Positive signs for office rental growth

Positive signs for office rental growthSydney and Melbourne are showing signs of nascent office rental growth, in line with improving conditions across the Asia Pacific region, according to data released by JLL.JLL’s Q1 2014 Asia Pacific Office Index shows that Sydney’s net effective rents increased by 3.3 per cent (2.7 per cent in prime gross terms) from Q4 2013 to Q1 2014. In the same period, Melbourne’s net effective rents increased by 1.0 per cent (0.7 per cent in prime gross terms).JLL said the first quarter increases in gross effective rents in Australia’s two largest cities pointed to a stabilisation in both office markets. Moderate increases in effective rents are expected in the short term in Sydney and Melbourne as face rents move higher and average leasing incentives remain unchanged.The Brisbane and Perth markets, on the other hand, face downward pressure on effective rents in the next six to 12 months as owners attempt to maintain occupancy rates and secure cash flow. Net effective rents in Brisbane and Perth decreased 2.7 per cent and 12.3 per cent respectively from Q4 2013 to Q1 2014.The Index also shows that demand for Grade A office space in the Asia Pacific is slowly beginning to recover, with average rental growth of 0.8 per cent across the region quarter-on-quarter, strengthening from 0.2 per cent in Q4 2013, but still below the post-GFC average growth of 1.1 per cent.Singapore witnessed the strongest quarterly rental growth in the region (4.5 per cent) as a result of low and falling vacancy. Quarterly growth in Tokyo rose to 2.0 per cent from 0.4 per cent in Q4 2013. Seoul recorded a similar rate of growth (2.1 per cent q-on-q), with Beijing (0.2 per cent q-o-q) and Hong Kong Central (0.6 per cent q-o-q) recording moderate increases only.Given the improvements in leasing activity across the region in the first quarter of this year, JLL says it is cautiously optimistic that leasing volumes will grow approximately 10 to 15 per cent for the full year. However, it lists ongoing unrest in Ukraine, the military coup in Thailand and elections in Indonesia as possible mitigating factors.It forecasts single-digit growth for the full calendar year, with Singapore and Tokyo likely to see the biggest increases as vacancy remains low, and the Hong Kong and Beijing markets continuing to undergo a mild recovery.JLL’s Q1 2014 Asia Pacific Office Index report can be found here