By Sigrid Zialcita

The year 2010 was certainly a period of transformation for Asia Pacific, with the momentum shifting from West to East. The region's dynamism led the world into a recovery, which has also been critical for sustaining an unprecedented resurgence in the office sector. South Korea also staged a remarkable growth that has rekindled leasing activity in major business districts, though it lags new supply.

Our annual publication "Office Space Across the World," which was recently released, alludes to this positive development. We ranked the office markets in each country, and the most expensive markets in each country are further ranked vis-a-vis those around the world. While rankings are certainly interesting to note, there are several takeaways from this publication.

First, the global office market is on the mend. Americas, Asia Pacific and Europe-Middle East-Africa all managed to eke out a modest rent growth of 1 percent last year, a reversal from minus 10 percent in 2009. Why? Economic recovery has finally gained traction in most parts of the world, which has helped spur business activity and revive leasing momentum in a growing number of countries.

Asia Pacific is driving the recovery. All economic indicators showed that the region was the world's growth catalyst. Recovery was firmly and broadly taking hold, except for Japan which contracted in the fourth quarter. It is not a surprise that the region was the first to report declining office vacancies and rising rents in most markets throughout 2010.

Additionally, several markets within Asia Pacific figured prominently in the top 30 most expensive locations in the world. Hong Kong, which stood as the most expensive office center, is now the dream city for landlords. Annual rents there rose over 50 percent from 2009 to average $215 per square foot per year, while other occupancy costs, including taxes and service charge, add almost $25 a foot.

However, not all office markets in Asia Pacific are created equal. In Seoul, several office projects with significant availabilities were completed last year in the Central Business District (CBD) including Ferrum Tower and Center One.

As a result, the office rental market in Seoul has stayed subdued ?a far cry from the buoyant regional property market seen in most parts of the region. Grade A vacancies reached all-time highs, causing prime rents in the CBD to remain unchanged from 2009 at 30,394 won/square meter/month, though slightly up in Gangnam and Yeouido business districts at 26,819 won/square meter/month and 19,328 won/square meter/month, respectively. Such results explain the dramatic fall in Seoul's ranking among most expensive locations to 35th from 14th in 2010.

Thus far, 2011 is shaping up to be a repeat of 2010, even though some recent discouraging trends - increasing political tensions in the Middle East and the destruction from the earthquake and tsunami in Japan - are clouding the outlook. Strong corporate occupier demand continues to boost office space absorption and is further pushing up rates in already tight markets within the region.

In Hong Kong, average rents in Greater Central are reported to have been rising 1-2 percent per month. Similar anecdotes have also been reported in competing locations such as Singapore.

The exceptions remain where large supply pipelines are threatening to push up vacancy rates. In Seoul, several office projects totaling close to 380,000 square meters are slated to deliver starting in the second quarter and putting pressure on landlords to continue to offer aggressive concession packages and lower rents to fill up those vacancies.

But let us put this in perspective. Seoul's office rental market has historically been steady, a stark contrast to the boom-bust pattern evident in other markets in the region. This is nowhere more evident than in Grade A vacancy rates, which averaged at an ultra-low level of 3 percent over the past decade, as well as rents, which held up even through periods of economic downturn.

Demand from MNCs and affiliates/subsidiaries of Korean conglomerates has been consistently stable. By comparison, a number of markets in Asia Pacific have been traditionally dependent on the financial sector for driving leasing activity.

Seoul's office market has also no history of heavy development or overbuilding: new supply has only begun to inundate the market in the fourth quarter of 2009. In addition, Seoul boasts three business districts (CBD, Gangnam and Yeouido) that have little cross-district tenant movements and thus, operate independently. As such, Seoul's office market has been less volatile during the past decade relative to other markets in the region.

Overall, we expect tenant-favorable conditions to prevail in Seoul's office rental market until some of the excess supply is absorbed. Rents are poised to fall but not steeply as seen in Hong Kong or Singapore following the global financial crisis. Of course, this phenomenon will play out differently among key markets. New supply in the CBD and Yeuido will likely hold back any rent uptick, but expect the multitude of incentives to strengthen occupancies in these new developments. Meanwhile, the lack of new construction and healthy demand will sustain low vacancies in Gangnam and in turn, fuel moderate rent increases.