Steepest fall in office occupancy cost here

Source : Business Times – 4 Aug 2009

Some firms may expand as rents fall and the economy stabilises

A plunge in Grade A office rents has raised Singapore’s competitive edge somewhat. According to Colliers International, office occupancy costs here were the fourth-highest among 26 Asia-Pacific cities in Q2 this year – down a notch from a quarter ago.

As rents stay weak while the economy stabilises, property consultants also expect some companies to take advantage of the situation to expand.

Colliers noted that monthly gross rents for Grade A offices in Singapore’s central business district (CBD) posted the sharpest fall in Q2, compared with other major cities in the region. Rents slid 26.2 per cent quarter-on-quarter, averaging at $6.73 psf per month in Q2.

As a result, Singapore fell from third to fourth place in a ranking of office occupancy costs. Tokyo remained the most expensive place in the Asia-Pacific to rent an office – average Grade A CBD office rents there were 2.2 times that of Singapore’s, up from 1.6 times in Q1.

Hong Kong also kept its No. 2 spot. Average Grade A CBD office rents there were 1.4 times that of Singapore’s, growing from 1.2 times in Q1. Ho Chi Minh City rose one notch to replace Singapore in third place on the list.

Colliers expects office rents in Singapore to continue falling up till H1 next year, albeit at a slower pace. This is because demand from most companies is likely to stay subdued, while supply of shadow space could increase.

This means that Singapore could continue slipping in the list of the most expensive Asia-Pacific cities to rent an office, said Colliers research and advisory director Tay Huey Ying.

While most companies may be cautious about expansion, some may take advantage of lower rents to grow in anticipation of better times ahead. ‘Flight to quality and opportunistic expansion can be expected to intensify on the back of continued rental weakness,’ Ms Tay said.

Cushman and Wakefield managing director Donald Han agreed, noting that companies have been more willing to relocate to larger premises since May or June this year.

‘The economy now looks like it’s on the mend’ and some companies ‘are budgeting for a possible increase in headcount’ by some 10-15 per cent, he said.

Mr Han added that a few quarters ago, most firms were still watching the rental market and would rather extend their leases than commit to more space. As rental declines moderate, ‘tenants are going to say – how low can it go?’

Colliers cited Dresdner Bank as an example of companies expanding or upgrading their space requirements as office rents fall. The bank will be moving from Tung Centre at Collyer Quay to 71 Robinson Road where it will take up 20,000 sq ft of space.