S’pore sees steepest drop in office occupancy cost

Source : Business Times – 4 Jun 2009

A new report shows that office occupancy costs in Singapore fell a whopping 34.4 per cent in the 12 months to March 2009 – the largest fall among some 170 cities tracked.

CB Richard Ellis’ (CBRE) semi-annual Global Office Occupancy Costs survey showed that Singapore’s occupancy cost stood at US$82.79 per square foot (psf) per year, which put the country at No. 15 on the list of the most expensive markets. Singapore was No. 9 a year earlier with an occupancy cost of US$139.31 psf per year.

This is a reversal from what was seen in CBRE’s last report on global occupancy costs, which said that office occupancy costs in Singapore rose 27.8 per cent in the 12 months to end-November 2008.

The office market here was hit as rents fell off sharply in the first quarter of this year.

‘The fall in office occupancy costs escalated in Q1 2009 with an average decline of 18 per cent across the island,’ said DTZ.

And data from Knight Frank showed that rents of Grade A offices in Raffles Place fell 29 per cent in Q1 2009, while rents of offices in suburban areas declined 15.3 per cent over the same period.

Singapore was not alone. Occupancy costs fell by 20 per cent or more across most of the major global office markets in the 12 months to March 2009.

CBRE considers rents as well as local taxes and service charges when calculating office costs.

‘The great global recession has clearly taken its toll on the world’s office markets, particularly those with significant concentrations of financial industry employers,’ said Raymond Torto, CBRE’s global chief economist.

Across the 170 cities as a whole, office occupancy costs fell 2.8 per cent over the 12 months ending March 2009 compared with an increase of 8 per cent for the 12-month period ending September 2008.

The findings from the survey showed that Tokyo’s inner central district has supplanted London’s West End as the world’s most expensive office market.

London’s West End is now the world’s second most expensive office market, followed by Moscow, Hong Kong’s central business district and Tokyo’s outer central district.

‘The most expensive office markets, as measured in dollars, are considerably less expensive than a year ago and occupiers are now in a strong position to procure prime space at attractive costs,’ said Dr Torto. ‘For instance, a year ago office space in London’s West end was nearly US$300 psf, while today that space goes for $172 psf.’

In the Asia-Pacific region, Hong Kong, Tokyo and Mumbai also posted large drops in office occupancy costs together with Singapore.

The decline in office occupancy cost and rentals is expected to continue, said Andrew Ness, executive director of CBRE Research Asia. However, ‘it is likely that the pace of decline will slow and leasing activity will begin to pick up, especially when corporations become more certain about their business outlook’, he added.

For Singapore, analysts expect office rents to continue to fall as more new supply comes on stream over the next few quarters amid a shrinking demand.

Knight Frank, for one, predicts that rents of Grade A office space could drop by 40-50 per cent for the whole of 2009, with rents of prime office space falling more due to the substantial new supply scheduled for completion.