Project Development – Room For The Unknown

May 17th, 2012 by Ankita Satnaliwala

There are a few rather pertinent questions in each developer’s mind before initiating a new commercial project. The overall market sentiment that governs demand and leasing activity is not the only harbinger of risk that developers must consider. Perceptibly, the site location to be acquired for project development is a vital aspect due to the fact that its spatial proximity to other sites will have an impact on the cost of doing business for tenants and/or the demand for the product/services that the tenants are selling. When a developer acquires a site, the cost of acquisition is a significant determinant of the quality of the building. Generally, as the cost of the acquired site increases, the building will be of a higher quality and will cost more to develop. Furthermore, as the price of the land increases, the site is likely to be more densely developed. These fundamental economic connotations partially explain why certain areas of cities are more densely developed with high rise office buildings whereas other areas are less densely developed with warehouses etc., for instance, on relatively low-cost suburban/ agricultural land.

A basket of chief components based on which quality and cost can be differentiated include – facade, quality of interior layout coupled with functionality, accessibility from site in terms of transportation etc., other amenities such as dining and wellness centres, landscaping, parking, common areas, quality of air conditioning (HVAC) and exterior finish (granite, wood etc.) Now, there is always a level of uncertainty as to how the quantity/quality of services provided should be packaged to meet potential demand. As such, there is always a latent source of project risk. It must be borne in mind that not all new projects are initially constructed as “class A” space, which is supplemented with higher quality interior, exterior and mechanical components. In the ultimate analysis, investors must screen the demand for space in terms of the characteristics of the demand by end-users for a given market. This demand, in turn, is a function of the nature of employment in the given local market. It is only with an acute understanding of the local economy and the nature of employment that the developer anticipates demand as accurately as possible and supplies the quantity and quality of space in the suitable combination to satisfy market demand. However, as important as the above is, it is equally important to be mindful of the fact that there are a host of other factors upon which rests the eventual success of a project. The developer always has to leave some room for the unknown – for even with meticulous planning things might not always go as planned.

Therefore,

“Don’t expect to find the trick of the trade in a book…. Learn the basics, accept a degree of risk and then get out and do it.” – Kendra Todd, winner of Season 3, The Apprentice

About the author
Ankita Satnaliwala is the Senior Analyst, Research and Real Estate Intelligence Service for Jones Lang LaSalle in India, based in Kolkata.

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Beijing Retail Developing Along With The Subway System

May 15th, 2012 by Meggie Qin

While shopping in Tokyo and Hong Kong around ten years ago I was impressed by the advanced subway systems which provided very good connections to each retail catchment area. Now I notice this trend emerging in Beijing as well.

In the past ten years the Beijing subway system has developed from two lines to 13, covering a distance of more than 350 km. Another 17 lines are under construction, all of which are scheduled to be completed by the end of 2015. The early, traditional retail catchments, namely Wangfujing and Xidan, are located along the city’s first subway line, Line 1, and are at interchange stations, which increases the number of potential visitors to the shopping malls.

After the 2008 Olympic Games, several high-end shopping centres, including Shin-Kong Place and Seasons Place, opened near subway stations. This showed that developers had begun to focus their attention on the location of subway stations through which millions of people pass every day. Thus, the most important emerging retail catchment areas are all near transfer stations where two or three subway lines converge, such as Dongzhimen and Xizhimen. Institutional investors have already begun to invest and develop in these areas.

In the future, shopping malls will continue to open along subway lines, such as Lines 1, 2, 4, 5, and 10. With more and more large scale residential projects being built along subway routes in Beijing’s suburbs, shopping centre investors are confident about the consumer potential in such suburban areas. On studying the market it is clear that high-end shopping centres will focus on the city centre, and mid-range projects will occupy space near or above suburban subway stations.

About the author
Meggie Qin is the Head of Research for Jones Lang LaSalle in Beijing.

