Still the third most expensive for office rents

Source : Today – 5 Aug 2010

Singapore has held on to its position as the third most expensive office location in the Asia-Pacific region for the second quarter of this year, according to Colliers International’s latest Asia Pacific Office Market Overview.

Singapore commanded annual gross rents of about US$58 ($77) per square foot (psf) in the second quarter, while Tokyo and Hong Kong took top and second spot with rents of around US$101 psf and US$89 psf, respectively.

Sydney and Mumbai completed the top five most expensive office locations in the report.

“The overall office leasing demand in the region showed no signs of abating in 2Q2010, despite the imminent threat of a sovereign debt crisis in Europe,” Colliers said in its report.

Occupiers engaged in the financial services sector dominated leasing demand, particularly in financial hubs like Hong Kong and Singapore.

Mr Donald Han, managing director (Singapore) at real estate consultancy Cushman and Wakefield, believes a combination of consolidation and upgrading among tenants will be the key trends driving the second half.

Apart from the financial sector, growth will be broadened by other industries such as professional services and shipping companies, he said.

Landlords of Grade A properties in Singapore have less to worry about considering the three-consecutive-quarter increase in the absorption rate, observed Mr Han.

He cautioned that the flight to quality among tenants will likely put pressure on landlords of older buildings to refurbish and re-position themselves.

Analysts said Singapore’s office rents are expected to strengthen further by 10 per cent in the second half this year. This is because, despite the rise in the second quarter, office rental rates are still 60 per cent below the peak in late 2007.

Lower rentals in CBD expected to dampen office rents in city fringe

Rental growth for transitional offices located in the city’s fringe is expected to slow in the months to come but such offices can maintain their yields, if they are located in areas around Scotts Road and Mohammed Sultan.

Office rents in the Central Business District have slipped some 60 per cent from their peak in 2008 and that has prompted some companies to move back into the city.

Analysts said the pick up in demand will help rental recovery for prime offices in the CBD, but transitional offices could see slower rental growth instead.

Market watchers said prices for transitional office space have held steady at $5 to $6 per square foot (psf), just slightly down from their $8 highs two years ago.

Meanwhile, CBD prime office rentals have slipped to around $8 psf, down from $18 to $21 psf recorded in 2007 and 2008.

Link (THM) Holdings chairman Kenny Tan said: “We have put in the effort into not just building a transitional office. We are building something which is up to what the market requires, which is closer to A-grade office area.

“We are asking for rentals which are just 20 per cent below the CBD areas, while being two minutes away from the CBD.”

Another plus: Tenants at transitional offices outside the city will not have to bear extra cost, such as Electronic Road Pricing charges.

Source : Today – 17 Jun 2010

Office rents in prime financial district up by 25% over next two years: analysts

Rentals for international Grade A office space in Singapore’s financial district may climb at least 25 per cent in the next two years.

Analysts said Grade A office rents have already hit bottom, and will likely pick up from the second half of this year.

Singapore’s Marina Bay Financial Centre is one of prime areas in the city offering a new generation of office buildings.

They are less than 10 years old and are classified as “International Grade A” office space.

Analysts said these newer premises are normally in high demand from companies like financial institutions and law firms, which want to expand and consolidate their offices in one location.

And that is giving support to rentals.

“Because the economic condition is better than expected, as compared to the same time last year, tenants are more confident in expanding, and landlords are becoming more confident holding their rents,” said Donald Han, MD of Cushman & Wakefield.

Cushman and Wakefield expects prime Grade A office rents to rise between 5 and 10 per cent in the second half.

But analysts said what may drop or remain soft are the rents of Grade A or Grade B buildings, or those that are more than 10 years ago.

OCBC Investment Research believes there could still be an oversupply in non-Grade A office property space in Singapore.

Official figures show that some 8.3 million square feet of office space is due for completion between 2010 and 2012. And this may increase available office space by 11 per cent in two years.

Nomura said over the past six months, there has been a surge of pre-commitment deals for international Grade A office space, as companies look to house their operations under one roof.

“We think that office rents will start to pick up quite significantly over the course of 2009 to 2012. We are looking for rental levels to pick up around 28 per cent for international Grade A office space, and about 16 per cent for the normalised Grade A space,” said Tony Darwell, executive director of Nomura Singapore.

Looking ahead, analysts said some companies are already committing as early as one year before their current leases expire.

