Growth in office occupancy costs tapers off in Q2

Source : Business Times - 5 Aug 2008

Prime Raffles Place space up only 1.1% quarter on quarter: DTZ report

Growth in office occupancy costs in Singapore has started to taper off after the meteoric rise last year, reflecting the increased resistance to higher occupancy costs, according to a new report.

‘Apart from Raffles Place, Shenton Way/ Robinson Road/Cecil Street and decentralised areas, growth in occupancy costs in other areas like Marina Centre and Orchard Road was flat in 2Q 2008,’ said DTZ in its second-quarter office market brief.

Average occupancy cost of prime office space in Raffles Place grew only 1.1 per cent quarter on quarter to $19 per square foot per month (psf pm) in the second quarter of 2008.

In the Shenton Way/Robinson Road/Cecil Street area, the average office occupancy cost rose by 2.6 per cent quarter on quarter to $11.80 psf pm, while office buildings in HarbourFront enjoyed a higher growth of 5.3 per cent to $10 psf pm.

By contrast, in the first quarter of 2008, occupancy costs continued to rise amid a dearth of supply. Prime occupancy cost in Raffles Place gained 13.9 per cent quarter on quarter to $18.80 psf pm in the first quarter of 2008, for example.

‘As more new supply come on stream, office occupancy is likely to ease and limit growth in occupancy costs in the CBD for the rest of 2008,’ said DTZ, referring to the Central Business District.

However, the report also said that the cautious business outlook and companies gravitating towards cheaper premises like decentralised office buildings, industrial properties, business parks and disused state properties are putting a downward pressure on office occupancies.

Islandwide, average occupancy eased by 0.2 percentage point quarter on quarter to 96.9 per cent in Q2 2008.

As a result of occupiers moving out to cheaper locations after lease expiration, office occupancies in Raffles Place and Marina Centre dropped by 0.3 percentage point to 97.4 per cent and 1.2 percentage points to 98.6 per cent respectively.

But over in decentralised areas like Novena and HarbourFront, occupancy levels rose by 0.4 percentage point to 99.0 per cent and 1.1 percentage points to 98.7 per cent respectively, supported by lower occupancy costs.

DTZ also released its Q2 2008 office report for Kuala Lumpur yesterday.

Gross occupancy costs for prime buildings in the Malaysian city rose 3.9 per cent quarter on quarter to RM6.32 (S$2.65) psf pm in the second quarter of this year, the property firm said.

But despite this, financial institutions with presence in Singapore are considering locating call centres in Kuala Lumpur because of cost differential and special tax breaks, DTZ said in response to a query from BT.