Office rent decline eases as confidence returns

Source : Business Times – 18 Sep 2009

Recovery seen next year, but market remains fragile in short-term

OFFICE rents fell for the fourth consecutive quarter, but the pace of decline has eased on the back of returning business confidence, a new report from CB Richard Ellis (CBRE) showed.

Data from the firm said that prime office rents averaged $7.50 per square foot per month (psf pm) in the third quarter. This reflected a 12.8 per cent quarter-on-quarter decrease, compared with the 18.1 per cent decline in Q2 2009 and 18.6 per cent contraction in Q1 2009.

In all, prime rents have fallen 53.4 per cent since their peak in Q3 last year.

Similarly, rents of Grade A office space – which is the top range of prime office space – slipped to $8.80 psf in Q3 2009. This represents a 13.3 per cent quarter-on-quarter decline, which is an improvement over the 18 per cent contraction in Q1 and 17.5 per cent decline in Q2.

However, vacancy rates continued to climb. Grade A vacancy rose to 4.2 per cent in Q2 2009, up from 3.6 per cent in the past quarter. It was 1.2 per cent just a year ago in Q3 2008. The take-up for Grade A space for the first three quarters in 2009 amounted to negative 223,397 sq ft. Likewise, the islandwide take-up was negative 570,000 sq ft for the first half of the year.

About 575,000 sq ft were added to office stock in Q3 with the completion of 78 Shenton Way’s south tower, Mapletree Anson, The Spazio and land parcel B at Scotts/Anthony Road.

The occupancy rate for Tanjong Pagar fell from 86.2 per cent in Q1 this year to 80.1 per cent, primarily due to the recent completion of Mapletree Anson and 78 Shenton Way’s south tower.

Demand is likely to remain in negative territory for the rest of this year, CBRE said.

‘Going forward, vacancy rates can be expected to remain double-digit through the next couple of years due to the high volume of supply, although we expect the recovery in office market to kick in earlier in 2010 rather than in 2011 as estimated earlier,’ said the report. ‘Nonetheless, the office market will remain fairly fragile in the short-term – a condition that all in the industry should recognise even as other sectors such as residential are subject to scrutiny and possible measures to curb speculation after a frenetic period of sales activity.’

The office investment market was also reasonably active in Q3, dominated by local developers buying for development potential as well as owner-occupation. Most of the properties transacted were of a smaller plot size and with a price tag within the $50-65 million range.