Office and shop prices stop falling

Source : Straits Times – 23 Jan 2010

OFFICE and shop prices appear to have bottomed out at the end of last year.

Both categories of commercial property saw small price rises in the fourth quarter, ending five quarters of decline.

Office prices rose by 1 per cent while shop prices inched up 0.6 per cent, said the Urban Redevelopment Authority. But office prices were still down 16.4 per cent for last year as a whole, and are 24 per cent lower than their peak in 2008. Similarly, shop prices fell 6.1 per cent for the whole of last year, and are still 11 per cent down from their 2008 highs.

‘On the whole, the office market weathered the storm much better than anticipated,’ said Mr Li Hiaw Ho, executive director of CB Richard Ellis Research.

But while sellers of commercial property may be cheerier, landlords are less so.

Office and shop rentals continued to fall in the fourth quarter, for the sixth consecutive time. Office rentals fell another 3.3 per cent, bringing the full-year decrease to a sharp 23.6 per cent. Shop rentals fell 1.4 per cent in the quarter, ending the year down 7.4 per cent.

But property consultants noted that the rate of decrease is slowing, and rents may even rise next year. ‘The expected economic recovery in 2010 will give a boost to business sentiment,’ said Ms Tay Huey Ying, Colliers International’s director for research and advisory.

Still, the upcoming supply of more than 2.5 million sq ft of office space will weigh on the market in the short term, she said. She expects office rents to ease by another 5 per cent in the first half of the year before bottoming out.

One good sign: With lower rents, tenants are taking up more office space.

The amount of office space taken up in the fourth quarter jumped 10 times from that in the third quarter, from 32,292 sq ft to 301,392 sq ft. This meant the office vacancy rate dipped to 12.1 per cent in the fourth quarter, even though an extra 226,044 sq ft of new office space was completed, said Mr Li.