THE outlook for the office market seems bright despite a rash of new supply coming onstream this year.
CB Richard Ellis said yesterday that Singapore would account for 3 per cent of worldwide new office supply this year. Some three million square feet of offices will be completed in 2011.
Moray Armstrong, executive director of offices services in Singapore, said: 'Notwithstanding the high volume of space, the fact that 54 per cent of the new office space is already committed is testament to the strength of the office market here.
'We're not at all concerned about Singapore's ability to absorb supply. On the contrary, we believe Singapore's office position right now looks particularly favourable and offers multinationals a great opportunity to secure quality space.'
In all, about seven million sq ft of office space is targeted for completion between Q2 2011 and 2015, of which 54 per cent is classified as Grade A.
'This will likely moderate rental growth in the short to medium term although we foresee Singapore rents still trending upwards over a three- to four-year horizon,' Mr Armstrong added.
Separately, Jones Lang LaSalle (JLL) and Colliers International yesterday released figures that showed 7-8 per cent quarter-on-quarter increases in average Grade A office rents in the Raffles Place/Marina Bay area in Q1 2011.
JLL's data showed that the average monthly rental value for CBD Prime Grade A office space (which covers Raffles Place and Marina Bay) rose 7 per cent quarter on quarter to $10 per square foot (psf) in Q1 2011. The latest data reflects a 29 per cent appreciation over the same year-ago period.
Head of markets Chris Archibold said: 'The market continues to show strong interest in upcoming quality buildings. Increases in tenant commitments for OUE Bayfront, One Raffles Place Tower 2, Ocean Financial Centre and Asia Square Tower 1 have led the increase in rents with double-digit growth quarter on quarter. Monthly rents for these buildings are hovering around the $11-13 psf range; a year ago, they were around the $8 psf mark.'
The group's preliminary data suggests that the vacancy rate in the CBD core area - which covers the Marina Bay, Raffles Place, Cecil Street, Robinson Road, Shenton Way and Anson Road locations - rose from 5.4 per cent at end-Q4 2010 to 6.3 per cent at end-Q1 2011. JLL attributed the increase largely to previously scheduled relocations of major tenants as well as new supply coming into the market.
'We estimate that the vacancy figure could further increase to 10-11 per cent by end-2011 as more supply is completed and some of the second-hand space is returned to the market. However, vacancy is expected to reduce in 2012 and 2013 when there will be less new supply,' Mr Archibold said.
Despite the increase in vacancy this year, the market is seeing a healthy level of absorption, which coupled with the ongoing trend of redevelopment of some older buildings into residential use, will offset much of the supply pressure, he reckoned. 'We expect the take-up for the new developments and the better quality buildings that have current or future pockets of vacancy to pick up pace as they become available.'
JLL predicts a 17.6-23 per cent rise in the CBD Prime Grade A average monthly rental for the whole of this year to around $11 to $11.50 psf. A 23 per cent increase would be in the order of the rental gain seen in 2005, Mr Archibold noted.
Meanwhile, Colliers' data showed that the average monthly rental of Grade A offices in the Raffles Place/New Downtown area rose 8 per cent quarter on quarter to $9.72 psf in Q1 2011. The group forecasts a full-year increase of around 15-20 per cent, a slower rise than last year's 31.4 per cent.
Colliers executive director (office services) Calvin Yeo said that the Q1 rental increase, especially in the Raffles Place/New Downtown area, was 'partly spurred by robust occupier demand for new and upcoming office developments, as firms rushed onboard the flight to quality before affordability tapers off'. The average occupancy rate of Grade A offices in the Raffles Place/New Downtown location fell for the first time in six quarters, from 98.1 per cent in Q4 2010 to 95.7 per cent in Q1 2011, according to the property consultancy.