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Asia Pacific Property Digest | Q1 2015

Driving Growth in Asia Pacific

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Dear Reader,

Activity levels continue to strengthen across the Asia Pacific property markets, with leasing and investment volumes both improving in the first quarter of 2015. At the same time, yields continue to compress, with capital values still outpacing rents.

This quarter I am pleased to announce the launch of our new look Asia Pacific Property Digest. We also have a new online report which you can find here http://www.jllapsites.com/research/appd-online/

We hope you enjoy the new report and welcome your feedback.

Best regards,

Dr Jane Murray Head of Research – Asia Pacific

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4 Asia Pacific Economy and Property Market

Cubicle-sized homes: the future of Hong Kong?85 reasons why China’s commercial property market faces oversupply risk9The fees on foreign buyers of Australian residential real estate – who will pay?10Technology key to maximising hotel asset performance11

Hong Kong 14Beijing 15Shanghai 16Chengdu 17Taipei 18Tokyo 19Osaka 20Seoul 21Singapore 22Bangkok 23Kuala Lumpur 24Jakarta 25Manila 26Delhi 27Mumbai 28Bangalore 29Sydney 30Melbourne 31Brisbane 32Auckland 33

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49 65

5735

Hong Kong 58Beijing 59Shanghai 60Tokyo 61Singapore 62Sydney 63Melbourne 64

Hong Kong 66Beijing 67Shanghai 68Tokyo 69Singapore 70Bangkok 71Jakarta 72Sydney 73

Hong Kong 50Beijing 51Shanghai 52Singapore 53Bangkok 54Manila 55

Hong Kong 36Beijing 37Shanghai 38Chengdu 39Tokyo 40Singapore 41Bangkok 42Jakarta 43Delhi 44Mumbai 45Sydney 46Melbourne 47

Varied retail sales performanceRetail sales growth in China continued to moderate in 1Q but remained in double-digits, while sales in Hong Kong declined further, with luxury goods being the hardest hit. Although retail sales in Japan were subdued, record tourist arrivals are bolstering consumption. Growth of inbound tourism is supporting many other retail markets across the region. In Australia, retail sales remain healthy, underpinned by a resilient housing market.

Manufacturing weakens across the board The latest manufacturing PMI readings for April showed weakness across the region, and new orders remain lacklustre in most markets. Export performance has been uneven. In China, annual export growth slowed to 4.7% in 1Q, with a negative reading in April. Weak commodity prices continue to impact exports in Australia and Indonesia, while a weaker yen is buoying Japan’s exports, which grew by 9% y-o-y in 1Q.

Subdued inflation and more cuts in interest ratesInflation in the region was subdued in 1Q; however, prices of some commodities have started to trend higher and this may put upward pressure on inflation later in the year. China, Australia, India and Thailand have cut benchmark interest rates twice since the beginning of the year, by a total of 50 bps each; Korea has also lowered policy rates, by 25 bps. For most AP economies, there is little pressure to tighten monetary policy this year despite the possible hike in US interest rates before year end.

Looking ahead, many AP countries stand to benefit from a gradual recovery in global demand and lower global oil prices. Oxford Economics expects 2015 regional growth of around 5.5%, the same as 2014. Most economies, with the major exception of China, are likely to see growth improve gradually over this year. Challenges to the outlook include Eurozone turmoil and the renewed possibility of a Grexit, the impact of commodity price movements and potential market volatility following any rise in US interest rates.

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A year of transitionThis year is one of transition for some of the region’s major economies. China is in the process of moving to a new economic model and its ‘new normal’ rate of growth; Japan is pinning its hopes on Abenomics to reinvigorate its economy; India is almost one year into the new reform-minded Modi government; and Australia is adjusting to the end of its mining boom resulting from the slowing of China’s economy.

With all of this change, the year started out rather slowly for the Asia Pacific economy. However it is still estimated to have grown at more than twice the pace of the rest of the world in 1Q15. China’s growth slowed to 7% y-o-y in 1Q, Japan continued a mild recovery while India’s economy showed some signs of momentum. Sub-trend growth persists in Australia, Hong Kong and Singapore. Many governments around the region implemented measures in 1Q15 to support economic growth.

ASIA PACIFIC ECONOMY

Further improvement in office leasing activityLeasing activity levels are still well below the previous peak in 2011. Encouragingly though, activity started to recover in 2014 and this trend has continued into 2015 with 1Q15 gross leasing volumes up by 5% y-o-y. Increasing space requirements mostly came from local corporates, second-tier financial institutions, technology-related firms and select MNCs. Most global occupiers are still focused on cost efficiencies and lack major accommodation expansion plans.

Regional net take-up was up 30% y-o-y in 1Q15, with a quarter of the absorption relating to pre-commitments to new completions, mainly in Manila, Tokyo and Singapore. India achieved the strongest annual growth in take-up, led by Bangalore, and with IT and e-commerce firms being the most active. China saw sustained demand from domestic occupiers and a few MNCs, including professional services firms, with Shanghai the standout market. Expansion demand picked up in Hong Kong and Tokyo, while activity remained quiet across most of Southeast Asia. In Australia, Sydney and Melbourne have started to see a recovery in leasing.

Figure 1: Outlook for Major Economies

CountryReal GDP Growth (%)

2015 Outlook2014 2015F

China 7.4 6.6 Further slowing as the government rebalances the economy to new growth drivers. Property sector to drag on growth this year.

Japan -0.1 0.8 A mild recovery on aggressive monetary easing and export gains. Consumption to improve as sec-ond sales tax hike has been postponed.

India 7.2 7.5 Slight pick-up in growth amid firm domestic demand and fixed investment, but much dependent on progress of government reforms.

Australia 2.7 2.7 Steady but sub-trend growth, impacted by end of mining boom and weak labour market. Residential sector to support growth.

South Korea 3.3 3.2 Stable growth – gradual improvement in consumer spending, but slow exports and investment.

Indonesia 5.0 5.1 Growth likely to disappoint due to lower than expected infrastructure spending in 2015 and chal-lenges in driving business reform.

Singapore 2.9 3.3 Modest improvement in growth, but limited gains in exports and consumption with ongoing weak-ness in housing sector.

Hong Kong 2.3 2.8 Resilient domestic spending and higher investment to underpin growth. Modest gains in export volumes.

Note: India revised its GDP methodology (including historical growth rates) in January 2015.Source: Oxford Economics, May 2015

Low vacancy rates in many marketsAsia Pacific Grade A office stock additions were up almost 50% y-o-y to 1.2 million sqm in 1Q15. Despite the high level of completions, many of the tier I markets in the region still have vacancy rates of less than 10%. The exceptions include the Shanghai decentralised market and most Indian and smaller Australian cities, where vacancy levels are generally between 10% and 20%. In the CBDs of Hong Kong, Tokyo, Manila and Jakarta, current vacancy rates are 4% or below.

Rental growth picks up. Japan and Bangalore top growth during 1QDuring 1Q15, net effective rents increased in most markets, with average quarterly growth picking up to 0.6% (0.2% in 4Q). Tokyo, Osaka and Bangalore achieved the strongest q-o-q growth of 2 to 2.5% on sustained occupier demand. Hong Kong, Singapore, Shanghai, Sydney and Auckland registered more moderate growth of between 1 and 2%.

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Activity levels continue to strengthenActivity levels continue to strengthen across the region’s property markets. Leasing and investment volumes both improved in the first quarter, up by a reasonable 5 to 7% compared to the same period last year. Average rents also grew at a stronger rate compared to the previous quarter, but still significantly below the pace of capital values.

ASIA PACIFIC PROPERTY MARKET

Rents fell in Kuala Lumpur, Mumbai and Seoul with landlords offering more favourable leasing terms due to subdued demand and/or competition from non-core space. Rents continued to decline in some Australian cities including Perth and Adelaide, where vacancy remains at double-digit levels.

Over the twelve months to end-1Q15, average rents in aggregate grew by 2.6%. Singapore and Auckland were the strongest performers at 11 to 12%, followed by Taipei, Bangkok and Wellington with growth of around 7%. At the opposite end of the spectrum, most Australian markets have seen rents fall over the last year. In Perth, rents have slumped by 25% on the back of the slowing resources sector.

Mixed retailer demand. Limited growth in rentsDuring 1Q, Greater China continued to see healthy demand coming from F&B and lifestyle tenants. However luxury brands have turned cautious, as evidenced by several brands including Chanel, Louis Vuitton and Cartier cutting prices in China. Tokyo, Australia and Southeast Asia witnessed the ongoing entry of international brands. In 1Q, most markets saw little or no growth in rents (1% q-o-q or less). For the next 12 months, new-to-market foreign retailers and growth of inbound tourism, particularly Chinese tourists, will continue to support major AP retail markets.

Stable residential leasing. Rents fall in SingaporeMost high-end residential markets saw stable leasing demand during the quarter, much in line with the office sector. Rents fell further in Singapore (down 3–4% q-o-q and up to 12% y-o-y) but were stable or increased modestly elsewhere.

Stable warehousing demand. Tokyo tops 1Q rental growthDuring the quarter, leasing activity in Asia was buoyed by third-party logistics companies and, to a lesser extent, retailers and e-commerce. The highest quarterly rental growth of 4.2% was seen in Greater Tokyo on healthy demand and high occupancy rates. Hong Kong also achieved moderate growth of 2.2%, while rents were mostly stable in China, Singapore and Australia.

Commercial real estate investment continues upward momentumIn 1Q15, commercial real estate investment volumes came in at USD 25 billion, up 7% y-o-y. The major contributors to this growth were Japan and some smaller markets, while the other large markets of China and Australia began the year more slowly.

The region’s biggest market, Japan, was up 6% y-o-y and accounted for over half of AP volumes. Domestic investors including J-REITs remained very active while capital inflows into the country continued to build. Transaction volumes surprised on the downside in China (–13% y-o-y) due to concerns around the macro environment, as well as in Australia (–38% y-o-y), although we expect volumes to rebound with some big deals in the pipeline. Other markets were mixed, with volumes in Singapore up 67% y-o-y, largely on a major office transaction, while activity remained lacklustre in Hong Kong. India was the highlight of the emerging markets with volumes improving to USD 0.9 billion, up 204% y-o-y, on the back of growing investor confidence.

Ongoing yield compressionYields continue to compress, with capital values outpacing rents in most markets and sectors. In the office sector, capital values grew by almost three times as fast as rents in 1Q15, at 1.7% on a quarterly basis and 7.1% annually. Tokyo took line honours with an impressive uplift of 5.2% q-o-q and 19.7% y-o-y. Other markets with double-digit price growth over the last year included Osaka, Taipei, Sydney, Melbourne and Auckland.

Leasing and investment to further improve. Moderate rental and price growthDuring 2015, we are optimistic that office leasing will continue to improve, while it should be another record year for investment activity. Moderate rental and capital value increases of less than 10% are expected across most sectors and markets over 2015, but we expect capital value growth to continue to outpace that of rents. Outperformers are likely to include Tokyo, Sydney and Auckland in the office sector, Bangkok in retail and Tokyo in industrial. Some residential markets such as Hong Kong and Singapore will likely see downward price pressures, as a result of rising interest rates coupled with policy curbs that are expected to remain in place for some time.

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Figure 3: Direct Commercial Real Estate Investment 2006–1Q15

Figures refer to transactions over USD 5 million in office, retail, hotels and industrialSource: JLL (Real Estate Intelligence Service), 1Q15

Figure 2: Office Rental & Capital Value Changes Yearly % Changes, 1Q15

Figures relate to the major submarket in each citySource: JLL (Real Estate Intelligence Service), 1Q15

Rental Values Capital Values

y-o-

y %

–5

0

20

10

15

5

Singapore

Bangkok

ManilaToky

o

Sydney

Jakarta

Melbourne

Beijing

Hong KongSeoul

Shanghai

Mumbai

Japan AustraliaChina

Hong Kong

Singapore

South Korea Other

USD

Billi

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25

75

150

125

50

100

2006 2007 2008 2009 2010 2011 2012 1Q1520142013

1Q 2015$24.9 bill7% y-o-y

ABOUT THE AUTHOR

Dr Jane Murray joined JLL in 1998 and in 2005 was appointed as Head of Research – Asia Pacific. In this role, Jane leads a team of over 100 professional researchers in the region, which forms part of a network of around 300 researchers in 60 countries around the globe.

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URESFigure 4: Rental Property Clocks, 1Q 2015

Source: JLL (Real Estate Intelligence Service), 1Q15 Note: Clock positions for the office sector relate to the main submarket in each city.

Grade A Office Prime Retail

Prime Residential Industrial

GrowthSlowing

RentsRising

RentsFalling

DeclineSlowing

Hong Kong,Beijing

Hanoi

Bangkok

Bangalore,Taipei

Tokyo

Wellington, OsakaAdelaide, Ho Chi Minh City, Mumbai

Kuala Lumpur

Singapore

Shanghai

Manila

Jakarta, Guangzhou

DelhiChennai

Perth

Brisbane

Canberra

MelbourneSydney

Auckland

Seoul

GrowthSlowing

RentsRising

RentsFalling

DeclineSlowing

BeijingHong Kong

Bangkok

Singapore *

Shanghai Kuala Lumpur, Guangzhou

Manila

Jakarta

*For Luxurious Residential Properties

GrowthSlowing

RentsRising

RentsFalling

DeclineSlowing

*Regional

Sydney*, Melbourne*, Brisbane*,SE Queensland*

Beijing

Singapore, Hong Kong

Bangkok

Tokyo

Shanghai

Kuala Lumpur

Manila

Guangzhou

BangaloreDelhi

Mumbai

ChennaiAuckland Wellington

Jakarta

GrowthSlowing

RentsRising

RentsFalling

DeclineSlowing

Beijing

Tokyo,Hong Kong

Singapore (Business Park)Singapore (Logistics)

Shanghai

Manila

Wellington

Auckland

MelbourneSydney Brisbane

*Logistics Space (Hong Kong, Shanghai, Beijing, Tokyo Bay Area)

ABOUT THE AUTHOR

Ingrid Cheh is a Manager in the JLL Research team in Hong Kong. She specialises in residential research for Hong Kong and is involved in the formulation of market commentary and consultancy studies across the property sectors.

Last year, a number of developers released onto the primary sales market some of the smallest private flats Hong Kong has ever seen—as minuscule as 165 sq ft, saleable area—prompting me to raise my eyebrows on the livability of future homes in the city if this trend is to continue.

In fairness, there have been a number of catalysts urging developers to build such cubicle-sized homes in the city. With housing prices—those of Class A units (of size smaller than 431 sq ft, saleable area)—having gone through the roof, developers have seen the opportunity of creating ever-so-small apartment units to keep lump sums affordable. These aforementioned 165-sq-ft homes, for instance, would still fall into the less-than-HKD 2 million lump sum category but the availability of apartments in this price range has almost dried up. Along with the government’s recent efforts in putting up more land designated for small flats to meet its supply target, there is a risk that developers may build yet smaller flats in the future to still be able to capture demand from first-time homebuyers clutching at straws.

Luckily, there are still a few gatekeepers preventing flats from going tinier than those being offered in the market.

Generally speaking, a developer’s motivation is a function of both the overall development potential and capital expenditure. While, on the one hand, a higher unit price can be masked in the more attractive lump sum payments of smaller units, the necessity of allocating additional common area to a design primarily comprising of cubicle-sized homes would sacrifice the overall efficiency and saleable area of a development, thereby reducing revenue potential. Moreover, with construction costs varying in accordance with the quantity of material being deployed, building a greater percentage of small units could potentially lead to higher development bills given additional requirements for fittings, finishes and appliances. Hence, unless a developer needed more of such units to fill in the blanks of a development envelope, its best-off strategy would not be to stack up the smallest units possible but instead, to draw an optimum balance between flat size/mix, development efficiency, costs and profitability.

What’s more, the government has recently expressed its intention to tackle the issue of “cramped living conditions among the local population”, alongside its housing supply objectives. The internal floor area (IFA)* of those units being offered in the market is already closing in on the average living space per inhabitant in the city’s public rental units (140 sq ft, IFA). Going any smaller than that would raise concerns from a social perspective. In fact, some lawmakers

have already been seeking to formulate a standard for living space per person in the public rental housing space. Although targeted at the public—and not private—housing market, developers should expect increased scrutiny on this topic going forward and should be better off to safeguard their reputation.

That gives me just a little bit more comfort.

Note: * According to the Code of Measuring Practice issued by the Hong Kong Institute of Surveyors, IFA is the area contained within the enclosing walls of a unit measured to the interior face of the external wall or separating wall. Saleable area is the area contained within the enclosing walls of the unit measured up to the exterior face of an external wall or the centre line of a separating wall between adjoining units. Generally, saleable area is larger than IFA of a unit.

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Cubicle-sized homes: the future of Hong Kong?

Extinction of private homes below HKD 2 million?

Notes: The aforementioned 165-sq-ft homes would fall into the below HKD 2 million category. Class A refers to private homes of size smaller than 431 sq ft, saleable area.

Transactions Below HKD 2m (4Q Moving Average) (RHS)

Class A Home Prices (LHS)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,00050

70

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

No. of Transactions (Below

HKD 2 million)

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5. Absent property taxInstead of trying to obtain revenues from real estate development, local governments should continue to move in the direction of tapping into a large potential tax base that already exists – China’s hundreds of millions of homeowners. By having a steady revenue stream, local governments will have less of a need to sell land and have it developed.

Not all cities will experience oversupply in the long run. Tier 1.5 cities will fare relatively well, while smaller cities face more challenges with depth of demand as it will take longer to materialise. Also, new CBD areas are much more affected than traditional CBD areas. If China continues to grow its service sector as planned, it will undoubtedly need more office towers. However, by the time many of these towers get used, their quality and specifications will be outdated. Therefore, it would be better for local planners to take a measured and conservative approach to the pace of CBD development that matches local demand.

The days of “build it, and they will come,” are starting to fade. Today, oversupply is a common concern in several Tier II, III, and IV cities. Below is a breakdown of the top five contributors to this risk.

1. GDP growth as a top objectiveFor the past couple of decades, the best way of demonstrating achievement within the government was by growing GDP at double-digit rates. The favoured way was to create new development zones or business districts, utilising real estate (and infrastructure) development as a tool to spur GDP growth. Pudong in Shanghai is the quintessential example and a model that many cities in China have looked to emulate. However, smaller cities are showing difficulty generating the level of demand that can sustain large, new business districts.

2. Form over functionIconic projects make a city instantly recognisable, giving local governments strong incentives to build landmarks in their cities, and there is often strong involvement in the exterior design of the buildings. This has led to buildings which are aesthetically pleasing but otherwise inefficient and inconvenient for occupants, creating difficulties in leasing out space and leaving projects with very high vacancies years after opening. Fortunately, feedback from the architecture community indicates this practice is in decline.

3. Bundling of commercial land with residentialLocal governments generate the bulk of their tax revenue by selling land – and their rising debts have increased their need to sell more land. The most in-demand land is residential land given the fast return it has traditionally offered developers. However, it is only a one-time generator of revenue for local governments, causing them to want to sell more commercial land to generate on-going tax from business activity. To entice developers to build commercial land, it is bundled with residential land for mixed-use projects. However, this can result in commercial projects appearing in areas where they are un-economical or unfitting for an emerging area. Furthermore, without sufficient community input, positioning and design may be mismatched with the market.

4. Mismatched lending incentivesBecause mismatched lending incentives exist in the system, real estate projects that should not be financed receive funding and, in many cases, add unwanted supply to cities.

ABOUT THE AUTHOR

Steven McCord is the Head of Research for North China. He is also the lead analyst for the retail sector for China. Steven joined JLL in 2006 and has worked in both Shanghai and Beijing.

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5 reasons why China’s commercial property market faces oversupply risk

Investment in Australia’s residential market takes a number of forms. Offshore residents can acquire new, but not established, dwellings. By contrast, temporary residents can purchase an existing dwelling providing that it’s their primary residence in Australia. Increasingly foreign developers, particularly from China, are entering the Australian market by purchasing development land or commercial assets for subsequent redevelopment or conversion to residential use. So, foreign investors are active both on the demand and on the supply side of the housing market.

In general, tax burdens are determined by the relative elasticity of demand and supply – the party with the lower elasticity of demand or supply carries a larger share of the burden.

The burden of the proposed fees will be split three ways – between the final offshore buyer, the developer and the vendor of the development site, who is probably Australian. How the burden is spread will likely vary through the market cycle.

In the current buoyant market the burden will probably devolve heavily on developers (who may be local or foreign) and foreign purchasers. But caution is required. No offshore investor is compelled to select Australia – the US, Singapore and the UK spring

From 1 December 2015, a new “application fee” will apply to foreign purchasers of real estate in Australia, along with stiffer civil and criminal penalties for breaches of the regulations. Further, third parties who knowingly assist a foreign investor to breach the rules will also be liable to pay penalties.

In the case of residential assets, a fee of AUD 5,000 will be levied on the purchase of a dwelling valued AUD 1 million or less. A fee of AUD 10,000 per additional AUD 1 million will apply above that level. Will these fees – in effect a tax – discourage offshore investors? That depends in part on who will pay and the impact of the proposals on dwelling prices.

to mind as alternative destinations. And with double digit vacancy prevailing in most of Australia’s CBD markets, vendors of assets suitable for conversion may have limited options. Australians, one way or another, will likely be wearing a fair proportion of the fees intended for foreigners.

And there is another twist. The median price paid by apartment buyers across the eight Australian capital cities was around AUD 499,000, based on sales over the year to April 2015 according to CoreLogic RPData. So the proposed tax is a modest 1.0% (see Table 2). But Sydney apartments are in general more expensive than apartments in other capital cities, with the median price of $630,000. So for apartments below AUD one million the rate of the tax will be lowest in Sydney. One of the unintended impacts of the proposal may be to increase the proportion of offshore investors heading for the Sydney market.

In allocating tax burdens, legislators are able to determine who is liable to pay the tax. But the ultimate burden of the tax is determined by market forces over which policy-makers have little control or visibility. The hand that signs the cheque may be a poor guide to who actually pays the tax.