Source : Channel NewsAsia – 3 Jun 2010

S’pore drops to 43rd in office costs rankings

Source : Business Times – 23 Jan 2010

SINGAPORE has dropped to 43rd place from 10th in DTZ’s latest ranking of office occupancy costs around the world, and is a cheaper place for businesses compared with other Asia-Pacific cities such as Tokyo and Hong Kong.

According to the property consultancy, annual occupancy costs per workstation in offices at Raffles Place fell 49 per cent, to US$8,440 in 2009 from US$16,610 in 2008. The slump ‘was triggered by weak demand and a substantial amount of new supply, which dragged down rents and thus total occupancy costs,’ DTZ said in a report.

London’s West End was the most expensive office location in 2009, up from fifth place in the previous year. Tokyo’s Central 5 Wards was ranked second, down from first. In third spot was Washington DC, which rose four places.

Hong Kong kept its fourth position even though annual occupancy costs per workstation there dropped 22 per cent to US$16,970 last year. It was the only other Asia-Pacific city apart from Tokyo to be within the top 10.

Other Asia Pacific cities ranked above Singapore include Sydney, Mumbai and Brisbane.

DTZ expects Hong Kong to ’strongly outpace’ Tokyo by 2013. Its annual occupancy costs per workstation could rise to US$23,800 then, exceeding Tokyo’s US$21,160.

The consultancy estimates that annual occupancy costs per workstation in Singapore could slide another 17 per cent to US$7,020 this year. They might start climbing to reach US$7,840 in 2013, but are unlikely to surpass 2009 levels. ‘This is driven by surplus space driving down rents in the near term,’ it said.

DTZ added that companies in Singapore are set to benefit not just from low occupation costs. There will be ‘a wider and better pool of properties to choose from – the office market will offer tenants real value for money in the current climate’.

Orchard rents end year-long fall

Source : Straits Times – 22 Dec 2009

IN KEEPING with the festive decorations lighting up the prime Orchard retail belt, landlords on the famous strip have just received news bound to brighten the gloomy mood cast by the downturn.

After four straight quarters of decline, rents for first-storey Orchard Road and Scotts Road retail space inched up 1 per cent to $39.70 per sq ft (psf), a month after falling 7.3 per cent since the third quarter of last year.

Rents in suburban areas seem to be stabilising as well, buoyed by the upswing in the economy, property reports suggest.

The report, from DTZ Research, also said prime first-storey gross rents in suburban areas rose 1.5 per cent quarter-on-quarter to $33.50 psf per month.

However, rents in fringe city areas such as Great World City and Bugis Junction continued to fall. These malls miss out on local residents, who patronise suburban malls, and the tourist crowd that heads to Orchard, said DTZ South-east Asia research head Chua Chor Hoon.

She added that leasing activity has increased as retailers gain more confidence along with the economic recovery: ‘There is strong demand for prime first-storey space, evident from the little availability and speed at which they are taken up, despite the amount of new space that has come up along Orchard Road.’

An estimated 2.6 million sq ft of new retail space, including 313@Somerset and Mandarin Gallery, were added to the stock this year – the most ever seen. A major revamp of Orchard Road alone has meant almost 1.4 million sq ft of new retail space.

At the start of this year, things had looked quite bad. Prime shop rents in Orchard Road had fallen for the first time in five years in the fourth quarter of last year, as consumers tightened their belts and new malls flooded the market.

CB Richard Ellis (CBRE), for one, painted a gloomy picture in March, tipping a 15 per cent to 20 per cent fall in Orchard Road prime rents this year as the economy slumped.

Many retailers had cried out for rent cuts as they saw the economic crisis further undermining already weak sales.

However, things are now looking up, with CBRE reporting $801.5 million worth of retail investment transactions concluded in the fourth quarter, making up 85.5 per cent of the full-year total.

Most analysts have also revised their forecasts, expecting prime retail rents to end the year down 3 per cent to 6 per cent.

Next year looks far brighter. Ms Chua expects prime retail rents in Orchard Road and suburban areas to move up by 2 per cent to 7 per cent. Property consultancy Knight Frank’s managing director Danny Yeo expects a 1 per cent to 3 per cent increase.

‘With the major malls in Orchard already open, prime retail space is now dwindling quickly, so retailers have fewer choices available… The market is also less uncertain, so landlords can afford to increase rental,’ he said.

CBRE said the year ahead looks exciting given the opening of the two integrated resorts (IRs), more underground retail space at Marina Square, Raffles City, Marina Bay and Circle Line stations, and suburban malls in Clementi and Bedok.