Posted in China, Retail Research | No Comments »

Neighbourhood Centres In Australia – Growing Investor Demand

May 14th, 2012 by Anita Tang

Given the weak retail environment in Australia over the past few years, where consumer sentiment has been low and retail turnover has been subdued, an increasing number of investors have been focused on purchasing retail assets with high levels of exposure to non-discretionary categories of spending, such as food. In Australia, these assets are typically neighbourhood shopping centres. Strong investor demand for these assets was evident over the 12 months to March 2012. Over this period, 51 neighbourhood centres exchanged across Australia, compared with the 36 centres recorded in the 12 months prior and 43 in the twelve months immediately prior to the Global Financial Crisis at the end of 2007.

What constitutes as a good neighbourhood centre?
Neighbourhood centres are characteristically enclosed centres located in suburban residential areas that comprise at least one supermarket and specialty stores. The features that investors seek in prime quality neighbourhood centres are:

• Good location with strong population catchment;
• Efficient design;
• A strong performing full-line supermarket; and
• Limited competition in close vicinity.

In the current weak retail spending environment, neighbourhood centres with a higher level of vacancy are frequently those with a higher number of specialty shops. Neighbourhood centres with less than 15 specialty shops have the lowest level of vacancy. This low vacancy often reflects the tenancy mix, which may be mostly composed of non-discretionary tenants (for example, newsagencies, butchers and bakeries) that complement the supermarket. As the number of specialty shops increases, the tenancy mix tends to include discretionary tenants and this is where higher level of vacancies are recorded.

The robust investor demand for prime quality neighbourhood centres has resulted in equivalent yields at the upper end of the range remaining firm over the past two years in Australia. Conversely, rising vacancy in secondary neighbourhood centres and difficult access to finance for these assets has seen yields at the lower end of the range gradually soften. While this trend is happening in most monitored markets, the exception to this case is Melbourne. In this market, a deep buyer pool of private investors has caused the lower end to progressively tighten.

About the author
Anita Tang is a Research Analyst for Jones Lang LaSalle, based in Sydney, Australia.

Posted in Australia, Retail Research | No Comments »

Office Decentralisation In Jakarta

May 11th, 2012 by Anton Sitorus

Office development in Jakarta, so far, has been concentrated in the CBD. This area is bounded by three major streets (i.e. Sudirman-Thamrin, Rasuna Said and Gatot Subroto) forming a triangle, hence fondly known as “the golden triangle zone” among the locals.

In the initial phase of its development (back in the 1970s), the golden triangle zone was dominated by central government buildings, offices of major state-owned companies and foreign embassies. Later, other Indonesian enterprises and international companies began to locate their offices in the district with significant office development taking place during the economic boom in the mid-nineties. Since then, the golden triangle zone has continued to attract developers, investors and various corporations, and becoming what is now the central business district (CBD) of the capital city today.

And up until the present, the golden triangle zone, or the CBD, has managed to retain its status as the most prominent and prestigious business district in Jakarta.

However, along with the growing demand from various businesses and the development of Jakarta’s infrastructure, the city landscape has changed with the emergence of new commercial districts.

The most popular amongst them is the TB Simatupang area in South Jakarta. It is situated close to the upmarket residential districts of Pondok Indah and Kebayoran Baru (both popular with expats) and has excellent access via the outer ring toll road. It has attracted many corporate occupiers mainly from oil and gas, consumer goods and engineering companies.

Other growing commercial districts in Jakarta include Kemayoran and Slipi-Grogol. While Kemayoran (former site of the Jakarta international airport) has been designated by the city government as the future CBD, the area alongside Slipi-Grogol has grown as an alternative business location for small-to-medium sized companies, particularly in trading businesses.

Another district, which has been quietly developing into a commercial district, is the By-pass area, stretching from Cawang in the east to Priok in the north. Besides being right alongside the Jakarta inner city toll road, this area is also in close proximity to the seaport and has good access to the airport. Naturally, the area is popular among Indonesian industrial conglomerates like Astra and Gudang Garam for their headquarters and of late has also attracted more companies especially from the automotive, trading and logistics sectors.