The fees on foreign buyers of Australian residential real estate – who will pay?

Source: Australian Government Treasury

Fee as % of purchase price Purchase PriceFee Min Max Min Max

$5,000 0.5% 0.5% $1 $999,999$10,000 0.5% 1.0% $1,000,000 $1,999,999$20,000 0.7% 1.0% $2,000,000 $2,999,999$30,000 0.8% 1.0% $3,000,000 $3,999,999$40,000 0.8% 1.0% $4,000,000 $4,999,999

Table 1: Fees for purchase of Australian real estate by foreign nationals

Source: JLL, *CoreLogic RPData (based on sales over year to April 2015)

Median price* Fee as % of medianUnit House Unit House

Sydney $630,000 $850,000 0.8% 0.6%Melbourne $470,000 $605,000 1.1% 0.8%Brisbane $388,000 $480,000 1.3% 1.0%Adelaide $342,000 $420,000 1.4% 1.2%Perth $433,000 $540,000 1.1% 0.9%Canberra $400,000 $590,000 1.2% 0.8%8 capital cities $499,000 $591,500 1.0% 0.8%

Table 2: Impact of new FIRB application fees on median dwelling prices

ABOUT THE AUTHOR

Dr David Rees has been the Head of the Australasian research team at JLL since 2008. He is responsible for the preparation and dissemination of research market data, forecasts and strategic analysis relating to commercial and residential real estate markets in the region.

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Increased value for guests will ultimately result in higher yield for hotels meaning an improved return on investment, which will benefit not only hotel owners, but the guests too, as they will be rewarded with improved services.

Every hotel around the globe needs to re-evaluate its technology offering and ensure it satisfies a wide range of guests’ requirements.

Guests increasingly expect hotels to match the digital comforts that they use at home. Hospitality is going mobile and hotels need to be at the forefront of this to keep in line with guests’ demands.1 Source: http://www2.smartbrief.com/hosted/ad2187/Hospitality_Trends_2013.pdf

Technology is the key for the future of growth of hotels through improved guest services, increased labour efficiency and smoother running of hotel operations.

In fact, it is imperative for the survival of hotels to be ahead of the game with technology innovations if they want to satisfy the growing demand of guests’ needs.

Already we are seeing the Marriott Hotels offering detox salads through vending machines; people checking in with WhatsApp; robots delivering fresh towels and new and improved software designed to forecast demand and supply management for hotels.

These technological innovations start with the guest wanting to book suitable accommodation right through to the day-to-day operations of a hotel, and can only augur well for the future of the industry.

We are seeing a real change in the way guests interact with hotels both before they book and when they arrive. Bring your own device is becoming bring your own content. Almost 100% of guests travel with at least one mobile device and of those 45% travel with two devices and 40% travel with three or more. Guests carrying their own devices have implications for more than just bandwidth; guest devices are home to a lot of rich content, namely entertainment such as movies, music and games.

There are similar high figures when it comes to automated services. When offered, more than 85% of guests use online service requests for room service to housekeeping. When polled1, 91% of guests said they checked in or would check in using an automated kiosk. These services are no longer peripheral offerings, but expected services. These statistics indicate more universal adoption of automation across most guest services.

Guests are also seeing the lobby as a destination to undertake work, so presenting a warm and Wi-Fi friendly meeting point with suitable chairs, desks and charging stations is becoming a requirement for hotels around the world.

Moreover, hotels can improve labour efficiency and hotel management operations through sophisticated use of IT. Technology is not only about adding a system but also using the right people. If hotels get their IT management system right they can forecast more effectively, re-design jobs within the industry, be more efficient with their staff scheduling, while also allowing more time for employee needs and defining career aspirations.

ABOUT THE AUTHORS

Ross Beardsell leads JLL’s Hotels & Hospitality Group’s asset management arm in Australia.

Technology key to maximising hotel asset performance

Tasos Kousloglou leads JLL’s Hotels & Hospitality Group’s asset management arm in Asia and is also President of Hospitality Asset Managers Association Asia Pacific.

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Download JLL’s DataTouch today and access Office, Retail, Residential, Hotels and Industrial market data from your smartphone or tablet. Wherever you are.

Need Asia Pacific rents and capital values on the move?

www.jll.com/datatouch

Jones Lang LaSalle © 2015 Jones Lang LaSalle IP, Inc. All rights reserved.

Office

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HONG KONG“The rental recovery in Central continues to gather

momentum as vacancy hits a four-year low.”Denis Ma, Head of Research, Hong Kong

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Source: JLLFor 2010 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are as at 1Q15, while future supply is from 2Q15 to 4Q15.Physical Indicators are for the Overall market.

Physical Indicators

Financial Indices

Note: Hong Kong Office refers to Hong Kong’s Overall Grade A office market.

LEASING MARKET SURPRISES ON THE UPSIDE

• The leasing market started the year on a positive note with all five major office submarkets recording growth for the first time since 2010 and net take-up amounting to 369,200 sq ft in 1Q15. Central recorded its strongest level of take-up in two years (133,400 sq ft) with hedge funds and asset managers among the most active.

• Mainland Chinese companies continued to be a key source of demand in Central. While their requirements were typically less than 5,000 sq ft, they largely focused on higher quality buildings.

BILLION DEVELOPMENT COMPLETES TWO BUILDINGS IN KWUN TONG

• Billion Development’s two “built-for-sale” Grade A office developments at 56 Tsun Yip Street and 15 Chong Yip Street in Kwun Tong were completed in 1Q15. About 20% of the former had been sold at end-1Q15 while the latter has yet to obtain a Presale Consent.

• Vacancy rates further tightened with availability concentrated in only a handful of buildings, including several built-for-sale buildings in Kowloon East.

RECOVERY OF THE CENTRAL RENTAL MARKET GATHERS MOMENTUM

• Grade A office rents in Central grew for the fifth consecutive quarter, up by 1.3% q-o-q in 1Q15 as vacancy further tightened. After suffering a 17.0 % correction between 2Q11 and 4Q13, rents in Central have now gained 4.1% since 4Q13. All other office submarkets also recorded marginal rental growth, contributing to overall rents edging up by 0.8% q-o-q.

• Investment volumes for properties over HKD 20 million dropped by 20% q-o-q in 1Q15 owing to fewer en bloc transactions being recorded during the quarter. Capital values, nonetheless, held firm on the back of a prevailing low interest rate environment and an improved leasing market.

OUTLOOK: MODERATE GROWTH AHEAD FOR RENTAL MARKETS

• Leasing activity is likely to continue to gain traction on the back of an improving economy. If the positive start to the year is sustained, rental growth in Central could exceed our current full-year forecast (circa 5%). Supply side competition, including industrial refurbishments, should continue to weigh on Kowloon East rentals.

• Investors are likely to focus on opportunities in emerging markets such as Shek Mun given that prices in the city’s five major office submarkets have reached historic high levels while yields have reached 10-year lows. With most economists now expecting rates not to start rising until 3Q15, capital values should hold firm for the rest of 2015.

HKD 91.6

SQ FT PER MONTH, NET EFFECTIVE ON NLA

3.4%

RENTAL GROWTH Y-O-Y

RENTS RISING

STAGE IN CYCLE

Rental Value Index Capital Value Index

Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

140

90

130

120

110

100

Take-Up (net) Completions

Future Supply Vacancy Rate

–5010 11 12 13 14

–1

2

4

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1

3

8

0

400

7

6

Thou

sand

sqm Percent

15F

0

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100

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350

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for Central.

BEIJING“Focused on strengthening tenant profiles, landlords are offering high-quality tenants

good terms.”Steven McCord, Head of Research, North China

Physical Indicators

15 –

OFF

ICE

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for the CBD.


Physical Indicators

Financial Indices

Note: Beijing Office refers to Beijing’s Overall Grade A office market.

DEMAND IS SOFTER THAN USUAL, YET LANDLORDS REMAIN OPTIMISTIC

• Space which appeared on the market tended to lease out quickly , but net absorption in 1Q15 was lower than normal for a first quarter, due in part to the late Chinese New Year holiday. The largest leases were signed by electronics, internet, and finance-related firms. Automotive and auto-financing firms were also active.

• The Beijing demand profile was stable q-o-q with IT and finance firms again accounting for the biggest share of enquiries, followed by professional services and pharmaceuticals. With the exception of the automotive industry, enquiries were down across industries.

POSCO CENTRE COMPLETES, ADDING FIRST NEW GRADE A SUPPLY SINCE 4Q13

• The 88,000 sqm-Wangjing project was 50% committed as at end-1Q15, underscoring strong demand for space in the low-cost emerging submarket. Physical occupancy at the project was only 10% as most tenants had not moved in as at end-1Q15.

• The new supply caused the citywide vacancy rate to increase to 3.6%, up 1.1 percentage points q-o-q. However, vacancy in mature submarkets trended down or held flat q-o-q with the exception of the CBD.

LANDLORDS CONTINUE TO FOCUS ON TENANT QUALITY; CBD RENTS FLAT Q-O-Q

• Modest increases in Finance Street and Third Embassy Area led to a 0.4% q-o-q increase in overall rents. CBD rents were flat q-o-q as landlords opted to focus on tenant quality. Numerous local investment firms struggled to pay rents causing CBD landlords to offer favourable terms to industry-leading firms.

• The investment market remained dominated by owner-occupiers, who have longer holding periods and less price sensitivity. En bloc trades are also held back by a reluctance to sell, as some office projects are the top performing properties in their mainland portfolios.

OUTLOOK: RENTAL GROWTH SET TO ACCELERATE OVER THE NEAR TERM

• Five more projects are slated to add 458,000 sqm of Grade A stock in 2015. However, a large portion of these projects are planned for self-use or have reported substantial pre-leasing activity. Therefore, we do not expect to see a sharp increase in vacancy.

• Following the Chinese New Year holiday, demand is expected to pick up, especially in the CBD. Tight vacancy and competition for space should tip the balance in favour of landlords, allowing rental growth to resume.

RENTS RISINGRMB 372

STAGE IN CYCLESQM PER MONTH, NET EFFECTIVE ON GFA

4.8%

RENTAL GROWTH Y-O-Y


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1,000

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15F

SHANGHAI“Strong demand from domestic finance companies

supports rental growth in the Pudong CBD.”Joe Zhou, Head of Research, East China

16 –

OFF

ICE

Source: JLLFor 2010 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are as at 1Q15, while future supply is from 2Q15 to 4Q15.Physical Indicators are for the CBD.

Physical Indicators

Note: Shanghai Office refers to Shanghai’s Overall Grade A office market consisting of Pudong, Puxi and the decentralised areas.

DOMESTIC COMPANIES REMAIN ACTIVE IN THE CBD MARKET

• Domestic financial institutions continued to be the main source of demand in Pudong. For example, Shanghai Life Insurance leased 3,000 sqm in Oriental Financial Center while two domestic banks each took 1,000 sqm in Hang Seng Bank Tower to set up their Shanghai offices in the quarter.

• In Puxi, domestic companies were active in seeking opportunities for expansion. For example, China Minsheng Investment in-house expanded by 20,000 sqm in 100 Bund Square in 1Q15. MNC professional services companies were also active in upgrading and expanding office space.

DECENTRALISED MARKET SEES LARGE VOLUME OF NEW SUPPLY

• The Place Tower C (23,602 sqm) in Changning District was the only Grade A office building completed in the CBD market.

• In the Decentralised market, four new projects with a combined office space of 133,715 sqm were completed in Puxi: The Hub Tower 5 (15,414 sqm) as well as HQ Green Valley Plaza Phase 2 (39,155 sqm) in Minhang District, KIC Corporate Avenue (53,269 sqm) in Yangpu District and North Bund Business Centre (25,877 sqm) in Hongkou District.

DOMESTIC END-USERS ACTIVE IN EN BLOC PURCHASES

• Rental growth in Puxi was lower than Pudong due to supply pressures from upcoming projects. Pudong Grade A rents rose by 2.0% q-o-q to RMB 10.3 per sqm per day, while Puxi Grade A rents edged up by 0.8% q-o-q to RMB 8.9 per sqm per day.

• Domestic enterprises continued to seek en bloc purchase opportunities for self-occupation. AVIC Joy Holdings acquired a building in Shanghai Port International Cruise Terminal for RMB 1.6 billion at a unit rate of RMB 97,800 per sqm. OPPLE Light bought three buildings in the MixC project for RMB 538 million at a unit rate of RMB 33,200 per sqm.

OUTLOOK: RENTAL GROWTH IN PUDONG SHOULD OUTPERFORM PUXI IN 2015

• Domestic companies should continue to demonstrate strong demand in the CBD leasing market through the remainder of the year, while MNCs in the professional services and retailing sectors are likely to be active as well.

• On the back of strong demand from domestic companies, rents in Pudong are projected to grow further through the year. Rental growth in the Puxi CBD market is likely to be limited in the face of competition from the Decentralised market.

Financial Indices

3.8%

RENTAL GROWTH Y-O-Y

RMB 9.5

SQM PER DAY, NET EFFECTIVE ON GFA

GROWTH SLOWING

STAGE IN CYCLE


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x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

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2

600

Thou

sand

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CHENGDU“Leasing enquiries rise as some landlords lower

rents amid a high vacancy environment.”Frank Ma, Head of Research, West China

17 –

OFF

ICE

Note: Chengdu Office refers to Chengdu’s Overall Grade A office market.

FINANCIAL SERVICES COMPANIES MOST ACTIVE IN LEASING MARKET

• Financial services companies, such as small-credit loan providers, continued to lead leasing activity. However, insurance companies also exhibited strong demand for premium office space with Manulife-Sinochem and Ping An Life Insurance both committing to space in the City Centre submarket.

• Declining effective rents triggered a number of upgrading requirements from companies of various industries. Aviva-Cofco Life Insurance, for example, upgraded to Chinese Estates Centre by committing to 2,200 sqm. As such, quarterly net absorption registered growth of 6.8% q-o-q to 60,700 sqm.

OVERALL VACANCY INCREASES AS NEW SUPPLY OUTPACES NEW LETTINGS

• In 1Q15, five office buildings completed, adding 285,000 sqm to total stock. Notable completions included 2 International Financial Square (2 IFS) in the City Centre submarket, CapitaMall Tianfu in South Renmin Road submarket and China Overseas International Center (Towers F, G & J) in the New South Area submarket.

• The average pre-commitment rate of new projects completed in the quarter was around 15%. Despite robust leasing activity, the overall vacancy rate increased from 35.9% in 4Q14 to 40.8% in 1Q15 due to new supply.

HIGH VACANCY PROMPTS SOME LANDLORDS TO LOWER RENTS

• Landlords lowered rents to stimulate leasing activity amid a high vacancy environment. Rental declines were most evident in buildings that encountered sluggish leasing activity. As at end-1Q15, net effective rents stood at RMB 97.1 per sqm per month, down 1.0% q-o-q.

• Capital values edged down by 0.4% q-o-q (chain-linked) as the sales market was relatively quiet. No major en bloc transaction was closed in the quarter partially due to a mismatch of price expectations between buyers and sellers.

OUTLOOK: AMPLE SUPPLY LIKELY TO ERODE LANDLORDS’ BARGAINING POWER

• Confronted with high vacancy, landlords are likely to prioritise occupancy over rents, and a further rental decline is expected. This situation is likely to stimulate more upgrading demand.

• In the investment market, some sellers who want to liquidate assets are likely to compromise on price to finalise sales. Given this situation, we expect some en bloc transactions to take place in the coming quarters.

–3.2% RMB 97.1

STAGE IN CYCLESQM PER MONTH, NET EFFECTIVE ON GFA

RENTAL GROWTH Y-O-Y

RENTS FALLING

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLL

Source: JLLFor 2010 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are as at 1Q15, while future supply is from 2Q15 to 4Q15.

Physical Indicators

Financial Indices


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x

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120

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100



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400

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15F

TAIPEI“Overall rents continue to trend higher despite

new supply entering the market.”Jamie Chang, Head of Research, Taiwan

18 –

OFF

ICE


Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for Xinyi.

Physical Indicators

Financial Indices

Note: Taipei Office market refers to Taipei’s Overall Grade A office market.

LEASING ACTIVITY FOCUSED ON SMALL- TO MID-SIZED UNITS

• Leasing demand remained stable with total take-up recorded at 5,900 ping. Most leases transacted in the quarter were for small- to mid-sized units, similar to the trend witnessed last year. Around 40% of new leases signed in the quarter were in the Xinyi and Non-Core submarkets.

• With relatively high asking rents at recently completed buildings, occupiers showed a preference for established buildings. Several tenants were observed to have relocated to the city fringe for more spacious premises and cheaper rents.

VACANCY RISES AS NEW SUPPLY ENTERS THE MARKET

• Two buildings, namely Fubon Dunhua South Building and Union Enterprise Building, came on stream in Taipei in the quarter, adding 12,760 ping of space. Unlike the trend observed in recent quarters, all space is dedicated for lease and none for owner occupancy. As a result, overall vacancy increased 1.3 percentage points to 9.3%.

• Upcoming supply in the city fringe has attracted corporate tenants from financial services, high-tech manufacturing and IT sectors, as this area offers relatively cheaper rents and direct access to major transit nodes. Projects in the city fringe typically secure a high level of pre-commitment (80%+) before beginning construction.

RENT GROWTH DRIVEN BY NEW SUPPLY AND BUILDINGS WITH LOW VACANCY

• Landlords of new completions and buildings with decreasing vacancy raised asking rents in 1Q15. As such, average net rents increased by 4.0% q-o-q to NTD 2,577 per ping per month.

• The investment market remained quiet amid ongoing restrictions on insurers’ acquiring commercial real estate and uncertainty surrounding tax reform. Investment volumes for all property types totalled NTD 10.7 billion in 1Q15, a decrease of 46.1% q-o-q.

OUTLOOK: MODEST RENTAL GROWTH EXPECTED AMID LARGE SUPPLY PIPELINE

• Over 79,000 ping of new supply is expected to enter the Grade A office market in 2015, with 35% planned for owner occupancy. Corporate tenants with large space requirements are likely to favour the Non-core CBD market and city fringe.

• With older buildings mostly fully occupied and landlords of recent completions quoting high asking rents, most existing occupiers are likely to opt for renewal. Additionally, pre-leasing space should remain a popular option for prospective tenants as there is generally more room for rental negotiation relative to completed buildings.

NTD 3,017

PING PER MONTH, NET ON GFA

4.4%

RENTAL GROWTH Y-O-Y

STAGE IN CYCLE

RENTS RISING


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x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

150

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15

6

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18

3

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60

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TOKYO“Capital value growth accelerates as rents rise and

cap rates compress.”Takeshi Akagi, Head of Research, Japan

Physical Indicators

19 –

OFF

ICE


Physical Indicators


Financial Indices

Note: Tokyo Office refers to Tokyo’s 5 Kus Grade A office market.

IT AND MANUFACTURING SECTORS UNDERPIN HEALTHY DEMAND

• Net absorption increased to 120,000 sqm in 1Q15 from 64,000 sqm in the previous quarter. By submarket, notable absorption took place in Shinjuku and Shinagawa, while a slight contraction was observed in Otemachi/Marunouchi and Akasaka/Roppongi.

• Demand in the quarter was stable and driven primarily by requirements from the information and communication, and manufacturing sectors. Foreign financial institutions continued to explore downsizing options. In 1Q15, Taiseisha relocated to Shinagawa Season Terrace.

VACANCY REMAINS AT A VERY LOW LEVEL

• The vacancy rate at end-1Q15 was 3.0%, stable q-o-q but a decrease of 70 bps y-o-y, and continued to indicate a tight market. Otemachi/Marunouchi and Akasaka/Roppongi maintained 1% vacancy levels.

• Office stock in 1Q15 increased 1.9% q-o-q with the completion of the Shinagawa Season Terrace (NLA 130,000 sqm). The 32-storey high-rise office building has a typical floor plate of 5,000 sqm, a seismically isolated structure and various green building features.

CAPITAL VALUE GROWTH PICKS UP AS CAP RATES COMPRESS AND RENTS RISE

• Capital value growth accelerated to 5.2% q-o-q, marking the 12th consecutive quarter of growth, and reflecting cap rate compression and rising rents. A notable sales transaction was J-REIT Activia Properties’ acquisition of Shiodome Building (15% co-ownership interest) from Tokyu Land for JPY 30.3 billion (cap rate of 4.1%).

• Rents at end-1Q15 averaged JPY 33,884 per tsubo per month, increasing 1.5% q-o-q. Rent growth was driven by the Shinjuku and Shibuya submarkets, where landlord confidence improved in part due to falling vacancy rates.

OUTLOOK: RENTS AND CAPITAL VALUES TO GROW; CAP RATES TO COMPRESS

• According to Oxford Economics, real GDP growth for Japan is expected to improve to 0.9% in 2015. Meanwhile, large Japanese manufacturers remain positive about the outlook according to the Bank of Japan’s April Tankan Survey.

• In 2015, capital value growth is expected to accelerate driven by further cap rate compression and rental growth. The overall vacancy rate is expected to further decrease, reflecting in part healthy forward commitments of new supply (mostly in line with the 10-year average). Several projects previously expected to complete in 2016 and 2017 are likely to be delayed.

5.0% JPY 33,884 RENTS RISING

STAGE IN CYCLETSUBO PER MONTH, GROSS ON NLA

RENTAL GROWTH Y-O-Y


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OSAKA“Rental growth accelerates as landlords regain

confidence amid falling vacancy rates.”Takeshi Akagi, Head of Research, Japan

20 –

OFF

ICE

Physical Indicators


Financial Indices


Note: Osaka Office refers to Osaka’s 2 Kus Grade A office market.

NEW SUPPLY WITH HIGH PRE-COMMITMENT DRIVES STRONG NET TAKE-UP

• Net absorption totalled 57,000 sqm in 1Q15, a marked improvement compared with 21,000 sqm in the previous quarter. By submarket, Dojima saw the most significant absorption as a newly completed building had a high level of pre-commitment (38,000 sqm). Nakatsu and Umeda also recorded healthy levels of absorption.

