- Rent retains its position as most important criteria for occupiers for third year running;
- One-third survey respondents adopted the recommended 12-month lease renewal preparation time frame
Knight Frank, the independent global property consultancy, today releases its Asia-Pacific Office Occupier Survey Results 2016/17 undertaken by more than 200 companies located in Asia Pacific spanning across eight industries including:
- Consulting
- Consumer products
- Finance / Accounting / Legal
- Manufacturing / Agriculture
- Pharmaceutical / BiotechnologyHealthcare
- Petroleum / Energy
- Public sector / NGOs
- Technology & Communication
This is the third installment of the annual survey, which provides insights into how occupiers use and plan their office space in the region.
Marcus Burtenshaw, Head of Commercial, Knight Frank Thailand, says, “2016 was a difficult year for many businesses around the region, and this was reflected by the findings in our survey. Faced with economic uncertainty and increased competition this year, more respondents to our survey chose rent as their most important building selection criteria than ever before, putting cost control ahead of image and accessibility.
“Yet, many businesses are still not looking at their leases until the last six months of the term, which leaves them with insufficient time to properly investigate and weigh alternative accommodation scenarios that are open to them. Knight Frank recommends tenants to review their options at least 12 months before their lease expires, providing time to conduct renewal negotiations and if needed, still provide time to find, secure, and decorate an alternative location.”
Highlights of survey results
Business challenges across Asia-Pacific
- In order of significance – economic uncertainty (47.4%); competition (46.1%); and cost inflation (32.1%).
- Political uncertainty (13.3%) was listed to a lesser extent.
Nicholas Holt, Head of Research for Asia-Pacific, highlights “Unsurprisingly, economic uncertainty was highlighted as the most significant challenge to businesses in the region. External macro-economic uncertainties emanating from Europe and the US, including the fallout from Brexit and the potential impact on trade from a new US administration, are likely to weigh on sentiment. Closer to home, the performance of the slowing Chinese economy, which is so vital to many economies in Asia-Pacific, will also be an important regional determinant of business performance in 2017.
“Competition was also highlighted as a major concern going forward. While traditional competition facing most industries is as strong as ever, changes in technology are also bringing in new competitors into some sectors as barriers-to-entry come down. Fintech is proving a major challenge to retail banking, while advances such as 3D printing are bringing in new competition to certain manufacturers.
“Other concerns are also weighing on many occupiers going forward, although interestingly, political uncertainty – something that continues to plague the west – does not seem to have been a major concern for Asia-Pacific tenants. This can certainly be viewed as a positive for the business landscape in 2017.”
Importance of office building attributes to business
- Rent remained the most important factor among Asia-Pacific office occupiers, which it has been since the inaugural survey. There were however, also local factors:
- Frequent traffic congestion led Indonesia and Thailand to place greater value on proximity to mass transit; and
- China cited proximity to clients as most important due to long commute times in massively crowded cities such as Beijing and Shanghai.
- Green credentials ranked at the bottom of the list.
Satisfaction with building space
- 6% of the survey respondents were satisfied with their space, with 27.2% – mostly from China and India – expressing that their current space was a perfect fit for their business. This was a slight drop from 30.0% in 2015.
- Only 1.9% of all the respondents were highly unsatisfied with their current building, an improvement from 5.0% a year ago.
- China and India suggested the highest activity levels in terms of space and headcount expansion plans.
- 4% of Chinese companies and 66.6% of Indian companies surveyed acquired additional space in 2016;
- None of the Chinese and Indian companies surveyed disposed surplus space in the same period; and
- 1% of Chinese companies and 76.7% of Indian companies surveyed expected headcount to rise.
Viral Desai, Head of Occupier Solutions, Knight Frank India, comments, “The office space in India has been extremely buoyant in the last one year. It has seen absorption of approximately 40 million square foot of space. The demand is largely driven on account of two factors – first, large domestic consumption driven by BFSI, Manufacturing, Pharmaceuticals and second, technology talent. Given the technology talent that exists in India, a lot of business from North America and Europe come to India. Commercial clients make up about 50.0% of this segment in India. With a GDP that clocks 7.0% growth annually, stable democratic set-up, large English-speaking talent base and close to about three million graduates annually, India continues to be full of job creation opportunities.”
Preparation for lease renewal
- 5% of respondents prepare for their next lease 12 months in advance – which is the preparation time frame that Knight Frank recommends.
- 2% of respondents started preparations six months ahead of a lease expiry – a slight increase from the previous year (42.0%).
- Only 8.3% of the respondents start preparation 24 months before their lease expires.
- Country-specific
- Respondents from Australia, which typically begins 18 to 24 months before lease expiry; and
- All of the respondents from China only allowed themselves three to six months to prepare for lease expiry.
John Preece, Head of Occupier Solutions, Knight Frank Australia, says, “Australia has a reasonably well-developed and sophisticated occupier advisory market, which means that occupiers are well-advised regarding the timeframes required for premises procurement and thereby, allow sufficient lead time to achieve the optimal outcome. It is important to leave adequate lead time in order to maximise leverage in negotiations. Without sufficient lead time, the occupier’s negotiation standpoint is negatively impacted and will invariably lead to rushed decisions and a sub-optimal commercial outcome”
Peter Zhang, Head of Tenant Representation, Commercial Services, Knight Frank Shanghai, comments, “In China, prior preparation for lease renewals varies between the Tier-one, two and three cities given the differing levels of sophistication of landlords and tenants. Tier-one cities, being more prepared, typically commence negotiation with their landlords at least six months prior to lease expirations, while Tier-two and three cities typically connect with landlords one to two months prior to expiry leading to rushed and sometimes above-market rentals. Tenants are exposed to business continuity risk and unprofessional landlords might just have lock-down their premise.”
Cost-cutting measures
- Space saving strategies are not largely considered by the respondents. The largest group (32.5%) did not consider any options such as implementing split operations, a secondary location, flexible working and reducing the allocated working space per person.
- Out of these available space-saving options, reducing the allocated working space per staff was the most popular option (31.1%).
- Hong Kong demonstrated an improved effort to implement cost-saving initiatives: 36.9% of the respondents in Hong Kong did not implement any cost-saving measures, down from 54.0% the year before.
Note: Split operations is defined as moving a portion of the business to a lower cost location. Secondary location is defined as moving all of the business to a lower cost location. Flexible working is defined as shared desks, or ability to work out of the office with HR approval, or formal agreement to work from home, non-dedicated desks etc.
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