Asia & The Gulf Commercial Design Trends Asia Commercial Design Vol. 30/9 | Page 45

Below:Distinctive new Grade A
office developments in Singapore
include South Beach Tower,
due for completion in the fourth
quarter of 2014. More than half
the space in the building is under
negotiation and RaboBank has
already secured approximately
2800m2.

With the onset of the global financial crisis
(GFC) in late 2007, financial markets were faced
with an unprecedented shock. While the crisis had
its roots in the US mortgage market, the flow-on
effects through the rest of the financial system
were substantial, and commercial property was
not exempt.
Commercial property was impacted on two
fronts. Within capital markets, at the onset of the
crisis in 2008 and 2009, liquidity dried up, borrowing costs skyrocketed, and many investors were
forced to deleverage. At the same time, the underlying tenant demand for commercial property was
hit as businesses and consumers tightened their
belts. The combined effect was a sharp fall in the
value of many commercial property assets. Income
returns offered some protection, but in many cases
the fall in capital values was large enough to push
total returns into the red.
After 2009, the dynamic shifted as the initial
effects of the crisis wore off and liquidity started
to return to the market. In response to the financial crisis, policy makers globally cut interest rates
and encouraged liquidity with schemes such as
the Troubled Asset Relief Program (TARP) and
Quantitative Easing, while at the same time cutting
interest rates to historically low levels in an effort to
spur growth.
The resulting excess liquidity and low interest
rate environment has seen investors become
increasingly focused on income yield, a fact which
has benefited Asian office markets. From 2010, the
relatively attractive yields on offer for Asian office
property, together with relatively stronger underlying economic growth, have caused an inflow of
international capital, which has helped support
returns. Since 2010, this capital inflow has been the
primary driver of office property returns with yields
firming over most markets.
The impact of the crisis was most pronounced
in the office markets of North America and Europe
where a long run-up in commercial property values
had encouraged borrowing and speculation. Asian
markets were shielded to some degree by more

resilient domestic demand, lower borrowing, less
institutionalised commercial property markets
and less speculative development. Figure 1 below
demonstrates how the office property investment
market cycle in Asia differed from that in the United
States and the United Kingdom.

Figure 1:
In both the American and Asian markets, returns
fell from 2007 and bottomed out in 2009. However,
whereas returns in the United States fell sharply for
two years before recovering, returns in Asia
softened in 2008 and were only marginally negative
in 2009. The UK downturn was also quite pronounced but it preceded the other two markets by
about a year.
Within Asia, the experience was different across
national markets. In Korea and Taiwan, total returns
were never negative. Returns in Korea fell sharply
from almost 27% in 2007 to just over 5% in 2008,
but stabilised in subsequent years. Taiwan’s returns
fell in 2009, but bounced back strongly in 2011 to
double their pre-crisis level. These markets benefited from close links to the Chinese economy and
strong domestic growth. Both these factors kept
the underlying demand for office space high, which
in turn supported returns.
In the remaining markets, returns did dip into
negative territory at some point following the collapse. Hong Kong was somewhat exceptional in
that a trough was reached in 2008, but a sharp
SEARCH | SAVE | SHARE AT my.trendsideas.com

43