• Demand was driven by a flight-to-quality and consolidation requirements of occupiers from industries including domestic wholesale and retail trade, information and communication, and professional services. Major relocations in the quarter included Marubeni and IT Holdings to Shin Daibiru.

VACANCY RATES CONTINUES TO FALL

• The overall vacancy rate at end-1Q15 was 7.8%, falling 30 bps q-o-q (250 bps y-o-y) and marking the third consecutive quarter of decrease. By submarket, the largest decrease was registered in Umeda, while Nakanoshima and Midosuji also witnessed a decrease in vacant space.

• Market stock increased 3.4% q-o-q in 1Q15, as the Shin Daibiru Building (NLA 56,000 sqm) entered the Dojima submarket. The 31-storey high-rise office building completed with a high commitment rate.

CAPITAL VALUE GROWTH SUPPORTED BY RISING RENTS

• Rents at end-1Q15 averaged JPY 16,009 per tsubo per month. Rental growth accelerated to 2.1% q-o-q, marking the third consecutive quarter of growth. Rent growth has picked up, as landlord confidence has improved in line with a strengthening economy and falling vacancy.

• Capital values increased 4.6% q-o-q (15.0% y-o-y), rising for the sixth consecutive quarter. Growth accelerated due to strengthening rent growth and compressing cap rates amid heightened interest from investors. A major investment transaction was Japan Real Estate’s acquisition of Umeda Square Building for JPY 15.5 billion (cap rate of 4.4%).

OUTLOOK: RENTS AND CAPITAL VALUES EXPECTED TO TREND HIGHER

• GDP growth in Osaka is expected to improve in 2015 to 0.2%, according to the economic outlook by Oxford Economics. Meanwhile, sentiment about the short-term outlook by large manufacturers remained stable in the April 2015 Greater Osaka Survey.

• Capital value growth is expected to accelerate as cap rates compress further and rents rise amid falling vacancy rates. Robust demand for relocations to buildings with better specifications and accessibility is expected, reflecting a strengthening economy, while new supply is likely to be less than the past ten-year annual average.

RENTS RISING

STAGE IN CYCLE

JPY 16,009

TSUBO PER MONTH, GROSS ON NLA

2.9%

RENTAL GROWTH Y-O-Y


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SEOUL“Vacancy rises on tenant departures from

Gangnam and CBD, prompting increases in rent-free incentives.”

Yongmin Lee, Head of Research, Korea

Physical Indicators

21 –

OFF

ICE

Source: JLLFor 2010 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are as at 1Q15, while future supply is from 2Q15 to 4Q15. Physical Indicators are for the Overall market.


Physical Indicators

Financial Indices

Note: Seoul Office refers to Seoul’s Overall Grade A office market.

SEVERAL LARGE RELOCATIONS RESULT IN NEGATIVE NET ABSORPTION

• In the CBD, Daewoo International (9,000 sqm) departed Yonsei Foundation Severance Building (11,400 sqm) for Songdo and Ssangyong returned to City Center Tower from 101 Pine Avenue following the completion of remodelling works. In Gangnam, Samsung Heavy Industries (15,000 sqm) left Samsung Life Seocho Tower for Pangyo.

• Major move-ins included IFC Three in Yeouido welcoming its first tenant, IBM (29,000 sqm), and SBI Savings Bank (13,000 sqm) relocating to Center 1 (CBD). Business expansion activity also increased as evidenced by Hanwha Life taking up an additional 7,560 sqm at Hanwha Life 63 Building and SK Telecom leasing 5,000 sqm more space at Ferrum Tower.

OVERALL VACANCY RISES ON NEW SUPPLY AND CORE DISTRICT DEPARTURES

• Tower 8 (GFA 51,800 sqm) completed in the CBD in January. No tenants were committed to the building as at end-1Q15; however, several deals are known to be under negotiation.

• The increase in vacancy was led by the CBD, where tenant departures and the completion of Tower 8 pushed vacancy up to 13.4%. Yeouido vacancy (15.0%) declined on strong take-up at FKI Tower and IFC while Gangnam vacancy remained the lowest in the market (6.4%); however, it increased moderately on the departure of Samsung Heavy Industries.

SALES VOLUMES SLOW, HOWEVER, SENTIMENT REMAINS STRONG

• Overall net effective rents declined 0.5% q-o-q as incentives were ramped up at several CBD and Gangnam buildings that are experiencing prolonged vacancy.

• No Grade A buildings transacted during the quarter. The most notable deal was the sale of City Center Tower (GFA 36,573 sqm) situated on the east fringe of the CBD. The remodelled property was acquired by IGIS AMC with a partial leaseback in place to Ssangyong.

OUTLOOK: A LACK OF NEW SUPPLY SHOULD SUPPORT DECLINING VACANCY

• No further new supply is expected during 2015 and this is forecast to lead to a modest decline in the overall vacancy level and a slight reduction in rental incentives.

• Competition for the limited number of core assets coming to the market for sale is expected to remain strong. High levels of domestic and international investor liquidity combined with further potential base interest rate reductions may support additional market yield compression.

RENTS STABLE

STAGE IN CYCLE

KRW 95,722

PYUNG PER MONTH, NET EFFECTIVE ON GFA

–0.3%

RENTAL GROWTH Y-O-Y


Inde

x

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–2

14350

Thou

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sqm Percent

15F

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150

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SINGAPORE“Office rental growth slowing in anticipation of

new supply.”Dr Chua Yang Liang, Head of Research, Southeast Asia

22 –

OFF

ICE

Source: JLLFor 2010 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are as at 1Q15, while future supply is from 2Q15 to 4Q15.Physical Indicators are for the CBD.


GROWTH SLOWING

STAGE IN CYCLE

Note: Singapore Office refers to Singapore’s CBD Grade A office market in Marina Bay, Raffles Place, Shenton Way and Marina Centre.

DEMAND DRIVEN BY SMALL-SPACE OCCUPIERS

• In 1Q15, small and medium-sized firms across various industries such as technology and professional services were observed to be taking up space in the CBD. At the same time, large conglomerates continued to consolidate and streamline operations.

• Despite the decline in oil prices, office demand has remained relatively stable as the bulk of transactions constituted mainly professional services and financial institutions. Overall CBD take-up remained positive.

QUALITY SPACE WITH GOOD LAYOUT DESIGN ATTRACT TENANTS

• South Beach Tower, located in the Marina Centre submarket and completed in 1Q15, is currently 90% leased. GSH Plaza (formerly Equity Plaza) in the Raffles Place submarket started refurbishment works and will be sold strata-titled upon completion.

• Vacancy rates in better quality buildings, such as those in the Marina Bay submarket, tightened slightly as firms sought to regroup their operations amidst consolidation plans and expansion opportunities. As a result, higher vacancy rates were observed in older buildings across other submarkets.

RENTS INCREASE AT A SIMILAR PACE AS PREVIOUS QUARTER

• Average CBD rents in 1Q15 (1.0% q-o-q) rose at a similar pace as 4Q14 (1.3%). Rents in better quality buildings in Marina Bay experienced mostly stable rents, which may be due to competition from newly completed buildings and the commencement of pre-leasing activity at Guoco Tower. Rent growth was driven by increases in other submarkets.

• The quarter saw the en bloc transaction of AXA Tower between Blackstone and a consortium led by Perennial Holdings, and four strata transactions valued at more than SGD 5 million each. Activity levels in the investment market may increase through the year as capital values hold steady.

OUTLOOK: MODEST RENT DECLINE AMID NEW SUPPLY AND CONSOLIDATIONS

• A short-term rental decline is expected, in light of upcoming supply in 2016. Pre-leasing has started for Duo while Marina One is expected to begin soon.

• A mix of consolidation and expansion activity is expected to continue with sectors such as professional services, media and technology likely to seek further expansion in light of Singapore’s connectivity to the fast growing markets in the neighbouring countries.

SGD 10.56

SQ FT PER MONTH, GROSS ON NLA

10.3%

RENTAL GROWTH Y-O-Y

Physical Indicators

Financial Indices


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BANGKOK“Rents continue to rise in the Central Business

Areas amidst robust demand for Grade A space and tight supply.”

Andrew Gulbrandson, Head of Research, Thailand

Physical Indicators

23 –

OFF

ICE

.Source: JLLFor 2010 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are as at 1Q15, while future supply is from 2Q15 to 4Q15.

Physical Indicators


Financial Indices

Note: Bangkok Office refers to Bangkok’s Central Business Areas (CBA) Grade A office market.

DEMAND DRIVEN BY NEW COMPLETIONS AND RELOCATION ACTIVITY

• During 1Q15, net take-up in the CBA remained positive at 20,000 sqm. Demand was mainly driven by a flight-to-quality to newer buildings in prime locations.

• Insurance and construction firms were the major movers in the quarter, relocating to newer buildings in similar locations but with minimal rental increases.

AIA SATHORN AND BHIRAJ TOWER @ EMQUARTIER COMPLETE IN CBA

• Total stock reached 1.82 million sqm at end-1Q15 as AIA Sathorn and Bhiraj Tower @ EmQuartier added 38,649 sqm and 47,442 sqm to the market.

• Vacancy rose to 9.5% in 1Q15 as the newly completed buildings had relatively low pre-commitment rates.

CAPITAL VALUE GROWTH OUTPACES RENTAL GROWTH

• Average gross rents increased 1.5% q-o-q to THB 773 per sqm per month in 1Q15, as centrally located prime office buildings remained desirable. Buildings consistently achieving the highest rents are located in close proximity to mass transit stations, often with dedicated pedestrian linkages providing direct access.

• Capital values increased by 3.1% q-o-q in 1Q15, with the increase largely underpinned by rapidly rising land acquisition costs. As a result of capital values rising at a faster pace than rents, market yields compressed to 6.8%.

OUTLOOK: SUBDUED ECONOMIC GROWTH MAY IMPACT RENT GROWTH

• The Bank of Thailand lowered its GDP growth forecast for 2015 to less than 4% after lacklustre growth in recent quarters. In a bid to stimulate the economy, the central bank reduced the monetary policy rate to 1.75%.

• Rental growth could slow if the economy fails to pick up steam, even as the supply situation will remain relatively tight through 2016. However, regardless of the supply situation and rental dynamic, many medium and large corporate occupiers are considering consolidation and relocation which may boost demand in late 2015.

6.6% THB 773

STAGE IN CYCLE

GROWTH SLOWING

SQM PER MONTH, GROSS ON NLA

RENTAL GROWTH Y-O-Y


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KUALA LUMPUR“Occupancy improves despite a weaker

economic outlook.”Dr Chua Yang Liang, Head of Research, Southeast Asia

24 –

OFF

ICE RENTS

FALLING

STAGE IN CYCLE

Note: Kuala Lumpur Office refers to Kuala Lumpur City’s Grade A office market consisting the Golden Triangle and CBD submarkets.

EXPANSION AND RELOCATION ACTIVITY DRIVE LEASING DEMAND

• During 1Q15, net absorption in Kuala Lumpur City remained positive at 823,400 sq ft, driven mainly by the insurance sector. Notable occupier activity included the expansion of AIA into Capital Square Office Tower 2, located within the Kuala Lumpur CBD submarket.

• The decline of crude oil prices has impacted demand significantly, especially within the Kuala Lumpur Golden Triangle submarket. A number of major oil & gas firms have held back office relocation and expansion plans.

VACANCY DECLINES AMID NO NEW SUPPLY AND UPGRADING DEMAND

• No new supply was completed in Kuala Lumpur in 1Q15.

• Vacancy declined with tenants’ flight-to-quality taking its toll on lesser grade / older office buildings. New supply of 935,000 sq ft is expected by end-2015, and this is likely to add further pressure to landlords of older buildings.

CAPITAL VALUES STABLE ON BACK OF MUTED INVESTMENT MARKET

• Average rents recorded a slight decline despite strong absorption in the quarter. Tenants’ flight-to-quality has pressured landlords of lesser grade / older buildings to offer incentives such as longer rent-free periods to help maintain occupancy.

• Capital values declined marginally amid a rental decline. There were no major Grade A en bloc office transactions in the quarter. A continued lack of quality assets for sale is mainly due to a mismatch in price expectations between buyers and sellers.

OUTLOOK: SLOWDOWN IN ECONOMIC GROWTH EXPECTED TO HINDER DEMAND

• The negative outlook for Malaysian GDP growth in light of falling oil prices, volatile capital flows and the fragile global economic outlook should put a cap on office demand.

• The leasing market is likely to remain favourable to tenants. The expected future supply of quality office space to enter the market by end-2015 is likely to put pressure on landlords to offer further leasing incentives.

1.1% MYR 6.29

SQ FT PER MONTH, GROSS ON NLA

RENTAL GROWTH Y-O-Y

Source: JLLFor 2010 to 2014, take-up, completions and vacancy rates are year-end annual. For 2015, take-up, completions and vacancy rates are as at 1Q15, while future supply is from 2Q15 to 4Q15.Physical Indicators are for Kuala Lumpur City.

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for Kuala Lumpur City.

Physical Indicators

Financial Indices


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

130

90

120

110

100



0

70

280

10 11 12 13 140

4

12

16

8

20

210

140

350

Thou

sand

sqm Percent

15F

JAKARTA“Landlords remain cautious amid rupiah

depreciation and a high volume of upcoming supply. ”

Vivin Harsanto, Head of Research, Indonesia

Physical Indicators

25 –

OFF

ICE


Physical Indicators


Financial Indices

Note: Jakarta Office refers to Jakarta’s CBD Grade A office market.

ENQUIRIES UP MARGINALLY DESPITE NEGATIVE NET ABSORPTION

• Net absorption remained in negative territory for the second successive quarter in 1Q15. However, rather than reflecting significantly softer demand, weaker q-o-q net take-up was symptomatic of a large tenant relocation to a lower grade building.

• Leasing enquiries from banking and financial institutions as well as IT firms have picked up since the presidential elections in early 2H14. However, few deals were closed during the quarter as affordability continued to be an issue for some tenants, particularly given the continued depreciation of the Rupiah against the US dollar.

NO NEW SUPPLY ENTERS THE MARKET

• In spite of no new completions, CBD vacancy edged up by 50 bps q-o-q to 3.9%, largely due to a large tenant relocation.

• Total Grade A stock remained unchanged at 1.29 million sqm, although a significant amount of supply is expected to enter the market later this year.

RENTS AND CAPITAL VALUES REMAIN LARGELY STABLE

• Given the large rise in rents in recent years, rents are perceived to be in the upper range of affordability for many tenants. This is accentuated by the depreciation of the rupiah (most leases in premium buildings in USD) and uncertainty in the global economy, and as such, rents remained stable q-o-q. However, in rupiah terms, rents rose q-o-q.

• The investment market remained quiet in 1Q15. However, this is not necessarily indicative of a lack of investor interest but in large part due to limited availability of assets for sale. There are traditionally few en bloc sales of prime office buildings involving international institutional investors.

OUTLOOK: LARGE SUPPLY PIPELINE LIKELY TO PUSH VACANCY RATES HIGHER

• Almost 200,000 sqm of premium office space is expected to be delivered in 2015, the highest annual amount since 2008. Given expectations for further rupiah depreciation and global economic uncertainty, demand is unlikely to see any significant pick up in the short term. As such, we expect vacancy to rise to double digit territory by year end.

• Landlords are likely to focus on retaining existing tenants and we expect a relatively stable rental environment over the remainder of the year.

0.2% USD 334 RENTS STABLE

STAGE IN CYCLESQM PER ANNUM, NET EFFECTIVE ON NLA

RENTAL GROWTH Y-O-Y


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q150

300

50

250

200

150

100



–50

50

150

10 11 12 13 14–3

3

9

0

6

18

15

12

0

100

300

200

250

Thou

sand

sqm Percent

15F

MANILA“Office demand and investor interest remain firm,

buoying rents and capital values.”Claro dG. Cordero, Jr., Head of Research, Philippines

26 –

OFF

ICE



RENTS RISING

STAGE IN CYCLE

Physical Indicators

Financial Indices

Note: Manila Office refers to the Makati CBD and BGC Grade A office market.

OFFSHORING AND OUTSOURCING FIRMS CONTINUE TO UNDERPIN DEMAND

• Offshoring and outsourcing (O&O) firms remained the main driver of office demand, as foreign firms eye expansion opportunities in the Philippines. The majority of the lease transactions in 1Q15 came from O&O and IT firms, and total net absorption was recorded at 57,100 sqm in Makati CBD and Bonifacio Global City.

• Some key leasing transactions included an O&O firm pre-committing to 3,400 sqm in Wilcon IT Hub in the fringe of Makati CBD and another O&O firm taking up 2,400 sqm in Twenty-Four Seven McKinley in BGC.

VACANCY EDGES DOWN DESPITE NEW SUPPLY

• The completion of two office developments, namely Techzone at the fringe of Makati CBD and Orion in BGC, added a total of 52,500 sqm to the office stock.

• Vacancy slightly declined to 3.8% in 1Q15 from 4.1% in 4Q14 due to robust leasing demand from different sectors such as O&O, software, manufacturing, shipping, pharmaceuticals, financial services, and distributor firms.

RENTS AND CAPITAL VALUES STEADILY RISE ON THE BACK OF FIRM DEMAND

• Rents grew at a steady pace of 1.0% q-o-q on the back of stable leasing demand. Capital values increased at a slightly higher growth of 1.2% q-o-q, supported by sustained investor interest.

• Healthy take-up of pre-selling office developments has encouraged reputable developers to offer more strata-titled office units for sale. Foreign investors remain keen on the local office market as evidenced by the stable number of inquiries.

OUTLOOK: EXPANDING MNCS AND FOREIGN BANKS TO BUOY OFFICE DEMAND

• The O&O sector is expected to remain as the main driver of demand. Nonetheless, MNCs in the consumer goods and financial services industries are observed to be expanding, which should contribute to demand. Sustained office demand is expected to support rental and capital value growth for the rest of the year.

• With the advent of the ASEAN Economic Community, foreign banks are keen to enter and expand their presence in the country, which may potentially boost demand for office space.

6.1% PHP 887

SQM PER MONTH, NET EFFECTIVE ON NLA

RENTAL GROWTH Y-O-Y


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1590

160

140

150

100

130

120

110



0

150

450

10 11 12 13 140

2

6

4

8

300

600

Thou

sand

sqm Percent

15F

DELHI“Leasing activity picks up on the back of new

expansion demand.”Ashutosh Limaye, Head of Research, India

Physical Indicators

27 –

OFF

ICE

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for the SBD.

Physical Indicators

Financial Indices

Note: Delhi Office refers to Delhi’s Overall Grade A office market.

DEMAND FOR NEW EXPANSION REQUIREMENTS GROWS

• In 1Q15, leasing volumes improved and net absorption was recorded at 0.97 million sq ft. An improved economic and business outlook resulted in a steady rise in transaction volumes in the quarter. Demand continued to be led by IT/ITES occupiers followed by e-commerce, consulting and financial services firms.

• Expansion demand picked up pace in the quarter. Leasing volumes in the CBD and SBD were healthy, while Gurgaon and Noida witnessed a slight improvement. Notable leasing transactions involved companies such as EXL, Blackrock, Kronos and Ion Trading.

NEW SUPPLY IN THE QUARTER AT RECORD HIGH OF 4.8 MILLION SQ FT

• New completions added 4.8 million sq ft to market stock in the quarter. Notable completions included ASF Insignia and DLF Corporate Greens in Gurgaon.

• In 1Q15, vacancy rose by 300 bps q-o-q to 30.8%, due to moderate levels of occupancy in recent completions.

RENTS GENERALLY STABLE EXCEPT FOR SMALL RISES IN GURGAON AND NOIDA

• In 1Q15, rents were mostly stable across Delhi except for slight increases in Gurgaon and Noida. Growth in these submarkets was driven by higher rents in select quality projects which had limited available space for lease.

• Capital values moved in line with rents and as a result, yields were stable. Investors continued to be cautious with the primary focus being on leased assets while under-construction projects largely elicited tepid responses.

OUTLOOK: EXPANSIONS TO SUPPORT DEMAND

• Expansion demand is likely to be the main driver of leasing activity amid positive occupier sentiment. Upcoming supply in Special Economic Zones is expected to be the preferred option for large IT/ITES occupiers looking for space.

• Rental growth in the established office corridors should be slightly higher than in other areas. Quality projects are expected to drive rent growth. With private equity and institutional investors likely to pursue leased assets, capital values may rise amid improved investor sentiment.

INR 145 RENTS RISING

STAGE IN CYCLESQ FT PER MONTH, GROSS ON GFA

0%

RENTAL GROWTH Y-O-Y




010 11 12 13 14

0

40800

Thou

sand

sqm Percent

15F

5

10

15

20

25

30

35

100

200

300

400

500

600

700


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

130

90

120

110

100

MUMBAI“Mumbai sees the lowest quarterly level of new

supply in six years.”Ashutosh Limaye, Head of Research, India

28 –

OFF

ICE

Physical Indicators

Financial Indices

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for the SBD BKC.

Note: Mumbai Office refers to Mumbai’s Overall Grade A office market.

NET TAKE-UP DECLINES AMID LONGER DECISION MAKING PROCESS

• Occupiers were observed to be taking more time in scrutinising and executing leases for office space. Pre-commitments and renewals contributed 45% of the total transacted space in the quarter. Net absorption was recorded at 1.2 million sq ft, a decrease of 31.7% q-o-q.

• The most notable transactions in the quarter included National Bank of Abu Dhabi leasing space in BKC and AZB & Partners leasing space in the SBD Central submarket.

NEW SUPPLY AT SIX-YEAR LOW

• In 1Q15, seven projects were ready for fit-out and expected to commence operation. However, only three managed to obtain the occupancy certificates needed to commence operation. As such, new supply of office space in Mumbai was recorded at a twenty-four quarter low of 0.3 million sq ft.

