Falling occupancy costs place S’pore at 32nd spot; period of stability on the cards
Following a year-long slide in prime office rentals, Singapore’s office occupancy costs have become far more competitive.
Fourteen months ago, the island was the ninth most expensive place to rent offices. By end-March this year, it had slid to 15th spot and by the end of the third quarter, many others had become relatively more expensive and Singapore stood at No 32, according to CB Richard Ellis.
The property consultancy’s latest global office rent survey covered a total of 179 markets and the rankings were in US dollar terms.
CBRE also measured in local currency terms year-on-year changes in prime office rents as at end-Q3. The 53.4 per cent drop for Singapore was surpassed only by Kiev, which suffered a 64.6 per cent decline.
For the latest semi-annual survey, prime office rents in US dollars in six Asia-Pacific markets were higher than Singapore’s – Tokyo’s Inner Central and Outer Central markets, Hong Kong (Central CBD), Mumbai (CBD), New Delhi (CBD) and Hong Kong (Citywide). However, office occupancy costs in Singapore were still higher than Seoul, Perth, Shanghai’s Pudong and Puxi districts and Sydney.
London’s West End regained its status as the world’s most expensive office market, overtaking Tokyo (Inner Central).
Almost three quarters or 131 of the 179 markets tracked posted declines in prime office occupancy costs for the 12-month period ending Sept 30, 2009. Of these, nearly 50 saw double-digit percentage decreases.
‘The office market may be on the cusp of moving from intensive care to the stabilisation stage – the first step to getting back to good health,’ says CBRE global chief economist Raymond Torto.
Forty-one markets reported year-on-year rental increases in Q3. Aberdeen and Rio de Janeiro both grew by more than 10 per cent.
According to CBRE data, Singapore’s gross average monthly rentals for prime and Grade A office space both fell about 53 per cent from their respective peaks of $16.10 per square foot and $18.80 psf in Q3 last year to $7.50 psf and $8.80 psf in Q3 this year.
The quarter-on-quarter rental declines in Q3 2009 – of 12.8 per cent for prime space and 13.3 per cent for Grade A offices – were smaller than falls in the preceding three quarters. CBRE executive director (office services) Moray Armstrong is predicting far smaller declines in the current quarter.
Cushman & Wakefield research director Ang Choon Beng says that monthly prime average rentals at Raffles Place eased 2.6 per cent in the first six weeks of this quarter from end-September. ‘We’re likely to end Q4 with a total drop of about 4-5 per cent from Q3.’
Mr Ang feels that office rents would remain soft next year in the face of considerable new supply.
Mr Armstrong points out that a strong revival in office leasing activity has ’surpassed what we could have anticipated six months ago’.
After three quarters of negative take-up, demand for office space finally turned positive, albeit modestly so, in Q3.
‘I don’t see a dramatic rebound in positive take-up in Q4 2009,’ he says. ‘However, all the leasing activity we’re seeing right now is likely to underpin a return to positive take-up in 2010.
‘We’re entering a more stable period for office rents over the next six to 12 months.’
Agreeing, Knight Frank chairman Tan Tiong Cheng says: ‘With improving business sentiment, landlords firstly will not be panicky and tenants will also give up squeezing (landlords). Hence, the short-term outlook for office rents is more positive.
‘The rest depends on government policy. The authorities believe that keeping office rents affordable will help in Singapore’s competitiveness . . . And they have a range of ammunition to ensure this – including the transitional office scheme, business parks, and considerable amount of good- quality office land set aside for development in Paya Lebar and Jurong East.’
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