Saturday, September 15, 2012

Office rents expected to face further decline

The Business Times - September 14, 2012
By: Mindy Tan

Landlords expected to cut rents due to cautious demand, rising shadow space

OFFICE rents in Raffles Place are expected to decline by 12-15 per cent in 2012 and 2013, before returning to growth in 2014.

While demand has held up well in Singapore, largely thanks to foreign corporates keen to capitalise on growth in South-east Asia, landlords remain under pressure to reduce rents because of still-cautious demand and rising shadow space, DTZ Research said in its Office Review Asia Pacific H1 2012 released yesterday.

Said Chua Chor Hoon, head of Asia-Pacific research at DTZ: "Net absorption of purpose-built office space for the first half of 2012 is estimated to be almost 720,000 sq ft, which is quite healthy compared to the past six-year annual average demand of 1.5 million sq ft."

Specifically, sectors that are expanding in Singapore include legal firms, social media firms, insurance and medical research companies, said Ms Chua.

"For instance, DTZ assisted Facebook in their real estate needs in Singapore. They now occupy two floors in 158 Cecil Street," she said.

"(In addition), a second round of licences to be issued under the Qualifying Foreign Law Practice (QFLP) at year-end could see foreign law firms already in Singapore expanding their manpower and space needs, while there could also be new foreign law firms entering Singapore."

But prime rents in Singapore have dipped 3 per cent since the end of last year, despite being still the third highest, at US$945 per square metre (psm) per annum, based on DTZ's survey of 33 markets in the Asia-Pacific.

Hong Kong tops the chart, at US$1,782 psm per annum, followed by Tokyo, at US$1,173 psm per annum.

Occupiers in Hong Kong have seen prime rents decline 11 per cent since end-2011, putting the city's rents 15 per cent below their Q3 2011 peak.

DTZ said: "Hong Kong is soon to reach the end of the rental downfall. We anticipate rental increases in 2013, meaning now is a good time for occupiers to consider their space requirements."

Similar rental uplift is expected in Tokyo, Sydney and Bangkok.

In Tokyo, it is projected that rents will pick up further in the second half of this year, after recording a marginal increase in office rents in Q2 after more than two years of consecutive declines. Sydney and Bangkok, too, are expected to see uplift following several quarters of stable rents, mainly due to lack of new supply.

"All three markets currently present a window of opportunity for tenants looking to lock in lower rents, expand or contract, upgrade their space, or obtain other concessions," said DTZ.

Occupiers in Jakarta and Beijing can expect continuing challenging market conditions, as these markets are forecast to experience the strongest rental growth to 2016.

In Beijing, strong demand and lack of supply caused rents to increase 20 per cent over the last six months. This is exacerbated by high levels of owner- occupation, with only half of the development pipeline likely to be made available for leasing.

However, the pace of growth has finally moderated in Q2, with rents increasing by 4.2 per cent over the quarter.

"While we expect this more moderate pace of growth to be maintained in the short term, providing some respite to tenants, we are still forecasting solid average annual rental growth in Beijing over the next five years," said DTZ.

Occupiers in Jakarta can expect rents to rise 12 per cent per annum up till 2016, after prime rents jumped 14 per cent in H1 to US$201 psm per annum on the back of a surge in leasing activity. But H1's surge is from a low base, and Jakarta remains one of the most affordable office locations in the region and globally.

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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