• Limited new supply coupled with pre-commitments at new completions and leasing in existing buildings pushed the vacancy rate lower by 100 bps q-o-q to 19.4% in 1Q15.

RENTS AND CAPITAL VALUES INCREASE THE MOST IN EASTERN SUBURBS

• During 1Q15, rents in the CBD and SBD BKC submarkets decreased marginally as the majority of transactions concluded in commercial precincts such as Nariman Point and BKC were below the previous quarter’s rates. The trend of CBD tenants relocating to the SBDs continued during the quarter.

• Rents and capital values in the Eastern Suburbs submarket appreciated slightly by 1.0% q-o-q in 1Q15. This submarket witnessed increased demand from e-commerce companies.

OUTLOOK: NET TAKE-UP LIKELY TO RISE DUE TO STRONG PRE-COMMITMENTS

• Upcoming supply in Special Economic Zones is likely to be the preferred option for space by large IT/ITeS occupiers. Established businesses expanding and new foreign players entering the market should support robust transaction activity in 2015.

• It is likely that institutional investors will become confident in purchasing income generating and strategically located office assets, as they know that quality office space should attract a good number of MNCs and Indian corporations willing to pay a premium on rents. Rents and capital values are likely to rise in select submarkets.

–3.5% INR 223 DECLINE SLOWING


RENTAL GROWTH Y-O-Y



Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

130

90

120

110

100



0

400

1,000

10 11 12 13 140

5

15

25

20

10

30

800

200

600

1,200

Thou

sand

sqm Percent

15F

BANGALORE“Corporate expansion demand by financial services and e-commerce firms strengthens

in Bangalore.”Ashutosh Limaye, Head of Research, India

Physical Indicators

29 –

OFF

ICE

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for the SBD.

Physical Indicators

Financial Indices

Note: Bangalore Office refers to Bangalore’s Overall Grade A market.

DEMAND DRIVEN BY BFSI, E-COMMERCE AND IT/ITES SECTORS

• Transaction activity in the Bangalore office market was stable in 1Q15 as compared with the previous quarter. About 1.3 million sq ft of office space was transacted during this period. Meanwhile, about 2.3 million sq ft of net absorption was recorded in 1Q15 mostly contributed by pre-committed space in previous quarters.

• Major occupiers who leased space over the quarter belonged to banking, financial services and insurance (BFSI), e-commerce and IT/ITES sectors. Key tenants who leased space in 1Q15 were Wells Fargo, Epsilon Technologies, Accenture and Flipkart.

2.3 MILLION SQ FT OF NEW SUPPLY ENTERS THE MARKET

• Seven office buildings commenced operation in 1Q15, adding a total of 2.3 million sq ft. As a result, total stock of Grade A office space in Bangalore increased to 87.2 million sq ft.

• Vacancy declined marginally by 0.2 percentage points to 8.0% in 1Q15 due to stable transaction activity.

LIMITED AVAILABILITY IN SBD PUSHES RENTS UP

• In 1Q15, rents remained stable in all submarkets except for the SBD, which recorded an increase 1.9% q-o-q to INR 53 per sq ft per month.

• Capital values remained stable across all submarkets in 1Q15 except for the SBD.

OUTLOOK: SALES VOLUMES TO RISE AMID IMPROVING BUYER SENTIMENT

• Demand for office space is expected to increase across all submarkets of the city during 2015, underpinned by expansion activity from major sectors such as manufacturing, information technology, BFSI and e-commerce. SBD is likely to remain the most active submarket followed by Whitefield.

• Investor sentiment and activity in Bangalore has improved, as evidenced by an increase in the number of enquiries for the purchase of office space. As a result, we expect more sales transactions in the market and for capital values to increase across all submarkets.

RENTS RISING

STAGE IN CYCLE

INR 53

SQ FT PER MONTH, GROSS ON GFA

6.0%

RENTAL GROWTH Y-O-Y



Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

150

140

90

130

120

110

100



0

200

500

10 11 12 13 140

4

8

10

2

6

16

400

100

300

800

14700

12600

Thou

sand

sqm Percent

15F

SYDNEY“Global funds and offshore investors continue to

drive yields down towards pre-GFC levels.”Dr David Rees, Head of Research, Australasia

30 –

OFF

ICE

Note: Sydney Office refers to Sydney’s CBD office markets (all grades).

DEMAND DRIVEN BY EXPANSION AND CENTRALISATION ACTIVITY

• The Sydney CBD market recorded positive net absorption for the fifth consecutive quarter, equal to 34,900 sqm. This is a clear indication that leasing activity is strong in the Sydney CBD, as evidenced by the 15 tenant relocations of 1,000 sqm or more recorded in the quarter.

• The most high profile move was Twitter entering the market. Leasing enquiry by IT companies has increased over the past year and this trend is expected to continue in 2015.

STAGE ONE OF BARANGAROO SOUTH DEVELOPMENT NEARING COMPLETION

• Currently eight projects are under construction in the Sydney CBD, totalling 376,000 sqm of office space. The Barangaroo South development makes up 267,000 sqm of this future stock. The first tower is due for completion in 3Q15. It will add 87,580 sqm of premium office space to CBD stock.

• Vacancy fell by 0.5 percentage points for the second consecutive quarter to 9.0%. This drop was due to strong demand for quality Grade A space.

DEMAND FOR QUALITY OFFICE SPACE IS PUSHING RENTS UP

• Eight sales transactions were recorded in 1Q15 totalling AUD 687.7 million. The largest sale was Blackstone’s purchase of a 25% share in 161 Castlereagh Street for AUD 240.0 million. This purchase was in line with Blackstone’s core-plus strategy, targeting high quality, well leased assets in global gateway cities.

• Prime gross effective rents increased by 1.4% q-o-q to AUD 629 per sqm per annum in 1Q15, which was in line with y-o-y growth. This marked the second consecutive quarter that prime rents have risen, which was a result of the falling vacancy rate and increased demand for quality prime office stock in the Sydney CBD market.

OUTLOOK: LARGE AMOUNT OF SUPPLY LIKELY TO INCREASE VACANCY

• Supply will remain strong, as 376,000 sqm of space is currently under construction and is due for completion over the next two years. Of this space, 154,000 sqm is currently unleased. This poses significant oversupply issues over the coming years, which is likely to increase vacancy.

• Strong investor demand is set to continue in 2015. Global funds and offshore investors are expected to be more involved in the sale and purchase of Sydney CBD assets, which is likely drive yields down further.

1.4% AUD 629 RENTS RISING

STAGE IN CYCLESQM PER ANNUM, GROSS EFFECTIVE ON NLA

RENTAL GROWTH Y-O-Y


Physical Indicators

Financial Indices



Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

140

90

130

120

110

100



–50

50

150

10 11 12 13 14–3

3

9

0

6

12

0

100

200

Thou

sand

sqm Percent

15F

MELBOURNE“Leasing enquiry and activity have improved as a

broad based range of industries actively seek space.”

Dr David Rees, Head of Research, Australasia

Physical Indicators

31 –

OFF

ICE

Note: Melbourne Office refers to Melbourne’s CBD office market (all grades).

FURTHER IMPROVEMENT IN LEASING ENQUIRY AND ACTIVITY

• Melbourne CBD recorded a fourth successive quarter of positive absorption (52,000 sqm). Net absorption this quarter alone was greater than the total of 2014 (48,300 sqm).

• This increase was mainly driven by the fully pre-committed completion of CBUS’s Victoria Police Development. Expansion moves by NBNCo, CrownBet and Westpac also contributed significantly to positive net absorption.

BROAD BASED IMPROVEMENT IN DEMAND RESULTS IN VACANCY TIGHTENING

• Prime and Secondary vacancy both fell to 9.6% in 1Q15 from 10.3% and 10.5% respectively, removing the spread between the two grades.

• The only major project to reach completion in the Melbourne CBD in 1Q15 was CBUS’s Victoria Police building at 313 Spencer Street. This development added 28,000 sqm of pre-committed space to the Docklands precinct.

INVESTMENT VOLUMES MODERATE OVER 1Q15

• JLL recorded only five sales above AUD 5.0 million totalling AUD 116.5 million.

• Prime CBD gross effective rents increased 3.8% q-o-q in 1Q15 to AUD 273 per sqm per annum. This was driven by an increase in net face rents of 0.9% q-o-q, as incentives remain unchanged at 32% (38 months’ rent free on a 10-year lease term). A 4.5% q-o-q increase in prime outgoings was also recorded in the quarter.

OUTLOOK: IMPROVING PHYSICAL MARKETS AID CASE FOR INVESTMENT

• Demand in the CBD is expected to remain positive with centralisation activity expected to be the major driver of future absorption. The current high incentive environment will likely also precipitate expansionary moves.

• Yields are expected to tighten further in 2015 as investor demand for office assets continues. With a number of assets listed for sale and a healthy appetite from investors, capital values are forecast to continue to rise over the short to medium term.

RENTS RISING

STAGE IN CYCLE

AUD 399

SQM PER ANNUM, GROSS EFFECTIVE OF NLA

3.8%

RENTAL GROWTH Y-O-Y



Physical Indicators

Financial Indices


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

140

90

130

120

110

100



–50

50

150

10 11 12 13 14–3

3

9

0

6

12

0

100

200

Thou

sand

sqm Percent

15F

BRISBANE“Positive net absorption for first time since 3Q12.

However, vacancy is forecast to rise. ”Dr David Rees, Head of Research, Australasia

32 –

OFF

ICE


Physical Indicators


Financial Indices

Note: Brisbane Office refers to Brisbane’s CBD office market (all grades).

POSITIVE NET ABSORPTION FOR FIRST TIME SINCE 3Q12

• For the first time in over two years, Brisbane CBD recorded positive net absorption (7,100 sqm). The positive result was partly related to the reduction in sub-lease vacancy over the quarter.

• The transition of the mining cycle from investment to production has resulted in a number of tenants consolidating operations and downsizing. Over the past 12 months net absorption was –18,900 sqm.

LIMITED NEW SUPPLY AMIDST AN IMPROVEMENT IN DEMAND

• There were no new supply additions to the Brisbane CBD over the quarter. However, one asset was withdrawn for conversion to student accommodation. This resulted in net supply of –14,800 sqm for the 12 months to end 1Q15, well below the 49,000 sqm ten-year annual average.

• The combination of positive net absorption and a reduction in stock resulted in vacancy tightening by 0.9 percentage points to 15.9% in 1Q15. The availability of sublease space also reduced from 3.2% to 2.6% of total stock.

PRIME CBD YIELDS REMAIN FIRM DESPITE THE SOFT LEASING MARKET

• Weak tenant demand in Brisbane CBD has exerted upward pressure on incentives, pushing them to 40 months’ rent free (on a 10-year lease). This has resulted in prime net effective rents decreasing by 2.3% in the quarter.

• Prime office yields remained firm in the quarter, ranging from 6.25% to 8.25%. Secondary yields recorded a slight drop at the top end, with the upper yield falling 25 bps to 7.75%.

OUTLOOK: NEW SUPPLY IN LATE 2015 EXPECTED TO PUSH VACANCY UP

• The expected completion of three new developments by the end of 2015 will add 115,000 sqm of office space to the Brisbane CBD. Although this supply may be partially offset by a number of stock withdrawals, CBD vacancy is still expected to rise.

• Investor interest in the Brisbane CBD for core assets remains strong, supporting the possibility of yields compressing further by the end of the year despite the challenging leasing market.

–6.6% AUD 404 DECLINE SLOWING

STAGE IN CYCLESQM PER ANNUM, GROSS EFFECTIVE ON NLA

RENTAL GROWTH Y-O-Y


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

85

120

115

90

110

105

100

95



–150

50

10 11 12 13 14–18

6

12

0

18

–12

–6

0

100

150

–100

–50Thou

sand

sqm Percent

15F

AUCKLAND“Rents continue to rise in the CBD amidst limited

supply and healthy appetite for Prime space.”Justin Kean, Head of Research, New Zealand

Physical Indicators

33 –

OFF

ICE

Source: JLLFor 2010 to 2014, take-up, completions and vacancy rates are year-end annual. Future supply is for 2015.

Physical Indicators


Financial Indices

Note: Auckland Office refers to Auckland’s CBD and Viaduct Harbour office markets.

EXPANSION AND RELOCATION ACTIVITY DRIVES STRONG DEMAND

• An improving labour market in Auckland led by strong growth for white-collar jobs is driving demand for new supply, which has been slow to come online. Strong leasing enquiries from technology, media and financial services companies was experienced in 2H14.

• In spite of strong demand, net absorption was negatively impacted by refurbishment works, such as 22 Fanshawe Street and 125 Queen Street, as some tenants had to relocate.

LIMITED PRIME AVAILABILITY DRIVES OCCUPIERS TO LOWER GRADES

• Leasing activity remained strong across the market resulting in lower vacancy. Overall CBD vacancy declined by 200 bps in 2H14 to 5.8%. Prime vacancy remained extremely tight at 1.2%, and occupier demand is now shifting into lower grade space and driving secondary vacancy into single digits.

• Although some refurbishment and restoration works are increasing, new build construction remains very limited. Over the remainder of 2015, only Manson’s 151 Victoria St West project (18,600 sqm) is expected to come online and provide some respite to the tight market. Speculative development activity is increasing but will not be delivered in 2015.

CAPITAL VALUES MOVE HIGHER ON STRENGTHENING INVESTOR SENTIMENT

• Underlying fundamentals for the Auckland office market remain strong. Average Prime rents rose at a faster pace of 1.7% q-o-q, compared to 0.8% q-o-q in 4Q14, with limited availability and new leasing activity driving growth. Incentives have likewise fallen as the market balance moves in favour of property owners.

• Sales transaction volumes declined 65% q-o-q to NZD 217 million in 1Q15, after a historic performance recorded in 4Q14. Despite this decline, investor appetite for office assets remains strong with yields compressing and resulting in robust growth of capital values (12.3% y-o-y).

OUTLOOK: LIMITED SUPPLY UNTIL LATE 2015 SHOULD SUPPORT RENT GROWTH

• With economic growth expected to be around 2.7% in 2015, corporate expansion and leasing activity is predicted to persist. Office market fundamentals are expected to continue strengthening and should put landlords in a favourable position relative to tenants.

• Improving investor sentiment should support a further compression in yields for both prime and secondary assets, as the growth phase continues to gain pace.

6.7% NZD 440 RENTS RISING

STAGE IN CYCLESQM PER MONTH, NET ON NLA

RENTAL GROWTH Y-O-Y


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

150

140

90

130

120

110

100



0

10

10 11 12 13 140

3

9

6

15

30

20

50

1240

Thou

sand

sqm Percent

15F

www.jll.com/asiapacific


Detailed historical data, forecasts and reporting for more than 50 cities in Asia Pacific

Subscribe to JLL’s Real Estate Intelligence Service today.

Contact Roddy Allan, [email protected]

Real estate insights;Past, present and future

35 –

RET

AIL

Retail

HONG KONG“Fears of a recurrence of the Occupy protests is

steering more demand towards shopping centres.”Denis Ma, Head of Research, Hong Kong

36 –

RET

AIL

Physical Indicators

Financial Indices


Source: JLLFor 2010 to 2014, completions are year-end annual. For 2015, completions are as at 1Q15, while future supply is from 2Q15 to 4Q15.

Note: Hong Kong Retail refers to Hong Kong’s Overall Prime Shopping Centres and High Street retail markets.

SALES OF LUXURY GOODS CONTINUE TO DRAG ON RETAIL SALES GROWTH

• Total tourist arrivals were up by 11.6% y-o-y in January–February, led by a 15.8% increase in Mainland tourist arrivals. Retail sales, however, were down 2.0% y-o-y over the same period with the changing profile of Mainland tourists and anti-corruption campaign on the Mainland still affecting the sales of luxury goods (down 15.9% y-o-y).

• High asking rents, lacklustre retail sales and fears of recurrence of the Occupy Movement protests have moderated demand for street shops. As a result, landlords were willing to offer more accommodative rental terms for High Street shops. Demand in the city’s Prime Shopping Centres, however, remains largely intact.

SUPPLY OVER THE SHORT TERM REMAINS LIMITED

• Supply for Prime Shopping Centres remained limited in recent years; no prime shopping centres completed in 1Q15.

• Sun Hung Kai Properties and Henderson Land have proposed to convert several hundred shipping containers at a site near the Lok Ma Chau border checkpoint into an outdoor shopping centre (420,000 sq ft) targeting cross-border shoppers by October 2015.

RENTAL CORRECTION ON HIGH STREET SHOPS

• Tempered demand led to rents of High Street Shops retreating in each of the city’s four major retailing precincts (Mongkok, Tsimshatsui, Causeway Bay and Central) for the first time since the Global Financial Crisis. Meanwhile, base rents in Prime Shopping Centres continued to edge higher.

• Investment volumes remained weak as an uncertain rental outlook discouraged investment in core areas. Affected by price cuts to micro-shops in stratified shopping malls, vendors in the rest of the market lowered asking prices, leading to a slight correction in capital values for High Street Shops.

OUTLOOK: RETAILERS TO SHOW GREATER CAUTION IN RENTAL NEGOTIATIONS

• As one of the region’s most mature retail markets, Hong Kong remains on the radar among international retailers. However with demand softening on the High Streets, landlords should be more flexible in rental negotiations. Likewise, with retail sales continuing to underwhelm, retailers should adopt a pragmatic view towards leasing decisions.

• Low holding costs and stable local consumption should continue to draw investors towards undervalued properties with growth potential in non-core locations. With investors no longer willing to chase yields down for High Street Shops in core locations, capital values are expected to correct by 5–10% in tandem with falling rents.

–2.3% HKD 725.4 RENTS FALLING

STAGE IN CYCLESQ FT PER MONTH, NET ON GFA

RENTAL GROWTH Y-O-Y

RV Index (High Street Shop)CV Index (High Street Shop)RV Index (Premium Prime Shopping Centres)RV Index (Overall Prime Shopping Centres)

Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

200

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10 11 12 13 14 15F0

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Completions Future Supply

BEIJING“China’s growing middle-class is fuelling the

expansion of premium snack brands.”Steven McCord, Head of Research, North China

37 –

RET

AIL



Physical Indicators

Financial Indices

Note: Beijing Retail refers to Beijing’s Urban retail market.

F&B CHAINS CONTINUE TO DOMINATE MARKET ACTIVITY

• Mid-market restaurant chains remain popular; Kro’s Nest entered Xin’ao Shopping Center, Grandma’s Home opened at Capita Crystal, and South Beauty opened at Jingtong Roosevelt. Meanwhile, premium snack brand llaollao, a Spanish frozen yogurt maker, continued to expand its presence in Beijing by opening a store at Kerry Centre.

• Even amid slow luxury sales growth, Louis Vuitton upgraded its store at China World Mall into a flagship location, quintupling its store space by expanding to some 4,000 sqm over three floors. Meissen Couture also opened its first China flagship store at China Central Mall. Affordable luxury retailers Armani Collezioni and Coach also opened stores.

OVERALL VACANCY STABLE DESPITE THREE NEW PROJECT OPENINGS

• Spot on WFJ, a small, vertical mall project (38,000 sqm), opened on Wangfujing’s pedestrian street with only about a third of its space committed. However, strong occupancy at other core projects led to a modest slide in vacancy for the second consecutive quarter to 3.9%.

• Large-scale mall project COFCO Shine Hills, an open-air lifestyle centre with a relatively high-end positioning, entered the Suburban market with 40% vacancy. Greenland Being Funny Fangshan also opened in the suburbs, but with just 10% vacancy after anchor tenants SCF movie theatre and Carrefour supermarket delayed openings.

FIRST-EVER STABILISED MALL SALES TRANSACTION IN BEIJING

• EC Mall in Zhongguancun was sold fully occupied to Hong Kong-listed Link REIT for RMB 2.5 billion, a major break away from previous retail deals which have generally been transacted at the pre-construction or early stage of development. The deal also marks the first purchase in Beijing for Link REIT.

• The high transaction price is further indicative of the potential revenue stream expected of the mall, regarded as one of the submarket’s top projects. Nearby competitor Zhongguancun Plaza closed temporarily due to poor performance.

OUTLOOK: 1 MILLION-PLUS SQM OF STOCK COMING BY END-2015

• Two-thirds of these projects are scheduled to enter the market by mid-year, further extending the supply boom that started in late 2014, and will contain a large number of suburban projects.

• Sales growth at major shopping centres is likely to be moderate as projects face growing competitive pressure from overseas shopping (most recently in Japan and South Korea), online, suburban development and outlet malls. Department store closures are set to continue, with another Ito Yokado reported to shut in Beijing, as many locations underperform.

5.1% RMB 860

STAGE IN CYCLESQM PER MONTH, NET EFFECTIVE ON NLA

RENTAL GROWTH Y-O-Y

GROWTH SLOWING

Rental Value Index

Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1590

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Capital Value Index

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SHANGHAI“Luxury retailers shift pricing strategy in response

to sales slowdown.”Joe Zhou, Head of Research, East China


38 –

RET

AIL

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for the Core market.

Source: JLLFor 2010 to 2014, completions are year-end annual. For 2015, completions are as at 1Q15, while future supply is from 2Q15 to 4Q15.Physical Indicators are for the Core market.

Physical Indicators

Financial Indices

GROWTH SLOWING

STAGE IN CYCLE

RMB 51.8

SQM PER DAY, NET ON NLA

4.8%

RENTAL GROWTH Y-O-Y

Note: Shanghai Retail refers to Shanghai’s Overall Core and Non-core retail markets.

MASS MARKET FASHION AND F&B BRANDS SUSTAIN PACE OF EXPANSION

• In the high-end market, while affordable luxury brands continued to look for space, tier 1 luxury brands kept expansion plans on hold. Facing poor sales performance, some brands closed underperforming stores and relocated to stronger properties, while Chanel responded by launching price cuts to pull sales back to Mainland China.

• In the mid-range market, fast fashion brands sustained their pace of expansion as H&M and Pull&Bear committed to new stores in Shanghai. While large banquet restaurants struggled with performance, smaller premium casual dining restaurants expanded aggressively.

