In Tokyo and Osaka, while initial yields were relatively low, both rent growth and yield compression were significant factors in supporting high returns on investment.
Bangalore and Chennai also enjoyed robust returns due to high yields, yield compression and rent growth over 2019, owing to the continued resilience of the IT industry in these markets.
Returns in the Sydney and Melbourne CBDs were also healthy, as vacancy rates in these markets remained relatively low.
In Southeast Asia, the emerging markets of Ho Chi Minh City, Hanoi, Bangkok and Manila, in addition to having high initial yields, also offered investors high investment returns via both yield compression and rent growth, supported by favourable demographic profiles.
In the last quarter of 2019, Ho Chi Minh City’s office market witnessed Grade A&B’s rents soaring to a decade high, reaching $29.1 per sqm. This was supported by strong demand and higher rental rates in newer office developments. Landlords continued to have strong bargaining power this quarter given the restless rental growth amid limited stock.
For Hanoi, in the final quarter of 2019, both Grade A&B submarkets recorded a higher net absorption in comparison to the previous quarter, indicating a stable demand. The occupancy rate of the market continued to increase and reached 93 per cent, in which Grade A submarket achieved the rate of 94 per cent.
Over the next ten years, JLL expect demand for office space to continue to grow strongly by 8-10 per cent annually in Ho Chi Minh City as the economy develops.
JLL also expect the proportion of the population employed in services to rise from 30 per cent to 40 per cent, and an annual GDP growth of 5.5-6 per cent. This provides a great opportunity for developers to acquire sites to build more office space to cater to new companies and expansionary demand.
Nonetheless, on a regional basis, returns in 2020 are generally forecast to be smaller than in 2019, as rent growth and yield compression may both slow down during the year relative to last year.
JLL expect markets in Southeast Asia and India to continue to offer robust returns. Ho Chi Minh City, Hanoi, Bangkok and Manila are expected to continue to outperform, especially the Vietnam markets of Ho Chi Minh City and Hanoi, due to favourable economic and demographic fundamentals.
