Singapore drops 20 spots in office rental ranking

Source : Business Times – 23 Sep 2009

SINGAPORE has fallen out of the list of the 20 most expensive office locations in the world.

This comes after the country posted the second biggest drop in average Grade A CBD office rental values in the first half of this year from end-2008 levels, according to Collier International’s latest Global Office Research Report, which surveyed 170 cities across 53 countries.

However, the Republic’s office supply pipeline is the eighth biggest, with 10 million square feet under construction. ‘This is likely to continue to keep office rents in the doldrums for a while more, despite the improving economic outlook,’ Colliers International said.

Rival Jones Lang LaSalle (JLL) yesterday said the stock of shadow office space in Singapore – this refers to excess space that companies do not need and try to sublet – has shrunk from about 800,000 sq ft in July this year to roughly 700,000 sq ft this month. ‘Some major financial institutions that were previously looking to sublease office space have aborted their plans in view of improved hiring expectations,’ JLL said.

Office-leasing activity has increased significantly although much of the demand is a result of a ‘flight to quality’ rather than expansion plans, says JLL’s head of commercial leasing Chris Archibold. ‘The recent uplift in market activity is centred on new office buildings scheduled for completion in 2009, as well as 2010 and 2011 for some major occupiers. We expect leasing activities to pick up in these buildings over the next two quarters as companies take positions on business strategies including headcount planning,’ he added.

JLL’s preliminary numbers show the monthly average gross effective rent of Prime Grade A properties in CBD Core fell by 12.6 per cent quarter on quarter to $8.30 per square foot (psf) in Q3 2009. The average rental is now below the 20-year historical average of $8.40 psf per month after sliding 54.9 per cent from the peak of $18.40 psf per month in the same quarter last year. There have also been instances of landlords offering ‘cash subsidies’ to fund fitting-out costs of new tenants moving into their buildings. ‘Rent-free periods, while negotiated on a case-by-case basis, are also becoming more widespread as landlords sought to maintain headline rents,’ JLL said.

With a substantial supply pipeline and no significant improvement in new demand, a potential supply glut continues to cast a shadow over the office market, JLL says. ‘We expect average rentals to continue to come under pressure,’ said JLL’s head of SE Asia research Chua Yang Liang.

This quarter, CBD Core office stock increased by nearly 600,000 sq ft from the completion of 71 Robinson Road, Mapletree Anson and 78 Shenton Way’s South Tower.

Colliers’ survey showed that as at end-June this year, Singapore was the 26th most expensive office location, down from sixth position as at end-2008. ‘In H1 2009, the Singapore office property market appeared to be one of the most severely affected by the lingering global financial crisis,’ Colliers said.

The island’s monthly average Grade A CBD office rental in local currency terms as at end-June 2009 was 42.3 per cent lower than the end-2008 figure, according to Colliers.