However, it was less bullish, predicting Orchard rents will dip 5 per cent to 10 per cent next year as businesses and trading patterns adjust to the completion of the new malls. CBRE expects rents to stabilise only in the next 12 to 18 months.

A spokesman at Mapletree, which has property interests, said: ‘In recent months, the economic statistics have improved and, with that, consumer confidence has risen in tandem and people are spending again. This has a direct correlation with retailers’ confidence in the recovery in the market.’

CapitaMalls Asia retail management (Singapore) general manager Teresa Teow also said retailers were more optimistic, with some looking at expansion again.

Dr Kenny Chan, managing director of watch chain The Hour Glass, also said he has seen consumer confidence improve, with an increase in spending compared with the same period last year.

DTZ Research estimates the new supply of retail space in Orchard Road will fall to 165,000 sq ft next year – just 7 per cent of the almost 2.4 million sq ft of new retail space projected, mostly at the IRs and at Nex in Serangoon Central.

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More retail space

Almost 1.4 million sq ft of retail space were added to Orchard Road this year as four new shopping malls opened.

Mandarin Gallery: 126,000 sq ft
Ion Orchard: 710,420 sq ft
Orchard Central: More than 250,000 sq ft
313@Somerset: 294,000 sq ft

Prime rents in CBD area down 4.9% in Q4

Source : Business Times – 17 Dec 2009

Rental gap between newly completed and existing Prime Grade A blocks expected to widen

The average monthly rent for Prime Grade A office in the CBD core has fallen at a slower pace in the current fourth quarter, slipping 4.9 per cent from Q3, according to data from Jones Lang LaSalle (JLL).

This is a smaller quarter-on quarter decline than the drops of 13.7 per cent in Q3, 11.6 per cent in Q2 and 28.1 per cent in Q1 this year.

The $7.80 per sq ft average rental value in Q4 reflects a 47.8 per cent full-year slide. Against the high of $18.40 psf set in Q3 last year, the figure is now off 57.6 per cent.

JLL says the gap between newly completed Prime Grade A and other existing Grade A buildings is likely to widen over the next few years as new developments are completed. The gap is now 85 cents or 11 per cent. But it has been much wider – at $2 or more in Q3 2006, most of 2007 and even as recently as Q4 last year. In percentage terms, the difference was widest in Q3 2006, when rent for newly completed space was about 28 per cent higher than for existing offices.

Over the next three years, the average annual supply of new office space will be almost 2 million sq ft in the CBD core, and this is likely to dampen rental growth, says JLL’s head of SE Asia research Chua Yang Liang.

For new Prime Grade A properties that have been well received by the market so far, rents may bottom out as early as H2 2010. However, rents in existing office blocks may continue to slide until the end of next year, as vacancies are expected to rise on the back of a ‘flight to quality’ by tenants.

JLL also says shadow office space – surplus stock put up for subletting by occupiers – has shrunk to about 600,000 sq ft this quarter from some 800,000 sq ft at its peak in Q2 2009.

If global and regional economies remain on the recovery track, JLL believes leasing activity is expected to become increasingly stronger during 2010, as companies become more confident about business prospects.

Rental gap to widen for new and old prime offices

Source : Straits Times – 17 Dec 2009

THE end is in sight when it comes to the supply glut in office space here, at least in terms of falling rental levels.

A leading property consultancy says new prime Grade A office properties – premium office space in prized locations – hold a clear advantage. In a new report, Jones Lang LaSalle has identified a growing rental gap between these new properties and existing prime Grade A office space. In other words, given a wide choice, tenants will tend to opt for the glitzy new building, even if it costs somewhat more.

The consultancy believes rental levels of the new premium space will bottom out in the second half of next year – as early as July. However, rentals of existing office buildings may touch their low point around December.

It said the growing rental price gap between newly completed prime Grade A buildings and existing prime Grade A buildings is similar to a trend in 2006. Back then, the new space commanded a premium of about 28 per cent, or $2 per sq ft per month.

Jones Lang LaSalle’s preliminary estimates show average gross effective rents of Grade A office properties in the heart of the CBD hit $7.80 per sq ft a month in the fourth quarter, down 4.9 per cent from the third.

Office rents here have been falling as demand slows and supply grows. Experts anticipate that rents will continue to fall into next year, though at a slower pace.

The good news for landlords: Activity has picked up lately, with many financial institutions planning for moderate growth – and more space.