VACANCY FLAT IN CORE MARKET; TWO PROJECTS OPEN IN NON-CORE MARKET

• Metro City in Putuo and Huizhi Life Plaza in decentralised Pudong opened with a total GFA of 210,000 sqm. Both projects are located in emerging submarkets, serving the neighbouring communities and dedicating much of their leasable space to F&B, entertainment and other lifestyle tenants.

• Vacancy decreased slightly to 7.9% in the core areas as several properties completed tenant adjustments. Vacancy edged up to 8.2% in the non-core market as new malls entered the market with relatively low occupancy.

RENTAL LEVELS EDGE UP WHILE INVESTMENT MARKET REMAINS QUIET

• In the core area, open-market ground floor base rents increased by 1.1% q-o-q to RMB 51.8 per sqm per day. Non-core rents gained 1.4% q-o-q to RMB 17.5 per sqm per day. Strong demand for space and rental growth were observed in key successful malls while newly opened properties in emerging submarkets still struggled to fill their space.

• There were no en bloc sales transactions in the quarter due to a lack of tradable malls in the market.

OUTLOOK: DIVERGING RENT SUCCESS BETWEEN MATURE AND NEW MALLS

• While top-tier luxury retailers are expected to stay cautious in 2015, demand should remain strong from affordable luxury brands, which have been highly sought after by landlords aiming for property upgrades. In the mass market, fast fashion and casual dining tenants are expected to continue strengthening their presence in the city.

• Eight malls are expected to enter the non-core market in 2015. Landlords of upcoming malls located in already crowded non-core submarkets are expected to be generous on rental terms, especially during the first rental cycle. Meanwhile, mature malls in key submarkets remain the preferred destination for premium brands and will enjoy strong bargaining power.

Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

130

90

120

100

110


10 11 12 13 14 15F0

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sand

sqm

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150

100


CHENGDU“Diverging performance between shopping centres

as retailers continue to favour premium malls.”Frank Ma, Head of Research, West China

39 –

RET

AIL


Source: JLLFor 2010 to 2014, completions are year-end annual. For 2015, completions are as at 1Q15, while future supply is from 2Q15 to 4Q15.Physical Indicators are for the Urban market

Physical Indicators

Financial Indices

Note: Chengdu Retail refers to Chengdu’s Urban retail market.

ESTABLISHED PREMIUM MALLS CONTINUE TO OUTPERFORM

• International brands, in particular relative newcomers to the city, continued to open new stores in premium malls. Chocolate opened its second store in the city in Galleria, while French children’s clothing brand Tartine et Chocolat opened its second store in Chengdu at MixC.

• Several high-end brands adjusted their store networks in the city by closing old stores after opening new locations in malls of higher quality. Cartier and Hugo Boss withdrew from Renhe Spring DS-Rendong and Yanlord Landmark respectively, after their new flagship stores opened in Sino-Ocean Taikoo Li Chengdu.

TENANT ADJUSTMENTS CAUSE OVERALL VACANCY TO EDGE UP

• With no new supply during the quarter, Chengdu’s prime retail stock stood at 5.21 million sqm at end-1Q15.

• A diverse group of malls undertook tenant repositioning exercises during the quarter and this reshuffling caused the overall vacancy rate to edge up 0.2 percentage points to 9.9%.

OVERALL RENTS LARGELY STABLE BUT MIXED PERFORMANCE BETWEEN MALLS

• Established preimium shopping centres such as Raffles City and Galleria continued to record rental growth (1–2% q-o-q), while rents at most other malls were stable during the quarter.

• No en bloc transactions closed during the quarter, but institutional investor interest remains strong.

OUTLOOK: RENTAL GROWTH TO SLOW AMID SUPPLY PRESSURES

• The city’s brand diversity is set to increase as upcoming prime projects such as Joy City and Paradise Walk (North), which are expected to complete in 2015, introduce new brands (e.g. Old Navy).

• Given growing competition due to the large supply pipeline, rental growth may further moderate. Some landlords of future projects in emerging submarkets may offer incentives (e.g. longer rent-free periods) to improve pre-commitment rates, while landlords of poorly performing existing malls may lower rents to lift occupancy.

2.0% RMB 391.1 GROWTH SLOWING

STAGE IN CYCLESQM PER MONTH, NET ON NLA

RENTAL GROWTH Y-O-Y

Rental Value Index

Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

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TOKYO“Rents continue to rise amid improving consumer

confidence and a consumption boost from tourists.”

Takeshi Akagi, Head of Research, Japan

40 –

RET

AIL

Physical Indicators

Source: Ministry of Economy, Trade and Industry


Financial Indices

Note: Tokyo Retail refers to the Ginza and Omotesando Prime retail market.

RETAILER DEMAND REMAINS STRONG

• Consumer confidence in February rose 1.6 points m-o-m while sales of large-scale retail stores in Tokyo continued to pick up with growth accelerating from January (2.1% y-o-y) to February (5.0%). Department stores drove growth in February, due in part to higher consumption as visitor arrivals increased during the Chinese New Year holiday.

• Notable new store openings in 1Q15 included Ermenegildo Zegna Ginza and Miu Miu Aoyama. The Harry Winston Ginza salon was relocated to a temporary location on Ginzachuo-dori while its current store undergoes refurbishment. Feiler will open its first flagship store in Ginza in 2Q15.

LIMITED PRIME AVAILABILITY PUSHES VACANCY DOWN IN ADJACENT STREETS

• Availability continued to be limited in the prime retail markets in 1Q15. As a result, retailer demand flowed into adjacent areas and contributed to a decline in vacancy in those areas.

• No new supply entered the market in 1Q15. A notable owner-occupied redevelopment announced in the quarter was Mikimoto’s main store on Ginzachuo-dori and this is due for completion in 2017.

CAPITAL VALUE GROWTH ACCELERATES AS RENTS RISE

• Average prime rents increased 5.7% q-o-q in 1Q15. The strong growth was driven by ground floor rents in Ginza and Omotesando, which increased to JPY 250,000 and JPY 210,000 per tsubo per month, respectively, reflecting the tight demand-supply conditions. Interestingly, some leases on adjacent streets achieved rents similar to the prime markets.

• Capital value growth in 1Q15 accelerated to 12.8% q-o-q (25.9% y-o-y) amid strong rent growth and cap rate compression due to continued investor interest.

OUTLOOK: CAPITAL VALUE GROWTH TO OUTPACE RENTAL GROWTH

• Nominal private consumption in 2015 is expected to grow 0.8% as consumer confidence improves. In addition, tourist consumption, which increased 43% y-o-y in 2014, is expected to increase in line with the growth of visitor arrivals, which rose 29% in 2014 and is expected to reach 20 million by 2020.

• In 2015, capital values are expected to increase, supported by factors such as rising land prices and rent growth, which should in part be underpinned by strong demand from retailers. Further cap rate compression is likely amid a favourable investment environment.



RENTAL GROWTH Y-O-Y

Rental Value Index

Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1590

150

100

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Capital Value Index

4Q09 4Q10 4Q11 4Q12 4Q13 4Q14–8

10

Thou

sand

sqm

–6

–4

–2

0

2

4

6

8

Sales Growth of Large-ScaleRetail Stores in Tokyo

SINGAPORE“Weak retail sales and higher labour costs lead to

landlords cutting rents.”Dr Chua Yang Liang, Head of Research, Southeast Asia

41 –

RET

AIL

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for Orchard Road.

Source: JLLFor 2010 to 2014, completions are year-end annual. For 2015, completions are as at 1Q15, while future supply is from 2Q15 to 4Q15.Physical Indicators are for the Overall market.

Note: Singapore retail refers to Singapore’s Primary, Marina and Suburban retail markets.

0.7%

HEALTHY DEMAND SUPPORTED BY NEW-TO-MARKET RETAILERS

• Notwithstanding the weak business sentiment evidenced by lower visitor arrivals and dwindling retail sales, occupier demand was surprisingly stable. Given a high level of consumer spending power and business friendly environment, Singapore continues to be the first stop for many top-tier international brands venturing into the Southeast Asia region.

• In mid-March, the highly-anticipated Capitol Piazza leased space to several new-to-market high-end brands such as Max Tan and Napapijri for their flagship stores. In contrast, several existing retailers such as Marks & Spencer and John Little, consolidated their businesses and focused only on the better performing stores.

HIGHER VACANCY DESPITE A NOTABLE SLOWDOWN IN SUPPLY

• Three refurbished projects were completed and opened in 1Q15, two in the suburbs and one in the Marina submarket - Capitol Piazza. Sun Plaza’s refurbishment added 14,864 sqm of retail space to the Suburban submarket and opened with about 70% occupancy. Also, 321 Clementi, anchored by WE Cinema, opened with 50% occupancy.

• Malls with clearly defined target markets tended to have higher occupancy than those that were targeted to the general public. For instance, JCube, targeting teenagers, young adults and also the general public, suffered from lower visitor traffic and occupancy than the more focused “family malls” Jem and Westgate in the same area.

CHALLENGING ENVIRONMENT PUTS DOWNSIDE PRESSURE ON RENTS

• Rents weakened in 1Q15, attributable to the protracted labour crunch and with the decline in both retail sales and visitor arrivals causing resistance to rental growth.

• Capital values in all market segments slipped as demand in the strata-titled market declined for the second consecutive quarter, partially due to the absence of new retail project launches and investors’ concern over the recent interest rate rise.

OUTLOOK: FURTHER DECLINE IN RENTAL AND CAPITAL VALUES EXPECTED

• Considering the tepid global economic outlook, tourist arrivals and retail sales are likely to decline further in the near term, alongside a persisting manpower shortage.

• A challenging business environment is anticipated, likely hindering growth in demand and occupancy. Rental and capital values may face further downside pressure as higher labour costs continue to put a damper on retailers’ confidence.

SGD 38 RENTS FALLING

STAGE IN CYCLESQ FT PER MONTH, GROSS EFFECTIVE ON NLA

RENTAL GROWTH Y-O-Y

Physical Indicators

Financial Indices


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x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

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85

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BANGKOK“Demand for prime grade space remains

strong with continuing interest from international retailers.”

Andrew Gulbrandson, Head of Research, Thailand

42 –

RET

AIL



Physical Indicators

Financial Indices

Note: Bangkok Retail refers to Bangkok’s Prime retail market.

FOREIGN BRANDS CONTINUE TO ENTER THE MARKET

• Prime grade retail space was still in demand in 1Q15 with positive net absorption driven by strong pre-commitments at the newly opened luxury centre, The EmQuartier. Pre-commitments in the new shopping centre were from both domestic and international brands, including new-to-market retailers, and expansion branches of existing brands.

• With the opening of The EmQuartier, international retailers continue to open new branches in Thailand. New-to-market tenants comprise nine new fashion brands and seven F&B outlets including some noteworthy brands such as Tiffany & Co., Banana Republic and Dior Homme.

LUXURY SHOPPING CENTRE EMQUARTIER COMPLETES, ADDING 100,000 SQM

• The EmQuartier was the only prime grade centre to open in 1Q15. This luxury regional shopping centre provided 100,000 sqm of leasable retail space to the market, bringing total prime grade stock to 2.74 million sqm as at end-of 1Q15.

• Although the pre-commitment rate in the recently opened centre was high, market-wide prime grade vacancy increased to 5.0% in 1Q15, due primarily to the poor performance of some malls in the Central Business Areas.

RENTS CONTINUE TO RISE, DRIVEN BY DEMAND FROM FOREIGN BRANDS

• As international retailers have continued to open new branches in Bangkok and domestic demand remains strong, average prime grade rents continued to rise in 1Q15. Average gross ground floor rents in 1Q15 were THB 2,376 per sqm per month, an increase 1.4% q-o-q.

• Capital values rose faster than rents at 2.2% q-o-q in 1Q15, resulting in slightly lower market yields compared to the previous quarter.

OUTLOOK: LARGE SUPPLY PIPELINE WITH PROMISING PRE-COMMITMENTS

• Three prime projects, Central Plaza Westgate, Central Festival East Ville and Zpell are expected to complete in 2015, adding another 225,000 sqm to stock. Vacancy rates are expected to rise only in the short term, but decline relatively quickly given the high level of pre-commitments at the upcoming projects.

• With strong leasing activity from recent projects and high pre-commitment rates in upcoming shopping centres, rents should continue to increase and drive capital values higher. Market yields should also increase slightly, given rental growth is expected to outpace the growth of capital values in the short term.

RENTS RISING

STAGE IN CYCLE

THB 2,376


9.2%

RENTAL GROWTH Y-O-Y

Rental Value Index

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x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1590

120

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JAKARTA“Prime shopping centre rents edge up amid a lack

of new supply and persisting retailer demand.”Vivin Harsanto, Head of Research, Indonesia

43 –

RET

AIL


Physical Indicators


Financial Indices

Note: Jakarta retail refers to Jakarta’s Overall Prime retail market.

DEMAND STRONGEST FROM F&B AND FASHION RETAILERS

• Negative net absorption was recorded in 1Q15 due to relocations, and several malls undergoing renovations and tenant repositioning. However, much of the newly vacant space is currently under fit out and is likely to be occupied in the coming quarters.

• Notable leases in 1Q15 included Cork and Screw restaurant (750 sqm) in Pacific Place, Singapore restaurant chain Itacho (350 sqm) in Grand Indonesia, and Japanese restaurant Kobe (300 sqm) at Pondok Indah Mall Street Gallery. Keds, an American shoe brand, re-entered Indonesia with a new store at Senayan City.

TENANTS EYE EXISTING MALLS FOR EXPANSION AMID LIMITED SUPPLY

• No new supply was added to the market during 1Q15 and total prime retail stock remained at 1.4 million sqm. A shopping mall moratorium on new developments remained in place and there is no indication that it will be lifted.

• The vacancy rate rose to 4.2% from 3.8% in 4Q14 due to relocations, renovations and tenant mix adjustments.

RENT GROWTH DRIVEN BY A SMALL GROUP OF PREMIUM MALLS

• Prime shopping centre rents increased slightly as landlords of select premium malls that had high occupancy and visitor traffic raised rents.

• There has been a scarcity of investment deals in the prime retail market in Jakarta over the past year due to limited availability of assets for sale. However, a number of project acquisitions recently took place in other retail segments (below prime grade) with some local investors acquiring existing malls to expand their portfolio and to obtain a stable income stream.

OUTLOOK: PERSISTING RETAILER DEMAND EXPECTED TO KEEP VACANCY LOW

• The moratorium on new CBD mall developments is expected to drive new shopping centre development to the Jakarta outskirts. Around 80,000 sqm of new supply is expected to enter the prime market in 2015.

• Rents and capital values are projected to increase slightly as landlords continue to focus on maintaining occupancy and adjusting tenant mixes to bring in well-known retailers.

GROWTH SLOWING

STAGE IN CYCLE

IDR 5,646,520

SQM PER ANNUM, NET EFFECTIVE ON NLA

6.5%

RENTAL GROWTH Y-O-Y

Rental Value Index

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x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1590

140

130

100

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110

Capital Value Index

10 11 12 13 14 15F0

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DELHI“Retailers continue to look to rationalise store

portfolios before opening new stores.”Ashutosh Limaye, Head of Research, India

44 –

RET

AIL

Physical Indicators


Financial Indices

Note: Delhi Retail refers to Delhi’s Overall Prime retail market.

RETAILER EXITS OVERSHADOW SLIGHT IMPROVEMENT IN LEASING ACTIVITY

• Completion delays and a lack of available space in existing quality malls limited transaction activity. Retailers continued to focus their strategies on premium malls.

• Retailers have been closing poorly performing stores on account of portfolio rationalisation strategies while management of some malls have been adjusting tenant mixes. As such, the only submarket to record positive net absorption was Prime Others. The Prime Others includes all areas in Delhi city outside of the Prime South submarket.

ONLY ONE SHOPPING CENTRE COMPLETES

• Worldmark 2 in Prime Others was the only new completion in the quarter. Some other projects experienced delays and missed completion deadlines as they struggled to achieve optimum occupancy levels or failed to receive occupation certificates.

• Vacancy increased marginally by 60 bps q-o-q to 24.0%, amid retailer exits and subdued leasing. Prime Others had the highest vacancy of all submarkets.

MUTED LEASING ACTIVITY KEEPS RENTS AND CAPITAL VALUES STABLE

• Landlords remained flexible on their rental stance as retailers resisted rent increments. Well-known brands enjoyed the upper hand in negotiations. As a result, rents were largely stable in most malls and range-bound in prime quality retail developments.

• The investment market remained quiet in 1Q15 as there continued to be a lack of quality, leased assets for sale. Investor activity in the retail sector is predominantly driven by small investors. Capital values remained stable across all submarkets.

OUTLOOK: SELECT UPCOMING SUPPLY LIKELY TO AID HIGHER ABSORPTION

• Consumer consumption is expected to rise amid an improving domestic economy and retailers are likely to try to tap into this potential demand. Stronger leasing activity in select existing malls and pre-commitments to upcoming quality projects are likely to support improved absorption.

• Growth in online retail is likely to be a factor in retailers’ store expansion plans. However, the availability of quality mall space will probably be a bigger factor in limiting absorption and leasing. Store size rationalisation and tenant repositioning by landlords may also keep absorption volumes low in the short term.

0.4% INR 247 GROWTH SLOWING


RENTAL GROWTH Y-O-Y

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for the Prime South.

Rental Value Index

Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1590

120

95

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Capital Value Index

10 11 12 14 15F0

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13

MUMBAI“Retailer sentiment improves, with a more diverse

category of retailers leasing space.”Ashutosh Limaye, Head of Research, India

45 –

RET

AIL


Physical Indicators

Financial Indices

Note: Mumbai Retail refers to Mumbai’s Overall Prime retail market.

DEMAND STRONGEST IN SUBURBAN LOCATIONS

• The Prime South remains the first choice for store locations for international brands as retailers focus on quality shopping centres. However, a lack of space in quality malls is pushing activity to high street locations.

• In 1Q15, strong pre-commitments continued to be recorded at under construction malls in suburban locations. Organised retail continued to expand in the Suburbs with many large domestic retailers opening stores in recently completed malls.

VACANCY DECLINES AMID HEALTHY LEASING ACTIVITY AND NO NEW SUPPLY

• In 1Q15, there was no new supply in the Mumbai retail market and total stock remained at 19.2 million sq ft.

• Healthy leasing activity in recently completed malls in Prime North pushed overall vacancy down by 60 bps q-o-q to 20.4%.

RENTS AND CAPITAL VALUES REMAIN STABLE

• Rents remained stable overall across all Mumbai submarkets during 1Q15, as most landlords were reluctant to raise rents in order to remain competitive. Retailers generally enjoyed the upper hand in negotiations.

• With the retail investment market in Delhi generally led by small investors, a lack of quality, leased strata-titled assets for sale resulted in quiet market conditions persisting. As such, capital values remained stable in the quarter.

OUTLOOK: 2015 IS LIKELY TO SEE THE COMPLETION OF HIGH QUALITY MALLS

• Organised retail is likely to further expand its reach into the Suburban precincts of Panvel, Kalyan, Nalasopara, and some other destinations that are largely underrepresented. Retailers facing stiff competition from foreign and large domestic retailers in the established markets are likely to find these new locations attractive.

• Re-orientation of tenant mixes along with the closure of underperforming malls is expected to persist.

RENTS STABLE

STAGE IN CYCLE

INR 250


0.8%

RENTAL GROWTH Y-O-Y

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for the Prime South.

Rental Value Index

Inde

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4Q10 4Q11 4Q12 4Q13 4Q14 4Q1590

120

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Capital Value Index

10 11 12 13 14 15F0

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SYDNEY“New South Wales continues to outperform the

other states and territories in terms of retail trade.”Dr David Rees, Head of Research, Australasia

46 –

RET

AIL


Physical Indicators

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for Regional centres.

Financial Indices

Note: Sydney Retail refers to Sydney’s Overall retail market.

LEASING MARKET GAINS TRACTION IN EARLY 2015

• International fast-fashion retailers, Uniqlo and Topshop Topman, have committed to additional stores at three major suburban shopping centres. Japanese retailer, Muji, is due to open its first Sydney store and third Australian store at CBD shopping centre, The Galeries, in May 2015.

• Leasing conditions are gradually improving for domestic retailers as a result of rising retail spending.

FOUR RETAIL DEVELOPMENT PROJECTS COMPLETE, ADDING 50,500 SQM

• Stage one of the AUD 222 million redevelopment and extension of Stockland Wetherill Park, in Sydney’s west, completed in the quarter. Approximately 98% of the 11,000-sqm extension area was pre-committed upon completion.

• Construction commenced on the AUD 110 million redevelopment of Westfield Chatswood (3,000 sqm) and the refurbishment of Glasshouse (5,000 sqm) on Pitt Street Mall. Topshop Topman has pre-committed to Westfield Chatswood; while Glasshouse is pre-committed by H&M and Zara Home.

RETAIL TRANSACTION VOLUMES REACH AUD 162.9 MILLION IN 1Q15

• The largest transaction recorded during the quarter was the sale of Auburn Central for AUD 68.0 million, reflecting an initial yield of 8.00%. Following a strong year for sub-regional transactions in 2014, during which AUD 740 million transacted in NSW, Auburn Central marked the first sub-regional transaction in the state in 2015.

• Evidence of a rental recovery has been observed in the neighbourhood and bulky goods sub-sectors over the past 12 months. Strong spending growth in food retailing and household goods has facilitated this recovery. Sub-regional and bulky goods yields recorded further compression in 1Q15, while yields remained steady across the other monitored sub-sectors.

OUTLOOK: RETAIL COMPLETIONS EXPECTED TO PEAK IN 2015

• The recent improvement in discretionary spending is expected to support a rental recovery across the regional and sub-regional sub-sectors in 2015.

• Further yield compression is likely across the regional, sub-regional and neighbourhood sub-sectors over the next 12 months.

