S’pore office rents tumble more than half

Source : Straits Times – 2 Dec 2009

GREAT news for office tenants in Singapore but far leaner times for landlords: Office rents have plummeted by more than half in the past 12 months.

On average, they fell a whopping 53.4 per cent from their peak in the third quarter of last year to Sept 30 this year – the second-fastest rate of fall in the world. Only rents in Kiev, Ukraine, fell more quickly, by 64.6 per cent.

That meant the Republic fell from 9th spot to No.32 in the latest Top 50 most expensive markets list, according to a half-yearly global survey done by US-based consultancy CB Richard Ellis.

The occupancy cost here – rent plus local taxes and service charges – is now US$63.89 (S$88.25) per square foot (psf) a year, down 23 per cent from six months ago when it was in 15th place. That is down more than half from US$135.13 psf a year ago.

‘We’ve seen a dramatic correction in rents but in a way, it is helping businesses secure far more competitive business costs,’ said CBRE’s executive director, office services, Mr Moray Armstrong.

‘The market is now roughly where it was three years back.’ Just two years ago, Singapore was No. 1 in terms of the highest 12-month rise in occupancy costs across the globe. This threw many tenant companies into a frenzied search for cheaper digs.

CBRE said third-quarter prime office rents hit $7.50 psf on average, after falling nearly 13 per cent from the second.

The vacancy rate for Grade A space rose to 4.2 per cent, from 3.6 per cent in the second quarter and a mere 1.2 per cent a year ago.

Overall, a net 223,397 sq ft of Grade A space was left unoccupied in the first nine months of this year, taking into account new space, CBRE said. And more supply is coming.

Still, nervous office landlords can take heart from a significant pick-up in leasing activity, to a level Mr Armstrong described as ‘frenetic’.

‘It’s a phenomenon of many occupiers getting on with projects that they had to put off in the past 18 months,’ he said.

‘Right now, we’re seeing a very strong resurgence in leasing activities. There’s some evidence of upgrading… of occupiers taking advantage of more competitive rentals of quality space.’

Now that business confidence is improving, the rate of fall in office rents is set to slow, with a slight drop expected in the fourth quarter, said Mr Armstrong. ‘We are cautiously optimistic.’

In an earlier report, Colliers International had predicted a 5 per cent slide in office rents in the fourth quarter due to sustained demand weakness and growing new supply.

Indeed, office rents are not likely to head up any time soon because there is ample supply on the way, experts said.

Worldwide, London’s West End is again the world’s most expensive office market, with an occupancy cost of nearly US$185 psf. Inner central Tokyo is second at US$171.64 psf, with Tokyo’s outer central area in third place at US$139.09 psf.

Hong Kong’s central business district, which registered the fourth largest fall of 40.7 per cent worldwide, took the fourth spot with a rate of US$137.61 psf.