Landlords competing for tenants are lowering rents and rolling out incentives at a moderate pace.

Islandwide ’shadow space’ – surplus space that companies carve out to sub-let to others – shrank to 600,000 sq ft in the fourth quarter, from 800,000 sq ft at its peak in the second quarter of this year.

This was because companies withdrew some of the shadow space they were previously marketing, said Jones Lang LaSalle.

Apart from Raffles Place, office rents in Tanjong Pagar, Suntec City area and Harbourfront are likely to touch bottom by the second half of next year, and stay flat in 2011, said Colliers International’s executive director (commercial), Mr Calvin Yeo.

The rate at which the market is able to absorb available space is crucial when more new supply comes onstream from next year, said Jones Lang LaSalle. Over the next three years, new supply in the core central business district will amount to almost

2 million sq ft a year, and ‘is likely to put a dampener on rental growth’, said its head of research of South-east Asia, Dr Chua Yang Liang.

The firm’s regional director and head of markets, Mr Chris Archibold, expects leasing activity to rise further next year if the global recovery keeps up.

‘Many large MNCs see business opportunity ahead and are planning for moderate growth, but are having difficulty establishing headcount due to the uncertainty ahead,’ he said.

Office rentals decline slowed in Q4

Source : Channel NewsAsia – 16 Dec 2009

The rebound in economic activity has lifted demand for office space in the fourth quarter, slowing down the rate of rental decline.

Jones Lang LaSalle said on Wednesday preliminary estimates showed that in the last three months of the year, the average gross effective rent of Prime Grade A properties in the CBD core area has fallen 4.9 per cent on-quarter to S$7.80 per square foot a month.

Around 1.2 million square feet of good quality office space came on-stream in the CBD core area this year, and about 46 per cent of these new spaces have been taken up.

However, the rentals of existing office buildings may continue to fall till the end of 2010 as vacancies are expected to rise on the back of a ‘flight-to-quality’.

Jones Lang added that the new supply, amounting to almost 2 million square feet per year in the CBD core area over the next three years, is likely to put a dampener on rental growth.

Nonetheless, landlords have turned more positive with the return of market activity and the recovery of the office market seemingly in sight. Most landlords who have secured their buildings’ occupancy are maintaining their rentals.

However, those that are competing for tenants to fill up their buildings continue to lower rentals and roll out incentives, including rent-free periods and capital expenditure subsidies, albeit at a more moderated pace.

Jones Lang said if the global and regional economies remain on their recovery track, leasing activity is expected to become increasingly stronger next year as firms become more confident about the business outlook.

It added that given the recent developments in the office market, the end of the down cycle may be near.

Rental gap between office, high-tech shrinks

Source : Business Times – 15 Dec 2009

This pares incentive to relocate, curbs flight from CBD Core

The rental gap between office and high-tech industrial space has narrowed over the past year due to a bigger correction in office rents than in high-tech rents.

This has reduced the need for companies to adopt the ‘decentralisation strategy’ which was popular in the 2006-2008 period when office rents were soaring.

Back then, occupiers that satisfied industrial usage guidelines decided to move out qualifying operations from office buildings in the CBD to business park/high-tech buildings in the suburbs to trim occupation costs.

For instance, financial institutions opted for high-tech space for their back-end data processing centres and data back-up and disaster recovery centres while continuing to maintain city offices for their frontline sales/marketing functions.

Jones Lang LaSalle figures show that the gap in monthly gross effective average rents between CBD Core office space and high-tech space is now at about $3.35 per square foot – compared with a $9.25 psf difference when the gap was at its widest in Q2 last year. In Q4 last year, the difference was $7.30 psf.

At its narrowest, in the third quarter of 2003, the gap was $1.80 psf.

‘We expect this gap to continue to compress in 2010 as the office market is likely to continue to experience larger correction than high-tech space,’ said Chris Archibold, Jones Lang LaSalle regional director and head of markets.

‘As the gap narrows, the incentive to relocate from office to high-tech industrial space diminishes. In fact, the recent outward flight from the CBD Core office market has ceased and this is likely to maintain in 2010.’

Mr Archibold reckons that a reversal of trend is plausible but not likely, given tenants’ concern that office rents could spike again in the future.

Angela Tan, DTZ South East Asian head of occupational and development markets, observes too that ‘the previous trend of companies decentralising or splitting back and front offices to reduce cost, has also slowed as the rental gap between city and suburban locations has narrowed’.