–0.2% AUD 1,933 RENTS STABLE

STAGE IN CYCLESQM PER ANNUM, NET ON GLA

RENTAL GROWTH Y-O-Y

Rental Value Index

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MELBOURNE“Further yield compression evident across most

retail sub-sectors in Melbourne.”Dr David Rees, Head of Research, Australasia

47 –

RET

AIL


Physical Indicators

Financial Indices

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for Regional centres.

Note: Melbourne Retail refers to Melbourne’s Overall retail market.

LEASING CONDITIONS GRADUALLY IMPROVE WITH HIGHER ENQUIRY LEVELS

• Retail turnover growth in Victoria continued at a strong and steady pace in early 2015. Data from the Australian Bureau of Statistics showed retail turnover growth of 5.7% y-o-y in February 2015.

• As retail spending strengthens, leasing market conditions are also gradually improving for domestic retailers.

ONLY ONE RETAIL DEVELOPMENT PROJECT COMPLETES

• Construction of a new sub-regional centre, Summerhill Shopping Centre (16,500 sqm), in Melbourne’s northern suburbs, completed during the quarter.

• Around 420,400 sqm of retail projects are currently under construction or have planning approval, and are expected to complete over the next five years. Bulky goods (32%) account for the largest share of this development pipeline by area, followed by sub-regional (27%), regional (21%), neighbourhood (18%) and CBD (2%).

RETAIL TRANSACTIONS IN VICTORIA TOTAL AUD 98.4 MILLION

• Retail investment volumes in 1Q15 were below the same period last year (AUD 788.6 million); however, sales in 1Q14 were heavily boosted by a couple of large deals. Retail investment yields across all monitored sub-sectors, except CBD, recorded moderate yield compression during the quarter.

• Certain sub-sectors are entering into early stages of a rental recovery. Sub-regional, CBD and bulky goods retail rents increased over 1Q15.

OUTLOOK: MODEST RENTAL RECOVERY AS LEASING CONDITIONS IMPROVE

• Further yield compression is likely across the regional and sub-regional sub-sectors over the next 12 months.

• Major international retailers are expected to continue expanding their store networks in Melbourne, increasing their presence in both CBD locations and regional centres. More new-to-market retailers are expected.

RENTS STABLE

STAGE IN CYCLE

AUD 1,462

SQM PER ANNUM, NET ON GLA

–0.5%

RENTAL GROWTH Y-O-Y

Rental Value Index

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4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

120

90

110

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10 11 12 13 14 15F0

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Residential

49 –

RES

IDEN

TIAL

HONG KONG“The market continues to edge higher as several ultra-luxury properties fetch record high prices.”

Denis Ma, Head of Research, Hong Kong

50 –

RES

IDEN

TIAL

STAGE IN CYCLE



Physical Indicators

Financial Indices

RENTS RISING

Note: Hong Kong Residential refers to Hong Kong’s Overall Luxury residential market.

SALES MOMENTUM DRIVEN BY END-USERS

• Newly launched projects in 1Q15 drew strong interest from end-users, including Century Link (Phase 1) in Tung Chung and La Lumiere in Hunghom despite the HKMA’s mortgage tightening measures. Fewer new launches in the luxury market saw only 53 properties priced above HKD 50 million change hands in 1Q15, down 49.5% q-o-q.

• Growing demand in the city’s Grade A office market and improved hiring sentiment led to a pick-up in leasing activity. The lower-to-mid range of the luxury market continued to attract the most inquiries, largely owing to lower down payments involved.

GOVERNMENT RELEASES 2015/16 LAND SALE PROGRAMME

• A total of 29 residential sites (about 16,000 flats) were included in the government’s 2015/16 Land Sale Programme, although most of the supply should comprise mass residential units.

• Three luxury residential projects are expected to be issued with Occupation Permits in 1Q15, including 17 units from 55 Conduit Road, a luxury scheme jointly developed by New World Development and Chinese Estates.

PROPERTIES AT TOP-END OF MARKET FETCH RECORD HIGHS

• The sales market for properties priced above HKD 100 million saw volumes fall by 39.4% q-o-q. However, a few sizeable transactions were recorded on The Peak, including the sale of Ho Tung Gardens (HKD 5.10 billion) and three houses at Twelve Peaks (a combined HKD 1.39 billion), lending support to capital values to edge up by 0.8% q-o-q in 1Q15.

• Bolstered by a pick-up in leasing demand on Hong Kong Island, luxury rents grew by 1.4% q-o-q in 1Q15. Rents on The Peak climbed for the first time in 14 quarters, suggesting a bottoming out of the luxury rental market. The expected rise in interest rates had little effect on market yields, which remained at a historically low level of 1.6%.

OUTLOOK: OPTIMISTIC ON RENTS BUT LESS SO ON CAPITAL VALUES

• The HKMA’s latest mortgage lending measures primarily targeted at the mass market should reduce sales volumes in the secondary market but are unlikely to have an impact on prices over the short-term. Weak demand along with expectations of higher interest rates and an expanding supply pipeline should continue to weigh on prices in the luxury market.

• On the back of an improving economy, leasing activity should continue to gather momentum in 2015, providing support to rental growth. The focus though, should remain on properties in the mid-range of the market instead of on traditional top-notch options.

–0.3% HKD 44.0

SQ FT PER MONTH, NET ON SA

RENTAL GROWTH Y-O-Y


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q150

140

20

40

60

80

100

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10 11 12 13 14 15F0

450

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100

150

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BEIJING“Developers of high-end projects likely to face

fierce competition in 2015.”Steven McCord, Head of Research, North China

51 –

RES

IDEN

TIAL

STAGE IN CYCLE

Source: JLLFor 2010 to 2014, completions are year-end annual. For 2015, completions are as at 1Q15, while future supply is from 2Q15 to 4Q15.Financial Indicators are for the Overall Luxury market.

Physical Indicators

Financial Indices

RENTS STABLE

Note: Beijing Residential refers to Beijing’s Overall Luxury and High-end residential market.

THE HIGH-END SALES MARKET RECORDS WEAK SALES

• The sales volume rebounded in March, after the central bank further loosened the credit market. But with only one month of strong sales during the quarter, only a total of 386 high-end apartment units and 106 high-end villa units were sold, down 26.6% y-o-y and 51.6% y-o-y.

• Leasing demand in the high-end residential market was weak during the traditional low season that includes the Chinese New Year. Meanwhile, softer-than-usual demand in the office market also restrained leasing demand in some cases.

LIMITED NUMBER OF NEW UNITS LAUNCH ON THE MARKET

• Developers hesitated to release their projects as they waited for clear policy directives to come out of the parliamentary sessions. Subsequently, only one new project, Wanliu House in Haidian district, launched 292 luxury apartment units in 1Q15; the units were offered at RMB 145,000 per sqm. No new villa projects entered the market.

• No new serviced apartment projects entered the leasing market, and this trend is expected to continue to end-2015. One non-serviced luxury apartment project, Han Lin Ge, in the CBD, completed with 198 units.

CAPITAL VALUES DECLINE SLIGHTLY DUE TO LOW TRANSACTION VOLUMES

• Primary capital values for luxury apartments and high-end villas decreased 0.3% q-o-q and 3.9% q-o-q in 1Q15. The slower pace of sales prompted some developers to lure buyers with discounts.

• Overall serviced apartment rents were flat. Some projects reduced rents to maintain their occupancy rates, while a few properties raised rents to account for increasing operational costs. Rents for the luxury apartment and high-end villa markets were flat due to a lack of leasing activity amidst the Chinese New Year holiday.

OUTLOOK: SERIOUS COMPETITION SET TO WEIGH ON CAPITAL VALUES

• The loosening policy environment is expected to release some pent-up demand, but high prices are expected to restrain sales volumes. Additionally, many new projects are expected to enter the market in 2015. Therefore, capital values should still face headwinds in the coming months that are likely to suppress price increases.

• Demand in the leasing market is not expected to change much. New supply scheduled for end-2015 is projected to push up the overall vacancy rate. Rents are expected to see modest growth, but also more volatility as operators adjust their rents according to occupancy levels and market conditions.

0.4% RMB 126.4

SQM PER MONTH, GROSS ON GFA

RENTAL GROWTH Y-O-Y

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for the Overall Luxury market.


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4Q10 4Q11 4Q12 4Q13 4Q14 4Q1590

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10 11 12 13 14 15F0

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2,000

4,000

6,000

8,000

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12,000

14,000

SHANGHAI“Subdued sales volumes but a rebound likely to begin soon amid accommodative policy stance.”

Joe Zhou, Head of Research, East China

52 –

RES

IDEN

TIAL



Physical Indicators

GROWTH SLOWING

STAGE IN CYCLE

RMB 133.2

SQM PER MONTH, GROSS ON GFA

2.7%

RENTAL GROWTH Y-O-Y

Financial Indices

Note: Shanghai Residential refers to Shanghai’s High-end residential market.

SALES ACTIVITY SLOWS AS HOMEBUYERS SHIFT TO WAIT-AND-SEE ATTITUDE

• Despite a further interest rate cut in February, market sentiment weakened in 1Q15, largely due to seasonal effects related to the Chinese New Year holiday rather than a contraction in demand. Primary sales volumes in the mass market fell 43.6% q-o-q while the high-end segment recorded 319 units sold in 1Q15, down 43% q-o-q.

• In the serviced apartment market, leasing demand from expatriates remained weak as MNCs continued to localise new hiring instead of sending more expatriates to Shanghai, a result of China’s moderating growth and the weak economic outlook in their home markets. As such, serviced apartment vacancy increased by 1.7 percentage points to 16.2% in 1Q15.

THREE NEW SERVICED APARTMENT PROJECTS OPEN

• After a supply boom in 2014, developers mainly focused on clearing inventories. As such, only one project, Oriental Bay Phase II, launched 124 units in 1Q15.

• In the leasing market, three new serviced apartment projects - Aroma Garden Serviced Suites by Lanson Place, Ascott Heng Shan Shanghai and Stanford Residences Jing An - opened in 1Q15, adding a total of 282 units to the market. Meanwhile, softening demand led several serviced apartment projects to be converted to other uses.

PRIMARY PRICES FOR HIGH-END APARTMENTS REMAIN STABLE

• As sales activity remained low in 1Q15, most developers kept sales prices unchanged in the high-end segment.

• In the leasing market, most landlords kept rents flat given the weakness in demand for serviced apartments. In the investment market, Royal Pavilion - a serviced apartment project in Jing’an District - was sold to Shanghai Longlife Business Group for RMB 1.6 billion.

OUTLOOK: ACCOMODATIVE POLICY STANCE SHOULD AID A SALES RECOVERY

• On 30th March, the central government loosened mortgage policies for second homebuyers and eased taxation on home sales. As a result of supportive measures, we expect sales to recover in Shanghai in both the mass market and high-end segment. High-end prices are likely to rise in 2H15.

• In the leasing market, demand is unlikely to see a quick upturn as the economic outlook is still weak for China in 2015. As a result, rents are expected to continue to face downward pressure given the weakness in leasing demand.


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SINGAPORE“The residential market continues to be weighed

down by the effects of the cooling measures.”Dr Chua Yang Liang, Head of Research, Southeast Asia

53 –

RES

IDEN

TIAL



SGD 3.99–11.1%

RENTAL GROWTH Y-O-Y


Note: Singapore Residential refers to Singapore’s Overall Prime and Luxury residential markets.

NEW SALE AND RESALE TRANSACTIONS CONTINUE DOWNWARD TRENDS

• According to preliminary estimates based on Urban Redevelopment Authority data, resale activity remained slow, with total resale transactions in Prime districts 9, 10 and 11 falling 18% q-o-q to 165 units in 1Q15. This is 69% lower than the average quarterly resale volume in 2012, before the Total Debt Servicing Ratio (TDSR) was imposed.

• Similarly, new sale volumes remained weak, with only 46 new residential units sold in 1Q15, which is a 62% q-o-q drop from the 122 units in 4Q14 and an 83% fall from the average quarterly new sale volume of 271 units in 2012.

HIGH SUPPLY IN THE NEAR TERM IS EXPECTED TO CONTINUE

• Based on Building and Construction Authority data, 1,021 units obtained Temporary Occupation Permits (TOP) in January and February 2015, 53.1% lower than the 2,175 units completed in 4Q14. Quarterly completions in 2014 averaged 1,081 units, which reflects a rising trend compared to the quarterly average of 607 units in 2012 and 532 units in 2013.

• The largest project that obtained TOP in 1Q15 was Twin Peaks at Grange Road/Leonie Hill Road, with 462 units. This was followed by RV Residences at River Valley Road with 248 units. Two smaller projects - 1919 at Sophia Road and Hallmark Residences along Ewe Boon Road - were also completed during the quarter, with each contributing 75 units.

RENTAL AND CAPITAL VALUES CONTINUE TO FALL

• Gross rents in the Typical Prime market fell 2.5% q-o-q to SGD 3.58 per sq ft per month, while in the Luxury Prime segment, gross rents declined 3.4% q-o-q to SGD 3.99 per sq ft per month. Rental activity continued to soften with existing tenants negotiating for lower rents during renewals. Slower demand and increased supply has resulted in a tenants’ market.

• Capital values remained soft, with the Typical Prime segment falling 2.6% q-o-q to SGD 1,254 per sq ft and the Luxury Prime segment dropping 2.8% q-o-q to SGD 2,100 per sq ft. The market continued to be affected by the cooling measures, especially the TDSR.

OUTLOOK: MARKET CONDITIONS EXPECTED TO WEAKEN FURTHER IN 2015

• A large supply pipeline and tightened corporate housing budgets are likely to continue adversely affecting rents in Prime districts 9, 10 and 11.

• There is likely to be sustained weakness in capital values, as buying sentiment continues to be dampened by cooling measures while more developers are expected to offer discounts for new launches to improve sales.

DECLINE SLOWING

STAGE IN CYCLE

Physical Indicators

Financial Indices

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RV Index (Prime) RV Index (Luxury)CV Index (Prime) CV Index (Luxury)


10 11 12 14 15F0

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4,000

3,000

2,000

1,000

13

BANGKOK“High demand for new launches at the top-end

bodes well for the Central Business Areas market.”Andrew Gulbrandson, Head of Research, Thailand

54 –

RES

IDEN

TIAL



Physical Indicators

Financial Indices

Note: Bangkok Residential refers to Bangkok’s High-end and Luxury residential market in the city’s Central Business Areas (CBA).

STRONG DEMAND FOR ULTRA-LUXURY LAUNCHES

• Four new projects with a total of 975 units were launched in 1Q15, all priced at THB 250,000 per sqm or more. The Four Seasons Private Residences Bangkok, Q Sukhumvit, The Diplomat 39 and Nimit Langsuan achieved a combined pre-sales rate of 46% as at end-1Q15.

• The leasing market for luxury apartments remained active in 1Q15 compared to the previous quarter owing to a stable economic situation. The vacancy rate in the apartment market declined q-o-q to 6.3%.

NEAR-RECORD NUMBER OF NEW UNITS COMPLETE

• Eight new projects completed in 1Q15 with a total of 1,546 units, the largest number of new units completing since 4Q11. Four projects that were expected to complete in the quarter with a total of 431 units were delayed amidst a continuing labour shortage.

• No new luxury apartments were launched or completed in 1Q15, thus the total apartment stock remained at 4,307 units.

RENTAL GROWTH REMAINS STABLE AS DESIRABLE ALTERNATIVES INCREASE

• In 1Q15, condominium gross rents rose to THB 515 per sqm per month, an increase of 0.2% q-o-q, while luxury apartment rents rose by 0.6% q-o-q to THB 360 per sqm per month. Rental growth in both segments remained relatively subdued, as there is an increasingly wide range of condominium rental alternatives across the market as stock increases.

• Capital values edged upward by 0.2% q-o-q to THB 111,223 per sqm in 1Q15. The growth in rents slightly outpaced capital values, and market yields expanded marginally to 4.9%.

OUTLOOK: HIGH-END AND LUXURY MARKET CONDITIONS SHOULD BE STRONG

• Almost 4,700 new high-end condominium units from 21 projects in the Central Bangkok and the Central East submarkets are expected to complete by end-2015, the majority of which have strong pre-sales rates.

• Weak economic growth and rising household debt will likely start to impact sales at the lower-end of the market.

GROWTH SLOWING

STAGE IN CYCLE

THB 515


0.8%

RENTAL GROWTH Y-O-Y


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MANILA“Developers are pacing residential launches to ensure continued absorption of existing stock.”

Claro dG. Cordero, Jr., Head of Research, Philippines

55 –

RES

IDEN

TIAL

STAGE IN CYCLE


Physical Indicators


Financial Indices

RENTS RISING

Note: Manila Residential refers to the Makati CBD and Fringe residential condominium market.

HEALTHY DEMAND FROM EXPATRIATES SPURS GROWTH

• Leasing demand remained healthy for the luxury residential condominium market within Makati CBD and Bonifacio Global City (BGC) as demand from expatriate employees of the offshoring and outsourcing (O&O) sector, high-income individuals and households remained strong.

• The positive performance of the national economy along with the low interest rate environment continued to support investment demand. Net absorption in 1Q15 remained positive at 466 units, partly due to the sustained take-up of existing residential condominiums.

ONLY ONE PROJECT COMPLETES AS SEVERAL PROJECTS SUFFER DELAYS

• Only one new high-end residential development, namely Discovery Primea in Makati CBD, was completed in 1Q15, adding 90 units to the total existing stock. The average vacancy rate was recorded at 4.7%, down 103 bps q-o-q.

• There were no significant launches of high-end residential projects in 1Q15. Nonetheless, a record amount of new residential supply is slated to be completed in 2015, with five residential developments totalling around 3,000 units expected in 2Q15.

STRONG CAPITAL VALUE GROWTH PUSHES DOWN INVESTMENT YIELDS

• Rents rose 3.5% q-o-q to PHP 748 per sqm per month amid healthy demand. Similarly, capital values sustained their growth trend, rising 5.0% q-o-q (12.8% y-o-y) to PHP 143,917 per sqm, supported by healthy investment demand. As a result, investment yields exhibited further compression.

• The overnight borrowing and lending rates of the Central Bank of the Philippines were maintained at 4.0% and 6.0%, respectively, providing support for residential investment.

OUTLOOK: O&O SECTOR TO SUPPORT GROWTH OF THE RESIDENTIAL MARKET

• The continued growth of the O&O sector as well as the forecast for a strong economic performance of the country will support leasing and investment demand. Meanwhile, the large volume of incoming residential supply in 2015, estimated at 11,000 units, may put upward pressure on vacancy rates.

• It is worth noting that the planned establishment of the ASEAN Economic Community by end-2015 may significantly boost foreign investment in the country and likewise support the growth of the residential market.

6.9% PHP 748

SQM PER MONTH, NET EFFECTIVE ON NLA

RENTAL GROWTH Y-O-Y


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12,000

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8,000

10,000

Data, charting and instant access to all the leading market insights online

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Contact: Roddy Allan, [email protected]

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Industrial

57 –

INDU

STRI

AL

HONG KONG“Tight availability has rents continuing their climb

to new record highs.”Denis Ma, Head of Research, Hong Kong

58 –

INDU

STRI

AL


Physical Indicators


Financial Indices

Note: Hong Kong Industrial refers to Hong Kong’s Industrial Warehouse market.

RECORD HIGH RENTS CURB LEASING ACTIVITY

• Led by a pick-up in trade with the United States and Europe, the total value of exports and imports grew by 4.6% and 3.9% y-o-y through January–February while air-freight cargo grew by 10.4% y-o-y. Container throughput, however, continued to contract, retreating by 5.0% y-o-y.

• Leasing activity moderated in 1Q15 as rents reached record highs. The few new lettings recorded in the market were driven by relocation demand from 3PLs and expansion requirements from corporate end-users. For example, local retailer CEC expanded by 42,000 sq ft at Global Gateway in Tsuen Wan to support its diversifying business in the city.

VACANCY REMAINS TIGHT DESPITE HIGHER AVAILABILITY IN A FEW BUILDINGS

• Returning space—including 65,000 sq ft at Sun Hung Kai Logistics Centre in Shatin, originally intended for data centre use—contributed to the overall vacancy rate edging up to 4.3%. Nevertheless, availability in the rest of the market remained tight.

• No new supply was completed in 1Q15. Meanwhile, the government is likely to reduce the scale of the proposed logistics park in Siu Ho Wan, considering the potential impact of the required reclamation work.

CAPITAL VALUES RISE IN LINE WITH RENTS AMID QUIET INVESTMENT MARKET

• With vacancy remaining tight, rents continued to climb to new record highs, albeit at a milder growth rate than 4Q14. Growth was largely underpinned by rental increases in cargo lift access warehouses.

• Notwithstanding the fewer sales transactions recorded in 1Q15, capital values continued to grow in tandem with rents. However, investors generally remained cautious in chasing yields down further. Investment activity in the warehouse market was largely centred on strata-titled properties.

OUTLOOK: EXTERNAL TRADE TO SUPPORT WAREHOUSING DEMAND

• Demand for warehousing space is expected to remain intact over the near-term. Hong Kong’s visible trade is expected to maintain momentum over the next 12 months led by improvements in trade with the United States and Europe. Rental growth should be largely driven by the lower-end of the market as tenants increasingly look for cost effective space.

• A slightly more optimistic interest rate outlook should lend further support to the growth in capital values. However, with prices at historic highs, investors should shift their focus to emerging areas such Yuen Long and Shatin, where industrial properties carry slightly more attractive yields.

RENTS RISING

STAGE IN CYCLE

HKD 11.6

SQ FT PER MONTH, NET ON GFA

12.4%

RENTAL GROWTH Y-O-Y


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BEIJING“The tight logistics market is expected to support

modest rental growth ahead.”Steven McCord, Head of Research, North China

59 –

INDU

STRI

ALSource: JLLFor 2010 to 2014, completions are year-end annual. For 2015, completions are as at 1Q15, while future supply is from 2Q15 to 4Q15.