While the golden triangle zone will remain as the primary CBD of Jakarta, these other commercial districts such as TB Simatupang, Kemayoran, Slipi-Grogol and the By-pass area will remain attractive as they provide the benefit of lower rents, higher flexibility in lease terms and better accessibility. Generally, banks, insurance, securities and professional services prefer the CBD, but with rising rents coupled with a lack of available space and the bad traffic situation, non-financial service companies will certainly consider these decentralised locations.

About the author
Anton Sitorus is the Head of Research for Jones Lang LaSalle in Indonesia.

Posted in Indonesia, Office Research | No Comments »

Why The Hong Kong Government Imposes Flat Size/Flat Number Restrictions?

May 10th, 2012 by Vienne Chan

Attempting to allay the concerns of local residents over the supply of small and medium-sized flats, the Hong Kong government has been putting up residential sites for auction/tender, with flat quantum and flat size stipulations listed in the conditions of sale, since late 2010. Apart from the public outcry over the difficulties in buying homes in the city due to surging home prices, I also see another logical reason why the government is laying down such a land supply policy direction.

There is a clear reduction in household size in recent years. According to the 2011 Population Census, the city’s population growth remains slow with an average annual growth rate of 0.6% during 2006-2011, while the number of domestic households increased by 1.2% over the same period. This faster growth rate suggests the demographic structure of a declining household size continuing over the last five years. And, it is getting smaller with the latest figure averaging 2.9 members per household compared with 3.1 in 2006 and 3.0 in 2001.

In absolute terms, the number of domestic households went up by about 143,000 during 2006-2011. On the supply side, did we have sufficient supply to cater to these new households over the same period?

In the private market, about 49,000 new residential units were completed in 2007-2011. Of course, the 143,000 new household demand not only includes households seeking accommodation in the private residential market, but also in public rental housing. The Housing Authority data shows about 70,000 rental housing flats being built in the past five years. Assuming all these newly completed residential units were taken up (public rental housing vacancy at only 1% and unsold completed private sector flats at only 4,000 units) and each new household occupied a flat, there was still a shortage of about 24,000 units.

In fact, the 143,000 figure only accounts for new household formation and neglects investment demand driven locally (i.e. a second or third property for rental purposes) and externally (i.e. investment demand for Hong Kong properties from overseas). Therefore, that housing demand exceeded supply is unquestionable.

In view of the trend of smaller-sized household continuing in the foreseeable future, with the government projecting household size to go down further to 2.8 starting from 2016, it is anticipated that residential demand for smaller sized flats will stay strong. With the first batch of residential sites having flat-size and minimum flat number restrictions coming on the market in 2015, the demand-supply imbalance should start to improve, especially in the mass and medium segment.

About the author
Vienne Chan is the Assistant Manager of Research for Jones Lang LaSalle in Hong Kong.

Posted in Hong Kong, Residential Research | No Comments »

Reaping The Benefits Of Shrinking Living Space In Manila

May 8th, 2012 by Sharon R. Saclolo

It used to be unthinkable for a middle class household to acquire a 40 sq m residential-condominium unit for a family of four. Small units used to be only an alternative for single occupants. However, shrinking living space has developed as a consequence of the continuous real estate development caused by the rise in condominium selling prices. This is especially evident in the vicinity of the premier business districts of Makati CBD, Bonifacio Global City and Ortigas CBD. From 2005-2011, capital values for residential condominiums increased by as much as 50% in these districts. Hence, the allowable development density is ideally maximised at the present time to accommodate the most homebuyers possible, particularly in the districts within Metro Manila. Here, the busy lifestyle of many citizens in premier business districts has tended to sanction the home as a sleeping area.

Prior to 2005, residential-condominium living spaces were larger. Subsequently, units have shrunk by as much as 50% of their previous average sizes in newer residential projects.