JLL’s CBD Core office basket covers Raffles Place, Shenton Way and Tanjong Pagar.

The average monthly rental value in this basket stood at $5.90 psf as at Q4 2009 based on preliminary estimates, a decline of 46.6 per cent from $11.05 psf in Q4 last year.

This decrease outpaced a 32 per cent drop in high-tech rentals over the same period, resulting in a narrowing of the rental gap between the two types of space.

The average monthly rental for high-tech space stood at $2.55 psf in Q4 2009, compared with $3.75 psf in Q4 last year.

Office rents may end long slide to basement

Bottom in sight in 2010, observers say; leasing activity is gathering steam

The Singapore office market has seen its prospects improve dramatically since a gloomy start this year.

While office rents are still expected to dip further next year, although at a much slower pace than over the past 15 months, an unexpected flurry of leasing activity recently has led some to predict a bottoming-out of office rents as early as mid-2010.

‘We are currently witnessing a strong recovery in leasing activity. Some tenants are even starting to look at expansion,’ says CB Richard Ellis executive director (office services) Moray Armstrong.

Property consultants are predicting a return to positive office demand to the tune of more than one million sq ft next year on the back of economic growth. But with over 2.7 million sq ft of new space slated for completion in 2010, vacancies will continue to rise and rents dip, albeit at a slower clip than in 2009.

Older buildings suffering a flight of tenants to new projects still face a challenging year ahead. Still, some expect the authorities to keep a close watch on the Republic’s competitiveness in office rents. Mr Armstrong suggests ‘it is not unrealistic to foresee that the government may release a couple of prime office sites in the Marina Bay area in the second half next year’.

‘A lot will hinge on how the office market performs in the next three months. The government wants to ensure the supply pipeline is healthy so that businesses feel confident about Singapore’s ability to meet long-term demand for growth from headquarters and corporates.’

Jones Lang LaSalle’s regional director and head of markets Chris Archibold acknowledges ’some talk in the market that office supply may become limited in 2013 and 2014 in the CBD Core’. ‘The Singapore government is likely to continue monitoring the office market and inject supply into the market through the reserve list in anticipation of an upturn to avoid the supply crunch we saw in 2007,’ he added.

CBRE data shows gross average monthly rental value for Grade A office space has slipped 7.95 per cent quarter on quarter to $8.10 per square foot in Q4 this year. This is the smallest q-on-q drop since office rents began falling in Q4 last year. The latest Q4 2009 figure reflects declines of 46 per cent for the whole of 2009 and 57 per cent from the peak of $18.80 psf in Q2/Q3 last year. CBRE is projecting a further contraction of 13.6 per cent next year to reach $7 psf by end-2010.

Colliers International’s average grade A rental data for various CBD micromarkets show q-on-q dips of 1.9 per cent in Raffles Place/New Downtown and one per cent in Bugis/ Beach Road in Q4 2009, with rents unchanged in Shenton Way/Tanjong Pagar, City Hall/Marina Centre and Orchard Road. For the whole of 2009, the falls ranged from 42 to 53 per cent, but Colliers predicts rental declines will moderate to ‘within 5 per cent’ in the first six months of next year from current levels.

DTZ projects a 15-20 per cent drop in average monthly rental value for prime office space in Raffles Place next year, which it says has halved this year to $7.90 psf from $16 psf in Q4 2008.

Mr Armstrong sees rentals stabilising around mid-2010 particularly for better-quality buildings. DTZ’s SE Asia head of occupational and development markets Angela Tan says rents will likely bottom in 2011. ‘If the economy grows more strongly than expected, rents could bottom earlier in end-2010.’

The completion of new projects is creating a two-tier market. Says JLL’s Mr Archibold: ‘Given the pick-up in leasing activity, we expect the bottom in rentals for new prime Grade A office buildings to be as close as H2 2010. However, there’s likely to be longer downward pressure on rentals in existing prime Grade A office buildings as landlords seek to backfill vacancy caused by tenants relocating to new developments.’

Mr Archibold points to a ‘flight to quality’ by occupiers with leases expiring in older buildings to newer, higher-quality buildings, riding on lower rents and the larger contiguous spaces that could enable them to consolidate operations into a single location.

On a brighter note, CBRE’s Mr Armstrong says he has started seeing some of the resurgence in leasing activity being driven by expansion and not just replacement needs. This is laying the foundation for decent positive take-up.

