Colliers International (NASDAQ: CIGI) (TSX: CIGI), leading diversified professional services and investment management firm, today released its Asia Pacific Property Markets: Themes for 2021report. This report details prospects for the office and logistics & industrial sectors across the region in the light of likely recovery. In addition, it outlines four of the key themes that Colliers expects to drive APAC property markets over 2021.
APAC office markets to remain popular with investors
For 2021, Colliers expects aggregate net office leasing demand to rise 96% from last year’s weak level but sees new supply at 1.6x demand. This should depress rents by 6.1%. Rising vacancy is forecast to peak at about 15% at year-end 2023. High vacancy will be concentrated in China and India while vacancy will be lower in popular occupier locations like Singapore, Sydney, and Melbourne. Most APAC office markets should favour tenants over the next year, though some are showing signs of recovery. Offices remain popular with investors, who have ample unused capital to deploy. However, with demand and supply out of balance in many cities, office prices are unlikely to rise in the near term.
Asian technology companies will dominate office leasing demand
Colliers expects Asian technology occupiers to dominate office leasing markets in 2021 and coming years, helping determine rents, incentives and deal structures. Colliers estimates regional technology occupiers will account for 20-25% of office leasing demand across APAC over 2020-2025, creating new benchmarks for space, talent and the workplace across the region. Colliers also sees a preference among investors for key technology locations such as Sydney, Melbourne, Singapore, Bengaluru and Hyderabad, and expects landlords to focus on technology occupiers.
“Bengaluru has always been a preferable market for Technology occupiers. Being the technology hub, with adequate talent pool, Bengaluru has witnessed an interest from investors. We expect landlords to focus on technology occupiers”, said Arpit Mehrotra, Managing Director, Office Services (South India) at Colliers International.
Flexible workspace shift outside CBDs likely to continue
Colliers expects occupiers to use flexible workspace for short-term leases and expansion opportunities in 2021 as they seek to avoid capital expenditure; it also anticipates partnerships between occupiers and operators as the former begin to reduce excess space from their portfolios. Especially in Asia, it is expected that occupiers will look outside traditional business districts and implement hub-and-spoke models with space closer to residential areas. Flexible workspace can help meet this need, and so it is likely that flexible workspace operators will seek off-CBD opportunities. Many APAC centres, e.g. Beijing, Shanghai, Seoul, Sydney, Auckland and all major Indian cities, have office districts on the fringes, which are increasingly viable as business locations. For owners, this implies that prices of decentralised and business park office assets may stay firmer than prices of CBD office assets.
“We foresee a stronger demand for flexible workspaces as occupiers are interested in a hub and spoke model. Occupiers will continue to demand smarter and flexible leases; and developers will be supportive as long as business is moving ahead. We see a positive momentum for office demand across India from H2 – 2021, as the Indian economy shows signs of recovery,” said Bhupindra Singh, Managing Director, Regional Tenant Representation (India) at Colliers International.
“To accelerate the success of its clients, Colliers is advising property owners to be realistic and agile when dealing with Occupiers,” added Sangram Tanwar, Managing Director, Office Services (Mumbai) at Colliers International India.
Sustainability set to be a key consideration for occupiers and owners in the future
Sustainability will start to drive property leasing and investment decisions, as most APAC nations adopt ambitious long-term carbon neutrality goals, together with the U.S. National governments in the APAC region are increasingly setting sustainability guidelines for the property and construction sectors; moreover, of the global Fortune 500 companies, 23% target carbon neutrality by 2030, although the proportion is lower in APAC. Looking ahead, Colliers expects large occupiers to conduct portfolio reviews to understand which buildings do not match carbon neutrality targets and to determine an action plan, and Colliers believes all new sites for expansion will require sustainability certifications. While property owners may incur retrofitting costs in meeting sustainability guidelines, green buildings offer measurable benefits to both occupiers and investors. It is likely that environmental, social and governance (ESG) criteria will start spreading in property markets, and that new developments will focus on sustainability credentials.
Most APAC logistics & industrial markets to favour landlords
The shift from physical to online retail has driven demand for logistics space, and COVID-19 has boosted e-commerce volumes. Expansion in cold chain, new warehouse designs and new infrastructure projects should fuel demand further. Most APAC markets now favour landlords and rents should pick up in the big cities in 2021.
“India is definitely one of the early benefactors in APAC region in view of the emphasis from businesses for adopting the China plus One strategy and the same is expected to continue in the short to medium term – with strong economic fundamentals, robust local demand and proactive industrial policy across various states Colliers expects a strong demand growth from the manufacturing sector,” said Shyam Arumugam, Head of Industrial & Logistics Services (India) at Colliers International.