Table 1. Average Unit Sizes of Condominiums in Metro Manila (in sqm)

Source: Jones Lang LaSalle Leechiu Research & Consulting

Smaller units are practical options for middle-class families, as they are strategically located in condominium projects relatively close to business districts, allowing for shorter travel time from home to work. These residential projects are also conveniently situated near support facilities such as shopping centres, restaurants, schools and transport terminals. Moreover, smaller unit offerings are generally affordable.

According to the Philippine Housing and Land Use Regulatory Board (HLURB), a single-occupancy condominium unit may be as small as 12sqm if it is in a highly urbanised area, while a family-dwelling unit may have only 36sqm, the minimum for open-market condominiums. While effective layout design can make a small space seem large, a family living within the confines of that small space will naturally develop the urge to go out of the unit for family bonding. They dine out, shop, watch movies or simply lounge around together in the condominium-amenities area.

Retail is now commonly offered as a component of residential condominiums, much like office buildings, mainly to service the requirements of its occupants. A condominium with an average occupancy level of 80% will normally have a retail offering that likewise enjoys healthy foot traffic. Developers who plan their developments in a way that joins residential condominiums with multi-level retail centres provide their retail tenants with a major catchment market comprising the condominium’s residents.

In today’s fast-paced lifestyle, housing units are increasingly being viewed as only sleeping areas. However, as we seek to balance our work and home life, we set aside time for bonding with our family and friends. To achieve this we tend to venture out of our small living spaces and ultimately fuel the retail operations of nearby developments.

Ultimately, shrinking living units present a win-win scenario for both residential-condominium developers and buyers. The upside for homebuyers is convenience and affordability, while for developers it is maximised sales volume and additional income generated from retail operations.

About the author
Sharon Roset-Saclolo is a Research Manager for Jones Lang LaSalle in Philippines, based in Manila.

Posted in Philippines, Residential Research, Retail Research | No Comments »

Estate South: The Downtown Of India?

May 7th, 2012 by Hariharan Ganesan

What a South Mumbai is to Mumbai or a South Delhi is to Delhi could well be South Indian cities to India! The question is – will the southern region become the downtown of India?

Southern India has for long been the silent crusader, building and strengthening its real estate development as one of the most sought after destinations in the country. With improving transparency and visibility of the real estate markets in the South zone, cities such as Bangalore, Chennai and Hyderabad have attained a place on the global real estate map, a status that was limited just to Mumbai and Delhi in the past.

While South Indian cities constitute nearly 45% of the country’s office space, the stock of 140 million sq ft in these cities is projected to grow at a CAGR of 8% for the period 2012 – 2016, lower than the projected national growth of 11%. This implies that most southern cities, are relatively rationalised in terms of medium term supply of office space, and the cities have chosen a strategy of pursuing selective quality developments over rapid expansion. While this would keep their share in India’s office stock range bound at 37%-40%, the South Zone’s vacancy rate by end-2012 is expected to be 16%, considerably lower than the pan-India vacancy rate of over 20%.

South India’s retail real estate market has gone through a makeover in the past decade when its retail stock grew from a mere 1.6 million sq ft in 2003 to 13.2 million sq ft in 1Q12. The share of South India’s retail stock to the pan-India stock is expected to record a notable increase from 20% at end-2011 to touch 36% by end-2016. As the mall stock in the southern cities sum up to breach the 40 million sq ft mark by end-2016, the vacancy by then is expected to witness a notable decline from the peak levels of 2014 to drop below the national average of 20.5%.

South India’s residential market has been an ardent follower of the ‘affordability’ mantra, with more than 80% of the new launches in the past two years being priced under INR 4,000 per sq ft (USD 812 per sqm). As a result, the residential markets of South Indian cities have remained resilient in the past few quarters, relative to the significant decline recorded in the sales volume in Mumbai and NCR-Delhi. Having exhibited healthy resilience during times of uncertainty, it is imperative for the developers to ensure prudent pricing strategies in the coming quarters to remain competitive as well as sustain the momentum that they have gained during early 2012.