Analysts expect positive demand to continue this quarter following the modest turnaround in Q3. However, with some 570,000 sq ft of negative demand in H1 2009, the year will still end in negative territory. Colliers’ executive director (commercial) Calvin Yeo forecasts positive demand of 1.55 million sq ft in 2010; CBRE predicts positive take-up of about one million sq ft next year and 2 million sq ft in 2011.

Meanwhile, shadow office space – surplus stock put up for subletting – has fallen to about 256,000 sq ft from 583,000 sq ft at its peak in June 2009, says Mr Yeo. ‘We expect shadow space to dissipate by H2 2010 as the economy recovers.’

Colliers estimates islandwide office vacancy rose from 12.2 per cent as at end-Q3 2009 to 12.8 per cent as at end-2009. On a full-year basis, this is a 4 percentage point rise. Mr Yeo expects the figure to inch up 1.1 points to 13.9 per cent by end-2010.

Source : Business Times – 11 Dec 2009

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.

Office rentals slide to a competitive perch

Source : Business Times – 2 Dec 2009

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.’

Singapore plunges from #9 to #32 in global office rental price list

Source : Channel NewsAsia – 1 Dec 2009

Office rentals in Singapore have plunged dramatically, causing it to fall to the 32nd spot in a list of the world’s most expensive office market.

Previously, Singapore took 9th spot on the list in the year-ago period and was in 15th place just six months ago.

Property consultant CB Richard Ellis (CBRE) said Tuesday Singapore saw a 53.4 per cent on-year decline in rents.

Singapore’s office occupancy cost now stands at US$63.89 per square foot per annum.

A year ago, the rent here stood at US$135.13 per square foot per annum.

Singapore saw the second steepest on-year drop in rentals, behind only Kiev, which fell by 64.4 per cent.

London’s West End is again the world’s most expensive office market with rents at US$184.85 per square foot per annum.

Tokyo’s Inner Central district came in second, with Tokyo’s Outer Central district in third spot.

Rounding up the top five are Hong Kong’s central business district in fourth place and Moscow finishing fifth on the list.

CBRE said office markets worldwide are experiencing declines in prime office occupancy costs.

Overall, prime office occupancy costs saw an average on-year drop of 7.7 per cent worldwide.

The semi-annual Global Office Rents Survey by CBRE tracks office occupancy costs in nearly 180 cities around the globe.

High-spec space losing favour due to low office rents

Source : Business Times – 12 Nov 2009

HIGH-spec industrial space has lost favour with tenants in the past few months. As office rents plunged, some companies have gone back to leasing commercial space, says Colliers International.

The move has, in turn, driven down rents for high-spec space. According to the property consultancy, the average monthly gross rent of high-spec space fell 14.1 per cent to $2.93 per square foot at end-September from $3.41 psf at end-March.

The lower rents reflect stiff competition for tenants, Colliers said, adding that some companies had taken advantage of the sharp drop in office rents to relocate to office premises.

This marks a reversal of the trend that started in 2007. As office rents soared on the back of a booming economy, more firms moved away from the central business district to cheaper high-spec industrial space.

But office rents have plummeted amid the economic slowdown. CB Richard Ellis said in September that monthly prime office rents averaged $7.50 psf in the third quarter, dropping 12.8 per cent from the previous quarter. They have fallen 53.4 per cent from their peak in Q3 last year.

Colliers said that on top of shrinking demand, a large supply of high-spec space is expected to appear next year, which has also contributed to falling rents.

In contrast, rents for some factories and warehouses have been relatively stable. Colliers said that from end-March to end-September, the average monthly gross rent of single-user factories in central Singapore stayed firm at $1.30 psf, while that of warehouses in eastern Singapore held up at $1.20 psf.

And on a positive note, Colliers said that there has been a noticeable pick-up in sales of industrial space. These involved mainly private investors, owner-occupiers and domestic companies.

While industrial space markets across the Asia-Pacific appear to be bottoming out, Colliers remains cautious in its outlook. It believes that these markets could stay subdued in the next 12 months, given that the global economy is still recovering and excess manufacturing capacity still exists.

Colliers research and advisory director Tay Huey Ying expects rents and capital values of factories and warehouses in Singapore to rise by up to 5 per cent in the next 12 months ‘on the back of the expected improvement in the economy and the manufacturing sector, as well as more optimistic business sentiment’.

Singapore Land says office market to weaken as supply increases

Source : The Edge – 6 Nov 2009

Singapore Land, a property developer and landlord that reported a gain in quarterly profit, said that the market for office space is expected to be “weak” as new buildings are completed in the city-state.

