next 12 months, office rentals may potentially edge up further but at a limited rate due to the prospective slowing demand.  Meanwhile, office capital values will see challenging pressure due to the potential rate rise and the rising cost of credit, and vendors may reduce their asking prices over the near to medium term.

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About Colliers International

Colliers Macaulay Nicolls Inc. (CMN) operating as Colliers International is a leading global real estate services company that provides a full range of services to real estate users, owners and investors worldwide. Colliers operates in 293 offices in 61 countries.  In Asia Pacific, Colliers has 62 offices in 15 countries.  Services include brokerage, property management, hotel investment sales and consulting, corporate services, valuation, consulting and appraisal services, mortgage banking and research.  Colliers International is a worldwide affiliation of independently owned and operated companies.  Locally, Colliers professionals serve clients in Hong Kong.

Contact Information

May Chow        
Regional Manager
Communications and PR, Hong Kong Marketing
Colliers International (Hong Kong) Ltd
Tel    852 2822 0736
Fax   852 2868 5275
Email: May.Chow@colliers.com

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