The focus of Indian real estate is shifting from Tier I to Tier II cities, and the southern region is also embracing the same, with secondary hubs developing in Kochi, Coimbatore, Vishakhapatnam and Mysore, that are persistently striving for higher milestones. In a land where celebrities are worshipped, they would be the Superstars of tomorrow. Catch them young!

Note : USD 1 = INR 53.4

About the author
Hariharan Ganesan is the Manager, Research for Jones Lang LaSalle in India, based in Mumbai.

Posted in India, Real Estate Research | No Comments »

What Is Real Estate Research For?

May 4th, 2012 by David Rees

Jones Lang LaSalle sets the industry standard for research on the Australian commercial property market. Our Real Estate Intelligence Service (REIS) subscribers are a checklist of REITs and institutional investors, growing numbers of global investors, major commercial and international investment banks and the policy-making ministries of State.

In real estate research, consistency is everything. Every asset is different. A systematic, rigorous basis for assessing rents, yields, capital values is essential. Tracking markets is labour intensive – you need a team of specialised researchers. Jones Lang LaSalle fulfills all these conditions. That is why through the Global Financial Crisis the REIS subscriber list has expanded. Investors demand the insights and evidence that professional market analysis provides.

What do REIS subscribers want?

Requirements are surprisingly diverse. Some subscribers want only market data and transactions evidence: they do their own modeling, forecasting and analysis. On the night when our quarterly data are released we get 10.00 pm calls from data-hungry clients – how much longer before our data will be published on the web?

Other subscribers drill down into market commentary and forecasts. Why have our vacancy forecasts for the Brisbane CBD changed? Why did sublease availability rise in Adelaide this quarter?

Who reads our research?

With some subscribers we communicate directly with the in-house researchers. They digest our data and commentary, package it and pass it down the line to decision makers. In other cases our reader is the CEO or the Chief Investment Office. We are often invited – sometimes at very short notice – to front the investment committee or the Board, and to expand on our views. Why are incentives in Sydney still so high? When will shoppers return to the malls?

In this job, there’s no place to hide.

How best to integrate our research into the decision making process?

Here are two alternative perspectives:

An investment manager can be compared to the captain of a sailing ship. Neither wind nor tide is controllable. You cannot ignore these forces; but you can negotiate. A skilled captain will get you to your destination close to time and safely, albeit not always travelling in a straight line. In this decision model you researcher is your meteorologist. Information about the current weather and likely future conditions is vitally important.

The second approach to integrating research is more inclusive, but also more confrontational. Good decisions often come out of a competitive process of challenging and testing ideas. Some of our subscriber clients use us for this purpose. The views of independent research analysts can be a useful counterpoint to the in-house perspective. A well-managed round-table debate leaves everyone much the wiser. New ideas are ignited; preconceptions revisited.

Which approach works best?

In my experience the second approach is best. But probably there’s no single right answer for all investors and for all situations. One thing is for sure. There’s no substitute for quality information. Black swans are everywhere. Nor can you discount the occasional iceberg and, sometimes, a wandering albatross.

About the author
David Rees is the Head of Research for Jones Lang LaSalle in Australasia, based in Australia.

Posted in Australia, Real Estate Research | No Comments »

70% Of Change Initiatives Fail

May 3rd, 2012 by Anne Thoraval

Even with the best intentions, “the brutal fact is that about 70% of all change initiatives fail”. Workplace change is no exception. Few of the large multinational corporations exploring new ways of working have been able to roll out their change programs without encountering difficulties.

A series of barriers make it difficult to implement change such as lack of senior management support or visible engagement required to counter ego and legacy footholds; resistance of ‘rain makers’ to give up their big offices and the prestige that goes with them; mobility restrictions for certain employees and IT security issues.