“The office market is expected to be weak in view of the significant new supply,” the company said today in a statement, announcing a 41% gain in profit for the three months to Sept. 30 of $56.3 million. “Retail market rents are expected to soften,” it said.

“The market for private homes is showing signs of recovery although the pace is still uncertain,” the statement added.

Office market here is still active

Source : Business Times – 24 Sep 2009

The vacancy rate in prime Grade A buildings rose from 1.8% in Q3 2008 to 6.1% in Q2 this year

THE office market here, like many around the world, has seen a fundamental shift in dynamics over the last nine months, with a marked drop in demand since the collapse of Lehman Brothers a year ago leading to a drop in rents. While all markets are cyclical, Singapore’s commercial property market has seen rental fluctuations that are typical of a more volatile market such as Hong Kong.

The reason for this is that many new developments were cancelled or delayed during the Asian financial crisis/Sars period in 2002-2004. The typical four-year construction period for a Grade A office building means that there is a lag in the supply pipeline, which was adversely affected from 2006-2008.

These were the years which saw a substantial increase in demand for office space. Much of it came from the financial services sector, partly as a result of the global growth of this sector and partly as a result of Singapore’s successful repositioning as a global financial services centre.

Jones Lang LaSalle’s research shows that from the bottoming out of the market in 2004 to the peak in Q3 2008, Grade A core CBD vacancy shrank from 11.6 per cent to 1.8 per cent and rents surged by 303 per cent. Post credit crisis, the negative take-up and concerns of over-supply have led to rents dropping by 48 per cent between Q3 2008 and Q2 2009.

Market sentiment tailed off rapidly between Q4 2008 and Q1 this year as occupiers began to give up space at the same time that some of the new developments were completed. The result is that the vacancy rate in prime Grade A buildings rose from 1.8 per cent in Q3 2008 to 6.1 per cent in Q2 this year.

A number of occupiers tried to mitigate part of their outgoings by either subletting or finding replacement tenants for their space. By June, ’shadow space’ – currently leased space that occupiers are looking to dispose of, including space not available until 2010 – stood at 800,000 sq ft. If shadow space is included, the vacancy rises by about 30 basis points.

Part of the decline in sentiment has been caused by concern over future supply. Singapore has a larger than normal supply pipeline, especially in the core CBD. That said, there is an argument that in order to attract inward investment, Singapore has to constantly upgrade its office space offering and the new buildings coming to the market are, in the main, well specified and offer a significant upgrade to occupiers.

In the short term, net take-up is expected to remain low as there has not been any uplift in new office demand despite a less pessimistic economic outlook. Interestingly, the first two months of Q3 have seen significantly higher activity in the office market. There are two main reasons behind this increased activity.

Firstly, activity that is lease expiry driven. Given that the first wave of the long awaited new supply has now started to hit the market, there is some vacancy in the market and tenants now have real options. On the back of this we are seeing a discernible flight to quality in favour of the new developments ready this year.

The biggest roadblock to relocating today is a lack of budget for capital expenditure (capex). On the back of this, a number of active inquiries are focused on fully fitted ’shadow space’ that negates the need for capex spend for fit-out.

Secondly, there are quite a number of large occupiers (50,000 sq ft plus) in the market who have been sitting on the sidelines for the last nine months for various reasons. They might not have been able to accurately predict their future headcount, lacked a capex budget, or else anticipated a weaker market ahead.

These occupiers are now coming to market as it has fallen significantly. Also, occupiers of this size would need to plan a move 12-18 months in advance, and this is close to the completion periods of new supply.

A significant number of these occupiers, especially those in the financial services industry, are also looking for enhanced specifications such as trading floors, enhanced power and air-conditioning provision and space for their dedicated equipment – back-up generators and air-conditioning, etc. The ability to supply such needs is limited and hence the first movers into a building have more chance of securing the specifications they need.

The increased activity is also being generated by the desire among some occupiers to secure branding rights (naming or signage rights) to the building they plan to occupy. The availability of this in the market is even more limited and hence occupiers will commit early in order to secure them.

Given the drop in rents and uplift in market sentiment on the back of both the global stock markets and local residential market, in the short term we expect to see the office market continue to be active. However, given the supply scenario, we expect rents to still face some downward pressure, albeit at a more muted pace, and much of the activity to be from consolidation or a flight to quality as occupiers upgrade.

