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News release

Sydney

Sydney office market compares favourably to other Asian capital cities

Latest Asia Pacific Property Digest shows Sydney capital values fell 17% for Q109, while other Asian capital cities was double that number


SYDNEY, 27 MAY 2009 – The latest Asia Pacific Property Digest shows that the Sydney office market is weathering the economic downturn better than its Asian counterparts, with falls in capital values less severe in Sydney than in many other office markets around the region and a forecast supply pipeline that is expected to keep vacancy and office rents relatively stable.
 
The Jones Lang LaSalle report is a quarterly update on the Asia Pacific region for Q109 on the significant corrections to the commercial property market fundamentals currently underway.
 
NSW Managing Director, Michael Fenton says the report shows that capital values in the Sydney office market have not fallen as dramatically as in other Asian capital cities and while a further decline is expected over the remainder of 2009, the Sydney office market is better placed than most markets in the region to weather the downturn.
 
“Capital values in Sydney fell by 17% for Q109 while other Asian capital cities recorded twice that decline and even more.
 
“The biggest fall occurred in Tokyo where values in the first quarter of 2009 were 42% below values recorded a year earlier.  Significant year-on-year declines were also seen in Mumbai (38%), Shanghai and Hong Kong (31%) and Singapore (26%).”
 
Mr Fenton said it was estimated that the Asia Pacific region was half-way through the correction period, with a recovery in property markets not expected until 2010. He said the forecasts for capital value falls in Sydney were expected to remain lower than the rest of the region.
 
“The key market forecasts, from peak to trough, put Sydney CBD at a 20-30%decline in prime office capital values. The market is expected to stabilise in early 2010. In comparison, the Tokyo office market is expected to record a decline in capital values of 60-70% by 2010, for Hong Kong the decline is expected to be 40-50% by 2010 and for Singapore a decline of 60-70% by 2011.
 
“Sydney’s relatively benign pipeline of new supply is one of the factors contributing to the better performance of the Sydney market compared to other Asian capitals where there is a typically a larger amount of new supply coming online in the next few years.
 
“It is estimated that between 2009 and 2011 an increase equivalent to 94% of the modern office stock will hit the Mumbai office market.  For Beijing, a 40% increase is expected, for Shanghai 51% and Singapore 33%.  Increases in office stock for Tokyo and Hong Kong are lower at 17% and 6% respectively.
 
“In comparison, Sydney’s supply pipeline is expected to be 6% for 2009-2011.
 
“This will help to keep vacancy and rent levels relatively stable during the recovery period, because it is those markets where a weakening office demand is coinciding with increased supply that we anticipate the biggest impacts in terms of rising vacancy and falling rents,” Mr Fenton said.
 
Director, International Investments at Jones Lang LaSalle, Simon Storry said anecdotal evidence was showing that offshore investors were being more cautious in the Asia Pacific region, but were still viewing Australia favourably.
 
“We are aware of buyers from Hong Kong, China, Singapore, Malaysia and Japan who are cashed up and are assessing Australia’s investment opportunities against their own domestic market and other countries.
 
“In terms of offshore investor interest in the rest of the Asia Pacific region, foreign funds have become more cautious about investing in emerging markets such as China and India. Offshore investors are focused on the prime, core, mature markets around the world.
 
“That puts countries like Australia in a favourable position to attract foreign investors, due to its transparent regulatory regime and strong economic and property market fundamentals,” Mr Storry said.