In addition to these perennial challenges, when workplace change is deployed globally, a number of issues play out differently across Asia that may be less significant in Western countries. The diversity of local Asian cultures requires that workplace change programs be culturally adapted, not merely transplanted from west to east. Change programs satisfactorily implemented in the US or in Europe might not be as successful in Asia if cultural characteristics are overlooked.

Often compared to an iceberg, culture can be a difficult concept to grasp as assumptions, values and beliefs are often not articulated. Failing to address cultural issues as part of a workplace change initiative has serious implications for companies operating in Asia as they strive to improve talent attraction and retention and improve business productivity.

Our ‘guide to cross-cultural change’ infographic illustrates some of the macro-economic, real estate, and cultural variations that are vital to understand how to succeed in any workplace change program. A good starting point is to explore Geert Hofstede’s insights on national and organisational culture, with country scores for each dimension (“power distance”, “individualism”, “uncertainty avoidance”, etc.).

Next month, Jones Lang LaSalle’s Strategic Workplace Services team will release a publication helping companies grasp cultural complexities of the region in order to achieve sustainable workplace change. Watch this Space!

About the author
Anne Thoraval is the Head of Corporate Research for Jones Lang LaSalle in APAC, based in Singapore.

Posted in Asia Pacific, Corporate Solutions, Workplaces | No Comments »

Office Vacancy Rate At 20-year Low – What Does It Mean?

April 30th, 2012 by Marcos Chan

The possibility of Hong Kong running out of office space has always been a topic in my conversations with corporate clients in recent years. Many of these clients started to raise their concerns over Hong Kong’s tight availability of office space a few years back when they saw the city’s overall vacancy rate sitting below the 5% mark, and this was right before the Global Financial Crisis (GFC). They knew, that if the situation was not going to improve, it would affect their future expansion plans.

Since then, unfortunately, the situation has remained largely unchanged, with the city’s overall Grade A office vacancy rate in March squeezed down further to 3.8%. This is not only lower than the level before the GFC, but the lowest in the last 20 years. And yes, such a squeeze is on the back of a gloomy economic environment where corporate expansion demand is not as strong as in recent years.

The times when there were many cheap options in decentralised sub-markets have gone, with vacancy rates in Kowloon East now also down to just over 5%. Although there is some returned space in Central, it is concentrated in a couple of more expensive buildings and does not really meet the appetite of tenants in these uncertain times. The other sub-markets, such as Wanchai/Causeway Bay, Hong Kong East and Tsimshatsui all have vacancy rates below 3%.

I have no crystal ball to tell me exactly when the global financial markets will be restored to health and when there will be a more structural rebound in growth. However, if there are some improvements from next year onwards, as many economists believe there will be, such a low vacancy environment is set to push office rents up further.

This year, we expect to see rents softening with a more noticeable fall only in Central. The rest of the sub-markets, where vacancies are extremely low, will see only very marginal downward rental pressure or, in the case of Kowloon East, some further upward trend. Any downward pressure would be attributable only to a lack of new or expansion demand and not really because of any market contraction. This is very different from the previous down-cycles when there was negative net take-up in most sub-markets.

The shallower rental fall projected this time around compared with the previous down-cycles is very much due to such a low vacancy environment. Although demand for sizable and pricy space is thin and certain buildings in Central with high vacancies will be affected, the lack of leveraging opportunities for tenants in the rest of the market will help prevent rentals from going into free fall.

Is this good for Hong Kong? I guess an immediate answer from office landlords would be ‘yes’, but I do not see this situation as too healthy for Hong Kong as a whole. A lack of office space will not only limit business/economic growth in the long run but will affect Hong Kong’s position as one of the world’s major financial centres.

About the author
Marcos Chan is the Head of Research for Jones Lang LaSalle in Greater Pearl River Delta, based in Hong Kong.

Posted in Hong Kong, Office Research | No Comments »

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