By CHRIS ARCHIBOLD – regional director and head of markets, Jones Lang LaSalle

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.

S’pore out of Top 20 list of costliest office locations

Source : Straits Times – 23 Sep 2009

SINGAPORE is now a relative bargain for office tenants. Thanks to a sharp fall in rents, it has fallen right off one key ranking of the world’s 20 most expensive office locations.

It sat in 26th spot as at June 30, having tumbled 20 places from No. 6 just six months earlier, according to a global office report yesterday by Colliers International.

Indeed, average office rents here are now below the 20-year historical average of $8.40 per sq ft (psf) a month, after diving nearly 55 per cent from their peak a year ago, said another report from Jones Lang LaSalle yesterday.

Its preliminary data showed that average gross effective rent of prime Grade A properties in the main central business district area fell by 12.6 per cent quarter-on-quarter to $8.30 psf a month in the current third quarter.

The Colliers ranking showed that Hong Kong remained in the No. 1 spot ahead of cities such as London, Moscow and Tokyo.

It said Singapore’s office property market was one of the most severely hit by the global financial crisis in the first half of the year. It registered the second biggest drop of 42.3 per cent in Grade A office rents to US$55.53 (S$78) psf a year.

Latvian capital Riga posted a drop of 49.6 per cent, the largest in the first half of the year, while New Delhi came in third with a 38.6 per cent fall. Hong Kong saw a 22.4 per cent fall during this period.

Unlike Hong Kong, Singapore has a supply problem. The Colliers report showed that Singapore ranked No. 8 among the cities with the most office supply in the pipeline.

Singapore has 10 million sq ft of office space under construction – likely to keep rents in the doldrums for a while more, despite the improving economic outlook, said Colliers International’s director of research and advisory, Ms Tay Huey Ying.

‘Singapore will stay out of the Top 20 ranking for at least the next 12 months, which means it will remain a very competitive location.’

Jones Lang LaSalle said market activity has risen significantly in the third quarter but much of the demand is a ‘flight to quality’ rather than evidence of expansion.

This was the case at 78 Shenton Way Tower 2. Commerz Real said yesterday that it has secured an anchor tenant – its first – for the building, which was completed in June.

The Singapore branch of American Home Assurance Co, an operating unit of Chartis, will take up about 85 per cent of 64,000 sq ft of space for 10 years, with an option to extend for a further three years.

The firm will move there next January from its present offices in Martin Road.

So far, increased activity is not enough to absorb new supply, as core CBD office stock grew 600,000 sq ft in the third quarter with the completion of 71 Robinson Road, Mapletree Anson and 78 Shenton Way Tower 2, said Jones Lang LaSalle.

‘Under pressure to secure occupancy, some landlords continue to be aggressive on rentals,’ it said. ‘There have also been instances of landlords offering cash subsidies to attract prospective tenants in order to keep effective rentals high.’

Rent-free periods while negotiated on a case-by-case basis, are also becoming more widespread as landlords seek to maintain headline rents, it added.

With firms still cautious, new leases are likely to be signed at competitive rates and that will continue to weigh on the market, said Ms Tay.

S’pore no longer one of the top 20 most expensive office locations globally

Source : Channel NewsAsia – 22 Sep 2009

Singapore is no longer one of the top 20 most expensive office locations globally.

A survey by property consultancy Colliers International showed that in June, Singapore’s office space was the 26th most expensive in the world.

That is a steep fall from December last year, when Singapore was number 6.

Colliers said this is because Singapore’s office property market was among the most severely affected by the global financial crisis, with rents dropping 42.3 per cent in the first half of this year.

The only other city in the world which registered a sharper drop in office rents was Riga, in the Eastern European nation of Latvia, where rentals fell 49.6 per cent.

Colliers noted that Singapore has 10 million square feet of office space under construction, and when this supply is made available, it is likely to keep office rents in the doldrums for a while more, despite the improving economic outlook.

Analysts from Jones Lang LaSalle agree, saying that despite increased market activity, the substantial upcoming supply continues to weigh on the market.

Under pressure to secure occupancy, some landlords continue to be aggressive on rentals, according to Jones Lang.

Preliminary data shows that the average gross effective rent of Prime Grade A properties in the CBD Core area fell by 12.6 per cent to S$8.30 per square foot per month in the third quarter, compared to the second.

Jones Lang added that there have also been instances of landlords offering cash subsidies to attract prospective tenants in order to keep effective rentals high.

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.