Office rents in Asia slump 7.9% in Q1: CBRE

Source : Business Times – 5 May 2009

Singapore, Hong Kong see steepest fall; leasing activity remains subdued

Office rents across Asia sank in the first quarter of this year – with Singapore and Hong Kong suffering the sharpest declines – a report by CB Richard Ellis (CBRE) shows.

Overall office rents in Asia fell 7.9 per cent quarter-on-quarter in Q1, after a 7.3 per cent decline in Q4 2008, according to the CBRE Asia Office Rental Index. Rents have now declined 18.5 per cent from their peak in Q2 2008.

Asia’s major financial centres – Singapore and Hong Kong – continued to see the biggest falls. Rents in Singapore dropped 18.6 per cent, while those in Hong Kong declined 14 per cent. On an annualised basis, corrections in Singapore and Hong Kong have now exceeded 34 per cent, CBRE said.

‘The Asian office property market deteriorated further during the first quarter of 2009 as companies continued to down-size and cut back on costs,’ it said.

Leasing activity remained subdued across the region, with transactions dominated by renewals, although a few deals involving companies relocating to cheaper premises were concluded.

Across many markets, landlords were forced to offer more concessions to retain and attract tenants, CBRE noted: ‘In some major Asian office markets, they are displaying a new willingness to negotiate lease restructuring with tenants they desire to retain.’

In Singapore and Hong Kong, the rise in vacancies was ‘less than what might have been expected and availability remains tight’, CBRE said. But the amount of shadow space due to sub-letting activity continued to rise.

A number of hedge funds in Hong Kong were considering sub-leasing and surrender options during the quarter, while landlords remained under significant pressure to reduce rents still further.

Likewise, Knight Frank said yesterday in a report on Singapore that there are signs that tenants are seeking to cut their occupation costs and, in some cases, are trying to sub-let space.
‘Landlords have needed to offer reduced rents and incentives to retain existing tenants,’ Knight Frank said. ‘There is substantial new supply expected in 2009, which may further dampen rental prospects.’

Leasing activity in the Hong Kong office market has likewise slowed, with corporate occupiers continuing to down-size amid the financial crisis.

‘A number of occupiers appear to be attempting to surrender office space by seeking replacement tenants, while some companies have moved from Central Hong Kong to Kowloon East to save occupation costs,’ Knight Frank said in its report.