INCREASING office space demand across Asia, including in the Philippines, by Asia-Pacific financial institutions compared with their Western counterparts is an indicator of their diverging fortunes, according to CBRE’s Asia Pacific Financial Sector Trends Report for Q2 2016.
The report released last week by the commercial property services and consulting firm pointed out that globally the financial sector is facing multiple challenges, including tighter regulations, economic uncertainty and technological changes.
In the Asia-Pacific region in particular, regional institutions appear upbeat and are extending their presence across the region, helped in part by the steadily developing Asean Economic Community, which is allowing Asian institutions to set up shop in different countries, including the Philippines.
By contrast, Western financial institutions are in cost-saving mode in the region, in some cases retreating entirely.
The CBRE report noted that on a global basis, Western institutions reduced their total workforce by 13 percent between 2009 and 2015, while in the same period Asia-Pacific institutions expanded their staffs by 34 percent.
CBRE Asia Pacific Senior Director of Research Ada Choi explained, “Shifting patterns in headcount growth have impacted office space requirements. Real estate accounts for an average of 9 percent of financial institutions’ total operating costs. It is therefore crucial for financial institutions to implement more effective real estate and workplace strategies to manage occupancy costs and headcount volatility.”
Solid leasing demand
CBRE said office leasing demand from Asia-Pacific financial institutions remained solid in the second quarter, with most institutions preferring premium grade new office buildings.
“Asian banks are expanding into emerging markets, particularly in Southeast Asia, supported by the liberalization of regulations covering foreign banks. The Philippines saw five regional banks open new offices, including Japanese-based Sumitomo. Meanwhile, Chinese banks have been particularly active in expanding in CBD areas of Hong Kong, Singapore and Sydney. In Hong Kong, mainland financial institutions, especially midsize commercial banks and investment houses, have been a key driver of office leasing demand for Grade A buildings in core areas in recent years,” Choi said.
The report also noted that there was growing demand for outright purchase of office space by Asia-Pacific institutions, compared with a trend towards downsizing and leasing renewals rather than new leases among Western institutions.
International investment banks and commercial banks have been reducing their office footprint in prime areas, a trend that has resulted in a decline in the average size of office leasing transactions in gateway cities such as Beijing, Tokyo, Hong Kong and Singapore. In Singapore, Sydney and Melbourne, western banks have sub-leased their excess space, CBRE noted.
“We see that Asia Pacific institutions currently have a stronger preference for buying, while Western financial institutions constantly evaluate lease-versus-buy decisions in markets where they have a relatively large presence. However, most prefer to have asset-light portfolios and thus prefer to lease. In contrast, Asian financial institutions tend to have a stronger preference for owner-occupation,” Choi said.
The CBRE report highlighted some examples of Asia-Pacific institutions’ major real estate transactions. In Hong Kong, China Everbright purchased Dah Sing Financial Center, and China Life Insurance bought One Harbour Gate West Tower as their overseas headquarters. These purchases followed major self-use acquisitions by Citibank and Manulife in Kowloon East over the past three years, the report said.