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China office rents stalling despite broader Asian rise

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Singapore is luring foreign companies looking to expand their Asian operations.   © Reuters

TOKYO -- Major Asian cities from Tokyo to Singapore are seeing an upswing in office rents, while China's business districts -- plagued by overbuilding -- are logging mostly flat numbers.

     According to U.S. real estate information service firm CBRE, monthly office rents in central Shanghai and Beijing averaged around 400 yuan ($64.4) and 700 yuan per square meter, respectively, in the first quarter of 2014, unchanged from the previous period.

     Rents in Beijing as a whole rose a marginal 0.7% to about 340 yuan, said JLL, another American real estate information provider.

     In Shanghai, rents dropped in certain areas as building owners slashed prices to retain tenants, the Japan Real Estate Institute said.

     Office rents in Shanghai and other major cities in China began to rise around 2010. According to JLL, rents in Shanghai have almost returned to the record levels they set just before the 2008 Lehman shock, reflecting the rapid growth of the Chinese economy. But rents now look to be losing steam.

     Chris Brooke, CBRE's head of consulting for the Asia-Pacific region, pointed to the construction of numerous large-scale office buildings, which has eased the supply tightness for office space. Office space in central Shanghai's business districts has increased by about 7% on the year, JLL reported.

Strategic spaces

It is a different story in many Southeast Asian cities. In business districts in Singapore, rents averaged 9.58 Singapore dollars ($7.66) per square foot in the first three months of this year, up 4% from the previous quarter, JLL said. CBRE reported a rise in rents of about 5%. Brooke of CBRE forecast that office rents there will climb around 5% in 2014 from the previous year.

     Offices in Singapore are in strong demand among U.S. and European businesses looking to set up or expand their operations in Asia. While financial institutions account for a large portion of foreign businesses operating there, the entry of companies such as consulting and specialty services firms is also fueling the demand for office space, JLL said.

     Hong Kong is attracting services companies planning forays into mainland China, JREI said. As in Singapore, a lack of space for new buildings is further tightening the market for office space.

     Big companies in Japan are showing the most interest in setting up Southeast Asian offices, said Takashi Narusawa, senior managing director at real estate agency Starts. Jakarta is attracting particular attention from food and consumer goods makers hoping to cash in on Indonesia's steady economic growth, he said.

From the bottom up

In Tokyo, office rents have bottomed out. Data compiled by leading office broker Miki Shoji shows that offices in five wards in the center of Tokyo -- Chiyoda, Chuo, Minato, Shinjuku and Shibuya -- were offered for an average 16,501 yen ($161.62) per 3.3 sq. meters at the end of May, spelling the fifth straight month-on-month rise.

     Yet rents in Tokyo remain much lower than they were before the Lehman shock. U.S. and European investors who could not find good properties to acquire in Beijing and Shanghai due to high prices there are now turning their attention to Tokyo, Brooke said.

     As rents in Tokyo have risen more slowly than those in cities in other advanced economies, investors expect a more rapid climb from now on. Real estate investments in Tokyo in the January-March period totaled $10.1 billion, up 70% from a year earlier and outpacing rises in Shanghai and other cities, JLL said.

     Tokyo is attracting investments from abroad due to "the availability of offices in various sizes in comparison with other Asian cities," said Takeshi Akagi, head of research at JLL.

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