Business Times: Tue, Jul 10
DEMAND in Singapore's office market has been a lot more resilient than earlier thought, with positive net office absorption of about 473,200 sq ft in the second quarter, taking the first-half tally to about 1.06 million sq ft, says CBRE.
The property consultancy is now in the midst of revising upwards its full-year 2012 forecast, which it had earlier predicted would be zero, that is, no change in net office demand. Net increase in office demand came to 2.1 million sq ft last year and four million sq ft in 2010.
Vacancy rates also dropped across all submarkets and building grades in Q2 from the preceding quarter, CBRE said. Looking ahead, however, it expects the central locations (both Core CBD and Fringe CBD) to experience rising vacancy rates as a high volume of second-hand space will come onto the market as occupiers move to newer buildings. An example will be DBS, which will move from DBS Building on Shenton Way to Marina Bay Financial Centre Tower 3.
So far, Grade A rents have fallen more from the Q3 2011 peak compared with Grade B rents, which has reduced their gap. However, the picture could change. Grade B offices are likely to be under greater rental pressure towards year-end and next year, due to more secondary supply - an additional 1.2 million sq ft of second-hand space is expected to be released in the next 18 months - as well as some shadow space, which refers to excess space made available for subletting or reassignment by existing tenants. Grade A rental declines, on the other hand, are expected to ease.
CBRE data shows that the average gross monthly rental value for Grade A office spaces - which covers best-in-class buildings in Raffles Place, Marina Bay, Marina Centre and Shenton Way - slipped 4.7 per cent quarter-on-quarter to $10.10 per square foot in Q2. From the Q3 2011 peak, the slide is about 9 per cent. CBRE expects the average rental to slide by year-end to $9.30/9.40 psf, which would translate to a roughly 15 per cent full-year drop.
The average monthly rental rate for Grade B offices - which are in places such as Raffles Place, Shenton Way, Tanjong Pagar, City Hall, Orchard Road, Alexandra and HarbourFront - stood at $7.21 psf, down 0.6 per cent from Q1 and 2.2 per cent from Q3 last year. The relatively stable Grade B rent is largely due to higher occupancy levels. By contrast, the Grade A segment has had to absorb a high volume of vacant space in newly completed developments, which has created a highly competitive leasing market and pressurised rents, said CBRE.
Petra Blazkova, head of CBRE Research in Singapore and South-east Asia, said: "For Grade A rents, a lot of the correction has already taken place since the recent peak; we believe there's a bit more to go. But Grade B rents, which have remained more stable so far, will come under greater pressure and hence the rent gap between Grade A and B offices is likely to widen."
Some 1.37 million sq ft of office space is slated for completion this year, most of it from Marina Bay Financial Centre Tower 3, which was completed in March. Next year, new supply completion is slated to rise to 2.8 million sq ft (major projects include Asia Square Tower 2 and Ho Bee's The Metropolis in Buona Vista) before easing to 1.7 million sq ft in 2014, when CapitaGreen (on the former Market Street Car Park site) and 5 Shenton Way (on the former UIC Building location) are completed, said Ms Blazkova.
Last year, 3.15 million sq ft of offices were completed, outpacing a 2.1 million sq ft net increase in office demand. This was in contrast to 2010, with 2.2 million sq ft of new office completion being lower than a whopping four million sq ft net increase in demand.
CBRE's vacancy rate for Grade A offices fell from 12.9 per cent at the end-Q1 to 12.2 per cent at end-Q2, but this was still much higher than the 8.5 per cent at end-Q2 2011. The property consultancy estimates islandwide office vacancy at 6.4 per cent at end-Q2, down from 7.3 per cent at end-Q1 but higher than Q2 2011's 6 per cent.
CBRE executive director (office services) Moray Armstrong said that the mid-year office market indicators are on the whole "actually quite encouraging", pointing in particular to the positive net absorption figure. "As anticipated, rents have been adjusting downwards, but the rate of correction is fairly modest. The downcycle in rents is likely to persist through the balance of the year, but the point at which rents reach a support level may not be that far away."
While there is still caution among large occupiers, and the absence of leasing activity among banks remains a concern, new entrants and new regional functions heading to Singapore is encouraging, said Mr Armstrong.
Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)
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