Dot Property Malaysia

Office rentals soften in SEA

Regional economies have been slowing in the ASEAN region. According to an outlook by IMA, real growth among the ASEAN Six (Singapore, Malaysia, Indonesia, Thailand, Philippines, and Vietnam) has moderated from 5.8 percent in 2012 to 4.1 percent in 2015, and is likely to maintain between 4.5 percent and 5.3 percent during the next five years.

Real estate firm JLL said that weakness in the commodity market and the oil and gas sector continued to hurt the office markets of Kuala Lumpur and Jakarta. In these cities rents have declined more severely than during the last quarter, although this has somewhat helped to maintain their competitiveness across Asia-Pacific. Jakarta is the 13th most expensive, while Kuala Lumpur is highly competitive at the lower 5th percentile (26/27), according to a recent JLL Asia-Pacific Office Index.

Surprisingly, rental decline was slower in Singapore at 1.4 per cent quarter-on-quarter, but as demand picked up supporting rental growth in other regional cities Singapore is now placed fifth after Hong Kong, Beijing, Shanghai and Tokyo. However, JLL does not expect a recovery in the Singapore office sector any time soon. The large supply in 2016 and 2017, coupled with weak economy and expected low employment growth, are likely to force landlords to take aggressive cuts.

A short term lack of good grade office space in Bangkok has sent rents, on local currency term, rising by more than 2.6 per cent quarter-on-quarter- the highest across Southeast Asia this quarter. However this is not expected to be sustained. The larger supply of good grade suburban offices in the coming years could add downside pressure on rents over the next 12 months.


As expectedly, the growth in the Offshoring and Outsourcing sector, together with new completions, lifted rents by 0.9 percent in Manila. Nonetheless, despite the increase overall the rents in Makati CBD remains highly competitive compared with other cities in Asia-Pacific. Based on the JLL Office Index, Manila (Makati CBD) comes in at the lower 23rd percentile (18/27). This bodes well for these occupiers.

Capital values across Southeast Asia office markets largely kept pace with rental movement, except in Bangkok where yields were driven down by high land costs plus strong buying interest for limited assets for sale.

In Singapore weak leasing demand coupled with the U.S. interest rate rise has led to yield expansion as capital values fell more than 3 percent quarter-on-quarter.

Personal consumption and retail rents slowing

Growth in personal consumption level across ASEAN is slowing due to softer demand in Singapore, Malaysia and Thailand.

In Singapore, weaker tourism arrivals and overall high cost of retail operations have led to retail rents contracting.

Landlords in Jakarta were conscious of the weaker economic conditions and have kept rents stable.

The rising affluence in the Philippines continue to support demand from Food and Beverage and fashion retailers leading to continual strong gains in rents at 1.9 percent quarter-on-quarter – amongst the highest after Shanghai according to recent JLL Retail Index.

Dr Chua Yang Liang, Head of Research for Southeast Asia, said: “Overall we remain positive over the retail segment in Manila. Given the lower rents in Manila, we can expect this sector to remain resilient as increasingly more international and regional retailers tap on the growing middle class in Manila.

“While the Singapore office market has short term risk, it remains a viable investment option beyond 2018 where we could see rental recovery on the back of stronger economic growth forecast.”