APAC office leasing volumes down 25% in 2020

Leasing recovery will depend heavily on the efficacy of vaccination programs this year.

Asia Pacific leasing volumes were largely stable in 4Q20, declining only 5% q-o-q. However, JLL said volumes were down 25% compared to the same period a year earlier as the pandemic and economic uncertainty continued to weigh on occupier decision making. Full year 2020 Asia Pacific volumes were down 25%y-o-y.

Here’s more from JLL:

Greater China quarterly volumes were up 24% q-o-q as occupiers resumed leasing activities that were halted by COVID-19 earlier in the year. Beijing and Guangzhou volumes both increased by over 70% q-o-q, driven by an uptick in upgrade activity. Shanghai activity was flat q-o-q but notably sentiment remains upbeat compared to the first half of the year. Hong Kong volumes were down as geopolitical tensions and pandemic related shutdowns dampened activity; demand was characterized by tenants seeking cost-effective options in decentralised locations. In aggregate, 2020 Greater China volumes were down 35% y-o-y.

India volumes were mixed as both Mumbai and Delhi recorded a sharp rise in volumes q-o-q. However, these were offset by IT companies’ extended work-from-home policies, which contributed to a drop off in Bengaluru leasing activity. India volumes were down 11% y-o-y in 2020.

Southeast Asia quarterly volumes declined 6% q-o-q. Manila recorded a strong increase in leasing activity as the government eased restrictions while offshoring and outsourcing companies seized opportunities to expand. However, the uptick in Manila volumes was offset by weakness in Jakarta. Meanwhile Bangkok and Ho Chi Minh City saw moderate increases in leasing volumes. Full year Southeast Asia volumes were down 24% y-o-y.

Australia volumes increased 37% q-o-q but from a low base; however, demand remains subdued and the volume of space available for sub-lease continues to increase. Full year 2020 leasing volumes were down 45% y-o-y in Australia.

Weak conditions maintain downward pressure on rents

The combination of sustained soft leasing demand and a steady volume of supply maintained downwards pressure on rents. In aggregate, Asia Pacific rents declined 1.1% in 4Q20. Notably the rate of decline slowed from the previous quarter, in line with the easing of restrictions and improvement in sentiment in some markets.

Bengaluru again shown brightly amongst the major markets as landlords continued to increase rents. Mumbai and Seoul also recorded meaningful increases in rents, while rents in other markets were either flat or down.

Despite the increase in leasing activity, rising vacancy pressure contributed to a rental decline in Beijing, the sharpest decline of the major markets. Weak market conditions, driven in part by tenant space rationalisations, maintained downward pressure on Singapore rents. Soft leasing demand and rising vacancy saw Tokyo rents decrease for the third consecutive quarter.

Investor sentiment buoys capital values

Capital values continued to fare better than rents in part because many investors have taken a longer-term view. Asia Pacific capital values were flat in 4Q20 in aggregate.
Underpinned by investor demand and large-scale investments, Bengaluru recorded robust capital value growth in 4Q20. Although investor sentiment softened in Seoul, the market still managed to record robust capital value growth. Meanwhile robust investor demand pushed up Taipei capital values q-o-q.

Although investors remain highly interested in the Beijing market, capital values declined in line with rents in 4Q20. Investor expectations of Hong Kong continued to evolve in response to rental declines and vacancy pressure, leading to a decline in capital values.

Leasing and capital markets to stabilise in 2021

Asia Pacific office leasing volumes were down sharply in response to the COVID-19 outbreak. A recovery in leasing activity will depend heavily on the timing, speed and efficacy of vaccination programs planned for 2021. We are cautiously optimistic the pandemic will gradually be brought under control over the course of the year and we believe risks to our leasing forecast are to the upside. As leasing market conditions are likely to remain weak in the first half of the year, we maintain our view that rents will decline 2% y-o-y.

We expect to see investors with longer term horizons continue to shore up capital markets. The combination of abundant liquidity, access to debt and low interest rates should see Asia Pacific capital values fall more slowly than rents, declining only 1% in 2021.