Physical Indicators

Financial Indices


Note: Beijing Industrial refers to Beijing’s Prime non-bonded logistics market.

LIMITED LEASABLE SPACE RESTRAINS LEASING TRANSACTION VOLUMES

• Third party logistics (3PL) companies were the most active in the leasing market; two 3PL companies committed to 20% of the space at GLP Park Pinggu Phase I in 1Q15, while a new e-vendor specialising in fresh foods also signed for space at the project. Meanwhile, the tight market constrained warehouse expansion plans for some bricks-and-mortar retailers.

• Demand from e-commerce companies was mixed - some continued to consolidate dispersed warehouse space at regional distribution centres in non-core or surrounding areas, such as Hebei and Tianjin. This left 5,000 sqm of space vacant in Daxing at end-1Q15. Others remained interested in leasing space closer to the centre of Beijing.

OVERALL VACANCY RISES TO 6.9% UPON COMPLETION OF NEW PROJECT

• GLP Pinggu Park Phase I was completed in 1Q15. Due to its distant location in Mafang Town, Pinggu district, some 50 kilometres from Beijing’s city centre, only about 30% of the space at the 73,000 sqm-project was committed.

• Bailiwei Phase III in Daxing, completed in 4Q14, did not make significant leasing progress in 1Q15. Consequently, high vacancy at this project and the new GLP Pinggu Park Phase I pushed up overall market vacancy by 2.6 percentage points q-o-q to reach 6.9%.

RENTS INCREASE AMID TIGHT MARKET CONDITIONS

• Several prime projects operated by reputable international operators seized opportunities to raise rents as tenants went ahead with consolidation. Following two straight quarters of stable rents, rents inched up 0.5% q-o-q.

• Investors were still interested in the logistics market due to its low cost and high yield, but the lack of tradeable properties resulted in no reported en bloc transactions, in line with the trend from previous quarters. Yields remained flat, while capital values grew at the same pace as rents.

OUTLOOK: UNDERSUPPLIED MARKET TO SEE MODEST RENTAL GROWTH

• Prologis DC 2 is the only project expected to enter the market by end-2015. Considering the warehouse’s winning location at Beijing Airport Logistics Park and the developer’s strong reputation, the 100,000 sqm-project should lease up rapidly but will cause a temporary spike in market vacancy.

• 3PL companies, bricks-and-mortar retailers, and manufacturing firms are projected to continue serving as the main demand drivers. Cost-sensitive tenants will pursue lower rentals in surrounding areas. Tenants with higher rental affordability will remain eager to lease space within the city, and this should support rental growth.

1.0% RMB 1.08 RENTS RISING

STAGE IN CYCLERENTAL GROWTH Y-O-Y



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SHANGHAI“Demand improves as 3PLs return to the market

to take advantage of tenant favourable terms.”Joe Zhou, Head of Research, East China

60 –

INDU

STRI

AL

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for the Non-bonded market.


Physical Indicators

GROWTH SLOWING

STAGE IN CYCLE

RMB 1.27


1.6%

RENTAL GROWTH Y-O-Y

Note: Shanghai Industrial refers to high-quality modern warehouses in Shanghai City.

NON-BONDED LEASING ACTIVITY HIGH AS DEMAND IMPROVES

• Net absorption reached 93,300 sqm in 1Q15, as tenants who were cautious in 2014 returned to the market to take attractive incentives. Over 70,000 sqm of net absorption was recorded in projects that completed in 2014, vindicating our view that they would lease out in time, though at a slower pace than in the peak years of 2010–2012.

• 3PLs contributed to a large share of demand, with strong leasing activity across the city. In addition, inquiries from retailers and manufacturers were stable, and companies like IKEA and Blueair took significant amounts of space in West Shanghai.

VACANCY FALLS AS ONE PROJECT COMPLETES WITH NO COMMITMENTS

• GLP finished the second phase of its Pudong Heqing project, adding 74,000 sqm of space to the Pudong submarket. It was the first high-quality warehouse completed outside of Pudong’s airport and seaport clusters since 2008. As at end-1Q15, there were no commitments.

• Non-bonded vacancy fell from 15.6% in 4Q14 to 14.8% in 1Q15 - a small decline in light of the quarter’s active leasing environment. A lack of leasing progress in the quarter’s newly completed project limited the decline in non-bonded vacant space.

RENTAL LEVELS STABLE WHILE INVESTOR INTEREST REMAINS UPBEAT

• Non-bonded net effective rents were flat on a like-for-like basis at RMB 1.28 per sqm per day. Landlords continued to offer incentives and refrained from raising rents as they sought to lease out vacant space that had built up over 2H14.

• Investor interest in the logistics sector remained strong in the quarter. One major international investor acquired a 70% stake in a development project in Jinshan for RMB 220 million from a local developer, Ambition Mind Holdings. This investor also plans to co-develop several projects in East China over the next two years.

OUTLOOK: MODEST RENT GROWTH AMID RISING DEMAND AND LESS SUPPLY

• Shanghai non-bonded demand is expected to be stronger in 2015 than last year, as tenants continue to take advantage of tenant-favourable terms. With no major new completions in the following two quarters, vacancy should fall before new supply reaches the market in 4Q15.

• Landlord sentiment is likely to improve due to stronger demand and an expected decline in vacancy. As a result, non-bonded rental growth is likely to pick up from its current levels, though total growth for 2015 is unlikely to exceed the rate observed in 2014.

Financial Indices


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TOKYO“Rents continue to rise in both Tokyo Bay and

Tokyo Inland as strong demand from 3PLs continues.”

Takeshi Akagi, Head of Research, Japan

61 –

INDU

STRI


Physical Indicators


Financial Indices

Note: Tokyo Logistics refers to Greater Tokyo’s Prime logistics market. Compiled in collaboration with Ichigo Real Estate Services Co., Ltd.

ROBUST NET ABSORPTION BY 3PLS IN BOTH TOKYO BAY AND TOKYO INLAND

• Net absorption in 1Q15 was mostly in line with the previous quarter, totalling 187,000 sqm. By submarket, Tokyo Bay was driven by Chiba Bay, while Tokyo Inland by Central Kanagawa, both of which saw a large-sized distribution centre enter the market in the quarter.

• Strong demand, in particular for new facilities, continued from third party logistics players (3PLs), manufacturers and retailers. Notably, 3PLs were active and at times absorbed entire multi-use facilities. An example was Fuji Logitech’s lease of Landport Atsugikaneda (GFA 39,000 sqm).

OVERALL VACANCY REMAINS LOW

• The vacancy rate was 3.9% in 1Q15, increasing 60 bps q-o-q (–20 bps y-o-y). By submarket, vacancy decreased in Tokyo Bay but increased in Inland Tokyo, largely the result of new supply.

• Market stock in 1Q15 increased 6.4% q-o-q. In Tokyo Bay, the Goodman Ichikawa (GFA 75,000 sqm) facility was completed with full occupancy, and in Tokyo Inland, Logiport Hashimoto (GFA 157,000 sqm) entered the market.

RENTS GROW IN BOTH TOKYO BAY AND TOKYO INLAND

• Capital values in 1Q15 increased 6.5% q-o-q and 17.5% y-o-y. The growth rate accelerated q-o-q, reflecting stronger rental growth and a further compression of cap rates. A sales transaction to note was Japan Daiwa House Reit’s portfolio deal for six properties located in Greater Tokyo for JPY 38.76 billion (cap rates ranged between 5.0-5.4%).

• Rents at end-1Q15 averaged JPY 4,133 per tsubo per month, increasing 3.5% q-o-q (5.0% y-o-y). Rental growth accelerated in both Tokyo Bay and Tokyo Inland, reflecting landlords’ confidence amid falling vacancy rates (at existing facilities), strong demand from occupiers, and increasing construction costs.

OUTLOOK: RENTAL INCREASES EXPECTED TO DRIVE CAPITAL VALUE GROWTH

• According to Oxford Economics, industrial production is expected to increase 1.0% y-o-y, while private consumption and exports should also rise.

• In this environment, the growth of capital values is likely to continue in 2015. This in part reflecting further cap rate compression due to lower debt costs, continued rental growth amid falling vacancy and sustained demand, and higher construction costs.



RENTAL GROWTH Y-O-Y


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

140

110

90

120

130

100


010 11 12 13 14

1,200

1,000

Thou

sand

sqm

15F

200

400

600

800

SINGAPORE“Diverging demand by backroom operations and R&D as Singapore undergoes business

restructuring.”Dr Chua Yang Liang, Head of Research, Southeast Asia

62 –

INDU

STRI

AL



Note: Singapore Industrial refers to Singapore’s island-wide Business Park market.

DEMAND FOR BUSINESS PARKS DRIVEN BY SCIENCE AND IT INDUSTRIES

• Anecdotal evidence suggested select companies in the IT industry were consolidating, with relocation demand channelled to business park space. This option offers cost savings while not compromising on accessibility, as many business parks are now within close proximity to MRT stations and expressways.

• Interest from science and IT related industries gained traction while occupancy by backroom operations of financial institutions was generally weaker, with limited expansion plans.

STABLE RENTS SUPPORTED BY EXPANSION OF SELECT INDUSTRIES

• Based on estimates by the Building and Construction Authority of Singapore, 46,000 sqm of business park space is expected to have completed in 1Q15, with Galaxis one of the few projects identified. This is a notable decline when compared with 158,000 sqm witnessed in 4Q14, which contributed to the 2014 full year business park supply of 247,000 sqm.

• With business park supply in 2014 double that witnessed in previous years, there may be upside pressure on vacancy especially from back room office spaces. However, vacancy for laboratory space remained low, supported by stronger interest from science and IT functions for some business park users.

REIT ACQUISITIONS LIMITED AMID CHANGES IN STAMP DUTY CONCESSIONS

• There was a notable absence of large private industrial transactions above SGD 100 million in 1Q15, with most sales small to medium in size. In terms of REIT acquisitions, only a few transactions were recorded in 1Q15.

• Soilbuild REIT purchased 72 Loyang Way through a sale and leaseback agreement for SGD 97 million, while Cambridge Industrial Trust made a similar purchase for a plot at Gul Circle for SGD 16.2 million. REIT acquisitions in the near term are likely to be limited by recent government announcements of stamp duty concessions ending at end-1Q15.

OUTLOOK: CONSOLIDATION ACTIVITY SHOULD SUPPORT DEMAND

• Despite the sector experiencing some headwinds due to large supply completions, relocation demand from companies opting to consolidate businesses should support demand. Downward pressure from financial institutions should persist amid limited plans on hiring.

• In Budget 2015, stamp duty concessions previously enjoyed by REITs for local property purchases were allowed to lapse after 31 March 2015, while income tax concessions were extended for acquisition of overseas properties. As such, the investment appetite of REITs in the mid-term is likely to be restrained.

1.6% SGD 3.90 GROWTH SLOWING

STAGE IN CYCLESQ FT PER MONTH, GROSS EFFECTIVE ON NLA

RENTAL GROWTH Y-O-Y

Physical Indicators

Financial Indices

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15Rental Value Index Capital Value Index

Inde

x

80

140

90

130

120

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100



0

100

10 11 12 13 140

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15F

SYDNEY“Investor interest in 2015 will remain high, with

quality logistics assets in strong demand.”Dr David Rees, Head of Research, Australasia

63 –

INDU

STRI


Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for Outer Central West.

Physical Indicators

Financial Indices

Note: Sydney Industrial refers to Sydney’s industrial market (all grades).

SLOWDOWN IN LEASING ACTIVITY IN 1Q15

• Gross take-up totalled 39,000 sqm in 1Q15. This is markedly down in comparison to 1Q14 (135,100 sqm). The vast majority of take-up (70%) was from the Outer Central West precinct. This significant decline in leasing activity is due to a lack of demand for existing stock.

• In all, there were six tenant moves in 1Q15, all of which were below 10,000 sqm. Leasing activity is expected to pick up over 2015 as a large amount of new warehousing/logistics assets are due for completion, 90,000 sqm of which was unleased as at end-1Q15.

MOST SUPPLY BEING BUILT IN SYDNEY’S OUTER INDUSTRIAL REGIONS

• Three projects were completed in 1Q15 totalling 39,900 sqm. Each project had a major pre-commitment - Rand Transport, Quantium Solutions and Shimano Australia. The largest project was completed in Erskine Park in the Outer Central West for Rand Transport totalling 23,940 sqm.

• As at end-1Q15, a total of 309,200 sqm of industrial space was under construction across Sydney. The majority of this is centred in the Outer Central West and Outer North West precincts (129,100 sqm and 104,000 sqm respectively).

STRONG INVESTOR DEMAND FOR INDUSTRIAL ASSETS

• All six industrial precincts had subdued prime rental growth, with the Outer South West recording the largest growth of 1.4% q-o-q, which was driven by increased tenant interest in the outer regions of Sydney’s industrial market.

• A total of 14 sales transactions were recorded in 1Q15 totalling AUD 295.0 million. Investor interest is strong for Sydney industrial assets with a large increase in transactions resulting in significant yield compression across most precincts, as investors seek high quality logistics assets.

OUTLOOK: SUPPLY CYCLE IS DUE TO HIT A LOW POINT IN 2015

• The Sydney supply cycle is due to hit a low point in 2015. There is currently 280,400 sqm of industrial stock under construction which is due to complete in 2015. This figure is well below the 10-year average of 563,000 sqm per annum. However, new development land entering the market in 2016 may result in more development activity and competition.

• Yields are expected to tighten further as a result of strong investment demand for prime, secondary and high tech industrial assets in 2015. Furthermore, a two-tier market may form, as offshore investors seek to acquire core logistics assets.

AUD 113 RENTS STABLE

STAGE IN CYCLESQM PER ANNUM, NET ON GFA

0%

RENTAL GROWTH Y-O-Y


Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

140

110

90

120

130

100

Take-Up (gross) Completions

Future Supply

0

200

10 11 12 13 14

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Thou

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15F

MELBOURNE“Strong investor interest will continue with core

distribution assets set to trade in coming months.”Dr David Rees, Head of Research, Australasia

64 –

INDU

STRI

AL


Physical Indicators

Arrows indicate 12-month outlookIndex base: 4Q10 =100Source: JLLFinancial Indicators are for West Prime.

Financial Indices

Note: Melbourne Industrial refers Melbourne’s Industrial market (all grades).

IMPROVING OCCUPIER DEMAND

• Industrial occupier activity picked up in 1Q15, with 75,100 sqm of gross take-up recorded over the quarter, which was up on the 68,400 sqm recorded in 4Q14. Of the activity recorded in the quarter, the West precinct accounted for approximately period after 81%. Nonetheless, activity remained subdued by historical standards.

• Activity was largely concentrated in the new build market, with 56% of total take-up either pre-lease or design and construct deals.

CONSTRUCTION ACTIVITY REMAINS STRONG

• Development activity is strong with nine projects delivered to the market in 1Q15. The projects delivered 116,100 sqm to the market, with approximately 70% pre-committed upon completion. The largest project to complete in 1Q15 was Warehouse A+B in Australand’s West Park Industrial Estate.

• The proportion of speculative development is declining across the market. There is currently only 59,300 sqm of space under construction yet to secure a pre lease. This equates to an absorption rate of around 80%.

SALES VOLUMES TOTAL AUD 135.1 MILLION ACROSS SEVEN TRANSACTIONS

• The largest single transaction was Stockland’s off market acquisition of 72 76 Cherry Lane, Laverton North. Stockland acquired the asset from Toll Group for AUD 29.0 million on an initial yield of 7.80%. Prime grade yields compressed in the South East Precinct, while all monitored other precincts remained steady. The prime yield range in the South East now ranges between 6.75% and 7.75%.

• Average net rents were broadly stable across all precincts and grades in Melbourne as a result of relativtely subdued leasing conditions.

OUTLOOK: YIELD COMPRESSION IS EXPECTED OVER THE NEXT 12 MONTHS

• Currently 248,100 sqm of new supply is under construction and scheduled to complete in 2015. Coupled with projects in the planning stages that could finish in 2015, supply is expected to remain above the recent trend.

• Prime net face rents are expected to grow below the rate of inflation in the near-term. Further yield compression is expected, with more core distribution assets set to trade in coming months.

–0.3% AUD 82 RENTS STABLE

STAGE IN CYCLESQM PER ANNUM, NET ON GFA

RENTAL GROWTH Y-O-Y

Rental Value Index

Inde

x

4Q10 4Q11 4Q12 4Q13 4Q14 4Q1580

110

95

85

100

105

90

Take-Up (gross) Completions

Future Supply

0

200

10 11 12 13 14

400

100

300

700

500

600

Thou

sand

sqm

15F

65 –

HOT

ELS

Hotels

HONG KONG“Hotel trading performance under pressure as

tourists drawn to other destinations with weaker currencies.”

Frank Sorgiovanni, Head of Research - Hotels & Hospitality Group, Asia Pacific

66 –

HOT

ELS

Source: Industry sources, JLL

Source: STR Global , JLLNote: MAA - Moving Annual Average

Major Additions to Hotel Supply

Luxury Hotel Trading Performance

–7.7% HKD 2,603 REVPAR FALLING

STAGE IN REVPAR CYCLEYTD FEBRUARY 2015REVPAR GROWTH Y-O-Y

Note: Hong Kong Hotels refers to Hong Kong’s Luxury hotel market.

VISITOR ARRIVALS REACH RECORD HIGH OF 60.8 MILLION (+12% Y-O-Y) IN 2014

• In 2014, Mainland China continued to be the largest source market (78% of total visitor arrivals), growing 16.0% y-o-y. As at YTD February 2015, total visitor arrivals registered growth of 11.6% y-o-y to 11 million. Arrivals from short haul (excluding China) and long haul markets fell by 6.0% and 1.5% y-o-y respectively, while Mainland China increased by 15.8% y-o-y.

• Total same-day visitor arrivals grew by 19.8% y-o-y while total overnight visitor arrivals grew marginally by 1.9%, mainly due to declines in short haul markets - in particular Singapore and Japan. Same-day visitor arrivals from Mainland China have grown more rapidly than overnight arrivals as improving infrastructure facilitates more day trips.

LIMITED NEW OPENINGS AND MAINLY IN KOWLOON AND OUTLYING AREAS

• As at end-2014, Hong Kong had 230 hotels comprising 71,767 rooms. 1,780 new hotel rooms opened throughout the year and consisted of a mix of international and independent operators. Notable new hotels included the internationally branded 547-room Dorsett Regency in Kwai Chung and the 248-room iClub Sheung Wan Hotel.

• As at YTD February 2015, Hotel sáv Hung Hom was the only new opening and added 388 rooms to the market. The hotel supply pipeline is mainly concentrated in Kowloon and outer areas of the city.

HONG KONG HOTEL PERFORMANCE DECLINES ACROSS ALL SEGMENTS

• As at YTD February 2015, occupancy for luxury hotels declined 3 percentage points y-o-y to 74.3% while Average Daily Rate (ADR) decreased 3.5% to HKD 3,502. As a result, Revenue per Available Room (RevPAR) registered a 7.7% y-o-y fall to HKD 2,603.

• On a moving annual average basis, RevPAR continued to decline, reaching HKD 2,850 in February 2015, as a result of declining occupancy to 77.9%.

OUTLOOK: GENERALLY STABLE OUTLOOK ALTHOUGH DOWNSIDE RISKS EVIDENT

• In 2015, steady support is expected to come from leisure, corporate and MICE demand as well as an expected rise in the number of tour groups from Mainland China. However, socio-political tension may put a damper on the outlook for the Mainland Chinese market.

• New restrictions on multiple-entry visa permits for Shenzhen residents is expected to affect Mainland China visitor arrivals in the medium term, once existing multi-entry visas expire. Currency depreciation of other major tourist markets as well as the opening of more direct flights from Mainland China to various markets previously unavailable may undermine demand to Hong Kong.

Occupancy (%)

RevPARADR

ADR

/ Rev

PAR

(HKD

)

Occupancy (%)

0

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30

40

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0

4,000

Aug

09Fe

b 10

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b 14

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b 15

500

1,000

1,500

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Additions to Supply Future Supply

10 11 12 13 14 15F0

7,000

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of r

oom

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5,000

4,000

3,000

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1,000

BEIJING“Large new supply expected, offset by growing

demand as Beijing to host major events.”Frank Sorgiovanni, Head of Research - Hotels & Hospitality Group,

Asia Pacific

67 –

HOT

ELS




Upscale Hotel Trading Performance

REVPAR RISING

STAGE IN REVPAR CYCLE

RMB 496

YTD FEBRUARY 2015

3.3%

REVPAR GROWTH Y-O-Y

Note: Beijing Hotels refers to Beijing’s Upscale hotel market.

LEISURE DEMAND THE MAIN DRIVER OF THE HOTEL MARKET

• According to the latest data from the Beijing Statistics Bureau, as at YTD February 2015, international visitor arrivals to Beijing declined by 7.7% y-o-y to 0.42 million. Korea is the only major source market to show an increase with a 19.1% y-o-y growth, reaching 56,409 arrivals. Visitors from Russia and Vietnam saw the highest declines at 37.6% and 43.6% y-o-y, respectively.

• The first quarter is usually a low season for Beijing tourism due to a lack of MICE activity. However, domestic tourism remains strong with domestic visitors to Beijing during the Spring Festival holiday reaching around 1.4 million, increasing 7.1% over last year.

SUPPLY PEAK EXPECTED WITH SEVERAL HOTELS ENTERING THE MARKET

• The 306-room Sunrise Kempinski Hotel opened in February. So far, two hotels of the Sunrise Kempinski Hotel Complex have entered the market. The other hotel is the Yanqi Hotel which opened during the APEC meetings last year.

• In 2015, there is expected to be another supply peak in Beijing with several hotels to enter the market. Some of the key hotels opening include the 241-room Mandarin Oriental, Sheraton Beijing West Mountain Resort with 381 rooms and CTS tower Metropark with 460 rooms. Hotel Nuo will be opening its first hotel in the market with a 439-room property.

