Tuesday, December 27, 2011

Prime office occupancy, rents sliding

Straits Times: Tue, Dec 27
AS THE year draws to a close, it looks as though occupancy levels of offices in Singapore's prime

areas are on the way down, along with rental levels.

Analysts said overall occupancy in the prime office sector for the full year is set for an 8 per cent slide, given that businesses have been putting expansion plans on hold amid the gathering economic gloom.

Prime office rents are likely to fall about 4 per cent in the final quarter of this year, according to Colliers International. But they performed strongly before that and are expected to have risen 14.6 per cent for the whole year.

Landlords of triple A grade buildings have taken the worst hit so far, say agents. Buildings like Asia Square have seen rents fall from about $14 per sq ft a month at the beginning of this year to the current rate of about $12 to $13. At another building, Ocean Financial Centre, rents have dipped from $12 psf a month at the start of the year to $11 now.

'While earlier deals at these triple A buildings have helped these landlords achieve higher rent rates, there are still some pockets of remaining space left and the lowering of rents could be seen as a defensive move to entice tenants to seal the deals in these uncertain times,' said Ms Agnes Tay, head of commercial leasing at Savills.

'Generally office-users are time-sensitive and driven by their lease expiry. Hence when approaching their lease expiry dates, they will take the opportunity to evaluate between renewal and relocation options,' she said.

When the economy is slowing, tenants typically become more sensitive about rental levels, said Mr Moray Armstrong, executive director of CBRE's office services department.

'There is some evidence that tenant decisions on new lease commitments are being rescheduled, which is partly down to expectations that rents will move favourably in their direction.'

Mr Calvin Yeo, executive director of Office Services at Collier International, said other factors are also at play in the shifting office rental market.

For instance, more companies, especially those looking to relocate their operations here, are being more conservative about their staff headcount, space requirements and overall leasing decisions.

Landlords too have reported a higher interest in smaller spaces.

A CapitaCommercial Trust (CCT) spokesman said the bulk of inquiries it has received in the last three months has been for small and mid-sized office space - from 1,000 sq ft to 15,000 sq ft, depending on the properties.

CCT is a real estate investment trust which owns office properties.

Ms Tay said: 'If the external factors remain uncertain, we would expect tenants to explore higher people density in terms of space usage - that is, to 'squeeze' the same amount of people within a smaller space, provided the space configuration allows for this.'

Market watchers also said that there is a growing trend of tenants giving up part of their leased space when contracts come up for renewal or subletting part of their space.

They say tenants are behaving this way because of the expected slowdown in business growth.

Smaller and medium-sized businesses are more active in the leasing market now, with many of the larger tenants shying away from leasing decisions, said CBRE's Mr Armstrong, adding that only a handful of large prospective deals by large tenants are in the works.

'We also see a 10 per cent to 15 per cent increase in the new start-up businesses which get into the serviced office first and buy short-lease terms before committing to a standard lease of two to three years,' said Savills' Ms Tay.

But some analyst are optimistic about the prospects of the office market.

They point to Singapore's quality of office stock and high delivery of new developments as key factors in why the city is well placed to attract new businesses.

Source: The Straits Times © Singapore Press Holdings Ltd

Team Marshe
Martin Koh/ Sherry Tang
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