SIGNS OF STABILITY, CONFIDENCE IN ASIAN CITIES

       The Asian office market showed signs of stabilising in the second quarter, but companies remain focused on reducing costs and tightening their real-estate expenditures, global real-estate firm CB Richard Ellis said in a new report.
       However, the pressure to reduce office-space requirements further is beginning to ease, as the macroeconomic environment has become somewhat calmer and, in the case of China, begun to recover and improve.
       Most Asian cities recorded either a smaller negative net absorption of office space or a mild increase in office requirements. Overall office-space vacancy in Asian cities rose 0.6 per cent quarter on quarter to 12.5 per cent in the second quarter, but the rate of increase slowed from 1.2 per cent in the first quarter.
       CB Richard Ellis said that in Bangkok, the total amount of occupied office space had increased only 22,131 square metres in the past six months. Total office supply as of the second quarter was 7.86 million square metres, with a vacancy rate of 14 per cent, down from 14.2 per cent at the end of the first quarter. Rent for grade-A offices in the central business district fell 5.7 per cent year on year and at the end of the second quarter stood at Bt700 per square metre per month for transactions covering 200-300 square metres.
       The firm pointed out there was very little new office space under construction in Bangkok. The Energy Complex on Vibhavadi-Rangsit Road, consisting of 119,000 square metres of office space, will be completed in the fourth quarter and has already been fully let to PTT and its affiliates.
       Only two office developments are scheduled for completion next year. They are Sathorn Square, Golden Land's grade-A development next to Chong Nonsi Skytrain station, which will offer 73,500 square metres of office space; and Sivatel, on Wireless Road, with 5,880 square metres. In 2011, the only new office building in Bangkok will be Park Ventures, on the corner of Wireless and Ploenchit roads, with 28,000 square metres of office space.
       "With such a limited amount of new supply, any increase in the amount of occupied space created by a recovering economy will lead to an increase in rents," said Nithipat Tongpun, CB Richard Ellis Thailand's executive director and head of office services.
       The company said retaining existing tenants and attracting new ones remained the top priority for office landlords throughout Asia. In many markets, office landlords displayed a definite willingness to negotiate lease restructuring and offer more incentives to desirable corporate occupiers.
       However, leasing markets were sluggish overall in the second quarter, and office rents remained caught in a down cycle.
       CB Richard Ellis's Asia Office Rental Index showed overall office rents in Asia fell 6.7 per cent in the second quarter - a slower rate of decline than the 8.1 per cent in the first quarter - as most cities underwent a milder rate of rental reduction.
       Occupier activity in Tokyo was slower than expected in the second quarter. The majority of transactions consisted of either renewals, in which existing occupiers achieved reduced rental costs in exchange for committing to longer-term leases, or corporate flight to quality, in which companies opted for better locations without assuming higher rental costs.
       Although economic conditions in South Korea improved during the review period, demand for quality office space in Seoul continued to shrink. The average vacancy rate for grade-A offices climbed to 3.1 per cent in the second quarter, from 2.2 per cent in the first quarter.
       In China, the government's 4-trillion yuan (Bt19.97 trillion) stimulus package continued to bolster business confidence during the second quarter, CB Richard Ellis said.
       Prime office demand from foreign companies began to rise in Beijing, and a number of major leasing transactions involving them were completed.
       However, in Guangzhou it was domestic occupiers, particularly state-owned enterprises with monopolistic positions in certain industrial sectors, that made the main demands for prime office space. Both Beijing and Guangzhou enjoyed a significant increase in net absorption over the second quarter. Shanghai edged towards positive absorption as overall sentiment improved, although the city continued to record negative net absorption during the review period.
       In Taipei, the commercial-property investment market performed well in anticipation of closer economic ties with mainland China, prompting landlords to raise their rental expectations during the second quarter. However, office occupiers seemed disconnected from the optimism displayed by landlords as they struggled to make ends meet in the present tough economic environment.
       Overall demand for office space in Hong Kong remained weak during the second quarter, directly reflecting the fact that the city is home to a sizeable concentration of multinational companies and international financial institutions that have been directly affected by the economic crisis. Hong Kong's central business district, which accommodates the headquarters of many foreign banks, witnessed an extremely sharp quarterly decline in rentals, and rents remained generally soft across all office submarkets.
       Singapore is also home to the Asian headquarters of many multinational companies and consequently saw a further weakening of demand for prime office space during the second quarter.
       CB Richard Ellis said prime rents in Singapore had now fallen 46.6 per cent from a peak in the third quarter of last year and that occupancy rates continued to face pressure from substantial new supply. Singapore has 770,000 square metres of new office space in the development pipeline between now and 2013, and it seems certain that, for the short term at least, supply will continue to outstrip demand.
       In India, the election of a new government and falling interest rates improved local business sentiment during the second quarter. Although there were some small signs of improvement, office rents slid further in the central business districts of Mumbai, Delhi and Bangalore as buildings saw an exodus of occupiers moving to alternative locations to reduce real-estate costs. Although the rise in demand for less costly premises bolstered office submarkets outside of central business districts, landlords of buildings in secondary office destinations struggled with the consequences of speculative overbuilding and were forced to increase incentives to recruit tenants.
       CB Richard Ellis said demand was beginning to stabilise in Asian office markets and that business confidence was turning slightly more positive as clearer signs of economic recovery emerged.
       However, the recovery Asian economies are now experiencing is unlikely to translate into the kind of brisk corporate expansion witnessed from 2005-07. Rather, it is expected that corporate occupiers will continue to adopt a conservative approach towards real-estate decisions, especially those that will lead to increased operating costs.
       CB Richard Ellis said those Asian companies with operations that did not need to be situated in prestigious locations remained receptive to relocating those elements in lower-cost premises, sometimes even opting for less-mature business precincts in exchange for substantial savings.