REVPAR REGISTERS A SLIGHT INCREASE DRIVEN BY OCCUPANCY RISE

• A continued increase in occupancy indicates a market recovery. As at YTD February 2015, occupancy increased y-o-y by 6.0 percentage points to 58.6%. As at YTD February 2015, Average Daily Rate (ADR) declined by 7.3% y-o-y to RMB 845 and Revenue per Available Room (RevPAR) gained 3.3% to RMB 496.

• On a moving annual average basis, occupancy reached 70.1% in February 2015, with an increase of 6.7% compared to the same period in 2014. ADR levels declined by 6.2% y-o-y, reaching RMB 946 in February 2015.

OUTLOOK: NEW DEMAND IS EXPECTED TO IMPROVE HOTEL PERFORMANCE

• As economic reform intensifies and the economic structure evolves, hotel demand from the service and information technology industries is expected to grow. 2015 will also see major development in the Tongzhou District and construction of the second airport in the south, which should boost demand.

• The ADR level is expected to compress in the short to medium term due to the addition of new hotel rooms. However, the second half of 2015 should see significant hotel demand as Beijing will host the 2015 Athletics World Championships in August, the first major sports event since the 2008 Olympics.

Occupancy (%)

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ADR/

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MB) Occupancy (%

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10 11 12 13 14 15F0

2,500

No.

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2,000

1,500

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SHANGHAI“International visitor arrivals continue to rise,

supporting RevPAR growth through higher ADR and occupancy.”


68 –

HOT

ELS



Note: Shanghai Hotels refer to Shanghai’s Upscale hotel market.

VISITOR ARRIVALS CONTINUE TO RISE, ESPECIALLY FROM ASIAN MARKETS

• Shanghai received more than 3.8 million tourists during the 2015 Chinese New Year holiday, an increase of 4.8% from the previous year, driven by a strong domestic tourism trend. Statistics from the Shanghai Statistics Bureau showed a growth of 2.2% y-o-y in international visitor arrivals, reaching 1.1 million as at YTD February 2015.

• Asian visitor arrivals have shown strong growth with Korea, Thailand and Malaysia the top three growing markets, increasing by 37.4%, 34.5%, and 16.9%, respectively. Visitors from Macau and Hong Kong decreased while Taiwan continued to grow. Sightseeing and leisure demand are the main reason for international arrivals to Mainland China.

NEW ROOM ADDITIONS LIMITED BUT MORE SUPPLY EXPECTED THIS YEAR

• Nanxiang Holiday Inn opened in February, adding 316 rooms to the market. With some projects postponed from 2014 and new projects planned to open in 2015, this year is expected to be a peak in terms of supply. Notable planned projects include the HUALUXE Shanghai, Marriott Shanghai Minhang, W Shanghai and Sheraton Shanghai Jiading Hotel.

• New supply is estimated to add at least 4,000 rooms to the upscale market. However, since many projects have been delayed due to the slowdown of the real estate market and slow construction, it is difficult to estimate hotel opening dates.

BOTH ADR AND OCCUPANCY SHOW GROWTH

• As at YTD February 2015, Revenue per Available Room (RevPAR) increased by 9.8% y-o-y to RMB 551, driven by both occupancy and Average Daily Rate (ADR) improvements. ADR increased by 0.2% to RMB 992 compared to the same period last year. Occupancy continued on an upward trend, increasing by 4.9 percentage points y-o-y to 55.6%.

• On a moving annual average basis, ADR remained relatively stable, reaching RMB 1,045. Occupancy continued to rise, reaching 66.8% in February 2015.

OUTLOOK: DELAYS EXPECTED IN UPCOMING HOTEL SUPPLY

• The MICE market is likely to expand as the National Exhibition and Convention Centre (Shanghai) fully opens in 2015. The 2015 Shanghai International Auto Show in April is also expected to boost the hotel market.

• Disneyland Shanghai has postponed its opening to Spring 2016, in line with leisure demand during Chinese New Year. Consequently, some of the new hotels are expected to push back their opening dates accordingly.

9.8% RMB 551 REVPAR RISING


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)

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Feb

15

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12

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13

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13

Feb

14

Aug

14


10 11 12 13 14 15F0

10,000

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of r

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9,000

6,000

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1,000



TOKYO“Tokyo Hotels record strong performance due to

weakening yen and growing inbound tourism from China.”


69 –

HOT

ELS



Note: Tokyo Hotels refers to Tokyo’s Luxury hotel market.

ROBUST INCREASE OF INBOUND VISITORS BUILDS STRONG BASE FOR DEMAND

• Inbound visitation to Japan recorded an increase of 42.8% y-o-y to 2.6 million as at YTD February 2015. This is attributed to a significant growth in visitors from Mainland China, which registered an increase of 99.2% y-o-y. Visitors from Indonesia, the Philippines and Vietnam also increased due to the relaxation of multiple-entry visas since September 2014.

• Domestic accommodation demand has continued to grow in both the corporate and leisure segment since Abenomics started in 2013. A weakening Japanese Yen and the increase in low cost carrier flights have also boosted domestic travel demand.

NO MAJOR FOUR OR FIVE-STAR HOTEL OPENINGS

• There are no luxury hotel openings expected in 2015. In 2016, two new luxury hotels are in the pipeline. The 84-room Hoshinoya Tokyo is scheduled to open as a ryokan style lodging facility in the Marunouchi area. The 250-room Prince Gallery Tokyo Kioicho, the former Grand Prince Hotel Akasaka, is scheduled to open as part of a redevelopment project.

• The 109-room Futako-Tamagawa Excel Hotel Tokyu, set to be a small-sized upscale hotel in Tokyo, is scheduled to open in the summer of 2015. There are no other major upscale hotel openings scheduled during 2015.

HOTELS CONTINUE TO SHOW STRONG PERFORMANCE

• Hotel trading performance in Tokyo continued to show improvement as reflected by a Revenue per Available Room (RevPAR) increase of 11.9% y-o-y as at YTD February 2015. This can be attributed to the growth in both occupancy and Average Daily Rate (ADR). On a moving annual average basis, RevPAR has been on a growth trajectory since 2Q12.

• While there were no hotel sales transactions in the luxury hotel sector in Tokyo during 1Q15, Japan Hotel REIT Investment Corporation purchased the b hotel portfolio which comprised five properties for JPY 20 billion - 122-room b Akasaka-Mitsuke, 175-room b Ikebukuro, 72-room b Ochanomizu, 196-room b Hachioji and 175-room b Hakata.

OUTLOOK: ADR GROWTH IS LIKELY TO DRIVE REVPAR IN THE SHORT TERM

• Domestic and international demand is expected to maintain upward momentum. This upward trend can be attributed to the recent economic improvements in Japan and increased international arrivals to the highest levels in history. RevPAR growth in the short term is likely to be driven by ADR growth as occupancy has already recovered to a high level.

• With regard to the hotel investment market, the trend of cap rate compression against the background of an anticipated RevPAR growth in Tokyo is expected to remain.

11.9% JPY 37,544 REVPAR RISING


Occupancy (%)

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ADR/

RevP

AR (J

PY) Occupancy (%

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Aug

11Fe

b 12

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12Fe

b 13

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Aug

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b 15


10 11 12 13 14 15F0

500

No.

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400

300

200

100



SINGAPORE“The decline in Mainland Chinese tourists impacts visitor arrivals, ADR growth to remain moderate

in short term.”Frank Sorgiovanni, Head of Research – Hotels & Hospitality Group,

Asia Pacific

70 –

HOT

ELS



Note: Singapore Hotels refers to Singapore’s Luxury hotel market.

INTERNATIONAL VISITOR ARRIVALS DECLINE IN 2014 TO 15.1 MILLION (–3.1%)

• Visitor arrivals from the top three geographical source markets declined in 2014, most notably from Mainland China which saw a 24.2% y-o-y drop in the aftermath of the Malaysia Airlines incidents. Visitors from Indonesia, Singapore’s top source market, recorded a decline of 2.1% y-o-y.

• Visitor arrivals from Hong Kong and South Korea continued to grow, boosted by an additional travel option by Scoot between Seoul and Singapore and the appreciation of the Korean Won, enjoying y-o-y growth of 16.8% and 13.7%, respectively. The introduction of more targeted marketing campaigns by the Singapore Tourism Board should help to boost tourism from key markets.

NO NEW OPENINGS BUT LARGE PIPELINE OF NEW ROOMS EXPECTED THIS YEAR

• There were no major hotel openings in 1Q15. New entrants to the market planned for 2015 include The Patina, Capitol Singapore - the flagship 157-room hotel for the Patina brand - and the 654-room South Beach Hotel by City Developments Limited, part of the larger South Beach redevelopment comprising offices, retail and residential towers.

• Other notable openings planned for this year include the 500-room Jurong Lake Hotel, 488-room Hotel Grand Chancellor Orchard and the 442-room Park Hotel Alexandra. The 243-room extension to the Crowne Plaza Changi Airport is also scheduled to open towards end-2015.

OCCUPANCY REMAINS STABLE, BUT ADR AND REVPAR DECLINE

• As at YTD February 2015, occupancy remained stable at 80.3% when compared to the same period in 2014.

• Average Daily Rate (ADR) fell by 4.8% y-o-y to SGD 412 as corporate spending remains cautious, putting downward pressure on growth rates for hotels. As a result, Revenue per Available Room (RevPAR) fell by 4.9% y-o-y to SGD 331. In terms of moving annual average, RevPAR levels have remained relatively stable and consistently above SGD 325 over the 12 months ending February.

OUTLOOK: GROWING ECONOMY TO HELP CITY REMAIN KEY COMMERCIAL HUB

• Singapore’s GDP growth was recorded at 2.9% y-o-y in 2014 and the Ministry of Trade and Industry expects continued growth of between 2.0% and 4.0% in 2015. Singapore remains a key commercial hub with the presence of many multinational corporations and an attractive leisure destination as it continues to improve on its tourism offerings.

• Cautious spending by corporates should put downward pressure on rate growth for hotels, and ADR growth is likely to remain moderate in the short term. Visitor numbers from Mainland China are expected to improve in 2015, which should provide a boost to the tourism industry and hotels focused on the leisure market.

–4.9% SGD 331 REVPAR FALLING


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BANGKOK“RevPAR growth supported by significant growth in occupancy as visitor arrivals start to pick up.”


71 –

HOT

ELS



Note: Bangkok Hotels refer to Bangkok’s Luxury hotel market.

VISITOR ARRIVALS TO BANGKOK SHOWING SIGNS OF RECOVERY

• According to the Tourism Authority of Thailand (TAT), international visitors to Bangkok in 2014 showed a y-o-y decline of 11.3% to 15.5 million. However, visitor arrivals during the four months from October 2014 through January 2015 showed growth over the same period in the previous year, indicating a possible rebound during 2015.

• Main source markets to Bangkok are the regional markets, with Mainland China continuing to emerge as the largest source market during 2014, followed by Japan, Russia and India. Arrivals from Malaysia witnessed the highest growth of 7.9% during 2014 compared to the previous year, while arrivals from all major feeder markets declined during the same period.

NEW SUPPLY IS CONCENTRATED IN THE MIDSCALE SEGMENT

• As at YTD February 2015, 132 new rooms have opened, adding to the 2,217 rooms that opened in 2014. Recently opened hotels include the 161-room Holiday Inn Express Sukhumvit Soi 11 and the 136-room Citrus Sukhumvit 11, both in the midscale segment.

• The upcoming supply pipeline comprises 3,935 rooms expected to be operational by end-2015, with 56.9% of the new supply concentrated in the midscale segment. The majority of upcoming supply is planned in the Sukhumvit area, accounting for 33.4% of total supply. New brands entering the market in 2015 include Premier Inn, Avani and Park Hyatt.

HOTEL TRADING PERFORMANCE WITNESSES STRONG REVPAR GROWTH

• As at YTD February 2015, trading performance of the Bangkok market indicates strong Revenue per Available Room (RevPAR) growth with a 67.3% y-o-y increase to THB 5,004. Average Daily Rate (ADR) decreased by 2.9% y-o-y to THB 6,370 in the same period. The increase in RevPAR was driven by a significant growth in occupancy to 78.6% from 45.6% during the same period last year.

• On a moving annual average basis, RevPAR continued to grow, reaching THB 3,505 in February 2015, largely supported by growth in occupancy levels.

OUTLOOK: POSITIVE OUTLOOK WITH TOURISM NUMBERS EXPECTED TO GROW

• The TAT has announced its “2015 Discover Thainess” campaign in order to promote Thailand’s natural and cultural assets to international visitors. The TAT is planning for campaigns targeting high-end and high-spending tourists, specifically from European and Latin American markets.

• We expect hotel trading performance to rebound during 2015 with a strong recovery in tourist arrivals led by key source markets.

67.3% THB 5,004 REVPAR RISING


Occupancy (%)

RevPARADR

ADR/

RevP

AR (T

HB) Occupancy (%

)

0

10

20

30

40

50

60

70

100

90

80

0

3,000

2,000

1,000

4,000

5,000

6,000

7,000

Aug

09Fe

b 10

Aug

10Fe

b 11

Aug

11Fe

b 12

Aug

12Fe

b 13

Aug

13Fe

b 14

Aug

14Fe

b 15


10 11 12 13 14 15F0

6,000

No.

of r

oom

s

5,000

4,000

3,000

2,000

1,000



JAKARTA“The introduction of a new visa-free travel policy

is certain to boost inbound tourism into Indonesia.”


72 –

HOT

ELS



Note: Jakarta Hotels refers to Jakarta’s Upscale hotel market.

INTERNATIONAL VISITOR ARRIVALS RISE TO 2.3 MILLION IN 2014

• In 2014, international visitor arrivals to Jakarta via the Soekarno-Hatta International Airport (SHIA) were recorded at 2.3 million, a marginal 0.3% increase from the previous year, due in part to the presidential elections which took place in early 2H14.

• The top five source markets to Jakarta registered minor increases in visitor arrivals apart from Mainland China which declined by 2.2% y-o-y. The decrease in Mainland Chinese arrivals is a similar trend seen across several Southeast Asian cities.

FAIRMONT AND RAFFLES JAKARTA OPEN

• We estimate that 2,454 rooms opened in Jakarta in 2014, most of which are in the economy and midscale sectors. Hotel openings comprised domestic brands such as Swiss-Belinn as well as international brands including Holiday Inn Express, ibis, Mercure, Best Western and Doubletree by Hilton.

• In 1Q15, major hotel openings included the 211-room Hotel ibis Styles Jakarta Mangga Dua Square, the 173-room Raffles Jakarta and the 380-room Fairmont Jakarta. The opening of the Raffles Jakarta and Fairmont Jakarta are additions to the luxury market that had not witnessed any new supply for five years.

TRADING PERFORMANCE SHOWS DECLINE

• As at YTD February 2015, occupancy declined by 3.9 percentage points to 59.1% while Average Daily Rate (ADR) fell 1.7% y-o-y to USD 174. On a moving annual average basis, Revenue per Available Room continued to show a decline, reaching USD 103 in February 2015.

• In late 2014, the government enforced a restriction on MICE and business travel for government officials which has impacted the trading performance of hotels, particularly those dependent on MICE and classified as luxury or upscale where the policy is focused.

OUTLOOK: RELAXATION OF VISA POLICY LIKELY TO BENEFIT THE CAPITAL CITY

• With the elections over and the economic situation stabilising, investors are paying closer attention to Southeast Asia’s largest economy.

• The government has introduced a visa exemption policy for 30 markets to Indonesia, although Australia was recently omitted. New international luxury hotels will provide greater choice for corporate travellers but trading fundamentals are likely to be impacted by new austerity measures on government spending.

–7.8% USD 103 REVPAR FALLING


Occupancy (%)

RevPARADR

ADR

/ Rev

PAR

(USD

)

Occupancy (%)

0

10

20

30

40

50

60

70

100

90

80

0

200

20

40

60

80

100

120

140

160

180

Aug

09Fe

b 10

Aug

10Fe

b 11

Aug

11Fe

b 12

Aug

12Fe

b 13

Aug

13Fe

b 14

Aug

14Fe

b 15


10 11 12 13 14 15F0

5,000

No.

of r

oom

s

4,000

3,000

2,000

1,000

500

4,500

3,500

2,500

1,500



SYDNEY“Sydney’s hotel market continues to outperform

the broader Australian market.”Frank Sorgiovanni, Head of Research – Hotels & Hospitality Group,

Asia Pacific

73 –

HOT

ELS


Source: Australian Bureau of Statistics, JLL

Note: Sydney Hotels refers to all grades of accommodation and includes both hotels and serviced apartments.

DEMAND RECEIVES BOOST AS SYDNEY HOSTS SEVERAL MAJOR EVENTS

• Sydney played a major part in hosting both the ICC Cricket World Cup and Asian Football Cup, which resulted in stable occupancy of 88% as at YTD February 2015.

• Despite the closure of the Sydney Convention and Exhibition Centre, demand is expected to remain strong as occupancy remains at peak levels.

SUPPLY ADDITIONS REMAIN LOW

• 57 Hotel, located in the western fringe of the city, was the only hotel to open and comprises 92 rooms. Despite relatively moderate supply increases over the recent past, room stock growth is anticipated to average 4.0% per annum over the next five years in Sydney.

• Major supply additions anticipated to come online in the short to medium term include the Tankstream Hotel (281 rooms, 2015), an extension of Four Points by Sheraton Darling Harbour (231 rooms, 2016), the Greenland Primus Hotel (171 rooms, 2016) and the Sofitel ICC Hotel (590 rooms, 2017).

STRONG FUNDAMENTALS SUPPORT POSITIVE TRADING PERFORMANCE

• As at YTD February 2015, Average Daily Rate (ADR) for Sydney hotels increased by 5.7% y-o-y. The healthy growth in ADR coupled with relatively stable occupancy resulted in a strong performance in Revenue per Available Room (RevPAR), which rose by 4.2% y-o-y to AUD 221.

• On a moving annual average basis, ADR reached a record high level of AUD 201 as at YTD February 2015. We anticipate that RevPAR will see further growth this year.

OUTLOOK: ACCOMMODATION MARKET SHOULD PERFORM STRONGLY IN 2015

• The outlook for Sydney’s accommodation market looks strong with occupancy levels anticipated to remain at high levels supported by stable demand. Combined with an expectation for further growth in ADR, RevPAR is likely to continue to witness robust growth.

• Whilst there are numerous projects under construction due to be completed in 2015, new supply is predominantly within the budget/economy segment. The most significant supply addition during the course of 2015 will be the Tankstream Hotel, a budget/economy hotel.

4.2% AUD 221 REVPAR RISING


Occupancy (%)

RevPARADR

ADR/

RevP

AR (A

UD) Occupancy (%

)

0

10

20

30

40

50

60

70

100

90

80

120

240

140

160

180

200

220

Aug

09Fe

b 10

Aug

10Fe

b 11

Aug

11Fe

b 12

Aug

12Fe

b 13

Aug

13Fe

b 14

Aug

14Fe

b 15


10 11 12 13 14 15F0

600

No.

of r

oom

s

500

400

300

200

100


Marketwide Hotel Trading Performance

ASIA PACIFICDr Jane Murray Head of Research – Asia Pacific +852 2846 5274 [email protected]

GREATER CHINA Hong KongDenis Ma Head of Research – Hong Kong +852 2846 5135 [email protected]

BeijingSteven McCord Head of Research - Beijing +86 10 5922 1371 [email protected]

ShanghaiJoe Zhou Head of Research – Shanghai +86 21 6133 5451 [email protected]

GuangzhouSilvia Zeng Head of Research – Guangzhou +86 20 3891 1238 [email protected]

ChengduFrank Ma Head of Research – Chengdu +86 28 6680 5072 [email protected]

QingdaoCelia Chen Assistant Manager, Research +86 532 8579 5800 ext 817 [email protected]

TianjinDurrell Mack Head of Research - Tianjin +86 22 8319 2233 [email protected]

ChongqingJasmine Ma Head of Strategic Consulting - Chongqing +86 23 6370 8588 [email protected]

JLL Research - Asia Pacific

ShenyangCedric Wang Associate Director, Research and Consulting +86 138 0104 9273 [email protected]

WuhanDaisy Hu Senior Consultant +86 27 5959 2151 [email protected]

Xi’anLisa Zou Research Analyst +86 29 8932 9835 [email protected]

TaipeiJamie Chang Assistant Manager +886 2 8758 9886 [email protected]

MacauAlvin Mak Associate Director +853 2871 8822 [email protected]

NORTH ASIAJapanTakeshi Akagi Head of Research – Japan +81 3 5501 9235 [email protected]

South KoreaYongmin Lee Head of Research – South Korea +82 2 3704 8888 [email protected]

SOUTH EAST ASIASingaporeDr Chua Yang Liang Head of Research – South East Asia and Singapore +65 6494 3721 [email protected]

IndonesiaVivin Harsanto National Director +62 21 2992 3888 [email protected]

The PhilippinesClaro Cordero Head of Research – Philippines +63 2 902 0887 [email protected]

ThailandAndrew Gulbrandson Head of Research – Thailand +66 2 624 6420 [email protected]

VietnamJoseph YeeRegional Director, Valuation Advisory Services +65 6220 3888 [email protected]

Malaysia Dr Chua Yang LiangHead of Research - South East Asia +65 6494 3721 [email protected]

WEST ASIAIndiaAshutosh Limaye Head – Research & REIS +91 22 6620 7575 [email protected]

AUSTRALASIADr David ReesHead of Research – Australasia +61 2 9220 8514 [email protected]

New ZealandJustin KeanHead of Research +64 9 366 1666 [email protected]

HOTELS & HOSPITALITYFrank SorgiovanniVice President, Research & Strategic Advisory – Asia Pacific +65 6536 0606 [email protected]

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COPYRIGHT © JONES LANG LASALLE 2015. All rights reserved. For further details or to unsubscribe, please email [email protected]. The items in this publication have been compiled from the various sources acknowledged. The information is from sources we deem reliable; however, no representation or warranty is made to the accuracy thereof.

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