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Office Rents Peaking As Supply Becomes Imminent
The impact of the sub- prime problems, rising inflation and more modest economic growth has had a dampening effect on the office sector. Nonetheless, transactions are still evident across the market with a number of large pre- commitments targeting decentralized space.
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July 4, 2008 (FPRC) -- Expansion within prime locations was featured over the past quarter, although the low vacancy has inhibited activity.
New completions in fringe locations such as Visioncrest and the recently refurbished Tower 15 and GMG Building provided some relief to hard- pressed occupiers. In Orchard Road, newly refurbished space at 111 Somerset attracted tenant interest. Whilst the pace of pre- commitments in new prime developments slowed, negotiations are still progressing. It was also evident that the volume of leasing transactions driven by expansion was lower in the past two quarters. A couple of large occupiers have identified excess space which can be made available for sub- letting, but at this stage, this has not become a notable trend
The rate of rental increase in the first two quarters of 2008 slowed noticeably from that in 2007 – an indication that rents are approaching the peak. Prime rents edged up ten cents this quarter to average $16.10 per square foot per month. In all, prime rents rose 7.3 per cent in H1 2008 compared with the astounding 92.3 per cent for the full- year
2007. Grade A rents averaged $18.80 per square foot per month in Q2 08, up from $18.65 per square foot per month last quarter. In all, Grade A rents rose 9.6 per cent in H1 2008 compared to 96.5 per cent in full year 2007.
Grade A vacancy also remained very tight at 0.6 per cent. No new development will be completed before H2 2009. The vacancy rate for the Fringe area however, rose from 4.6 per cent to 7.0 per cent in Q2 08. This was due to new completions as well as recently refurbished buildings within the Orchard Road and Tanjong Pagar micromarkets.
Executive Director, Office Services, Moray Armstrong said “The momentum of office decentralisation accelerated in the current quarter as the search for lower cost solutions continued. Cost containment remains high on most MNCs’ agendas. Vacancy rates for Decentralised areas dipped to 1.6 per cent from 3.0 per cent in the previous quarter. Most notably, there was heightened interest for upcoming office and business
park space within the Alexandra/Harbourfront micromarket. The area sited near the future Labrador MRT station is about ten minutes’ drive from the CBD. Two new Tampines projects by CDL completing in 2009 are also attracting keen interest.”
Relief to occupiers is now clearly in sight. About 10.2 million square feet of new space will be coming on- stream between 2008–2012, the bulk of which (6.7 million square feet) is targeted to be completed in 2010–2011. About 63.4 per cent of the known office supply will be Grade A space within the Downtown Core area.
Two transitional office sites were awarded in the quarter, both at Scotts/Anthony Road. These could potentially yield some 245,000 square feet by late 2009. UOB- Kay Hian plans to house its 2,500 staff in its new office at Land Parcel A, while Sun Venture (DB&B) is understood to be in discussion with a single tenant for its 4- storey, 126,000 square feet development at Land Parcel B.
In addition, JTC is offering the 1.93 ha LX1- 1 site at the junction of North Buona Vista Road and Commonwealth Avenue West, one- north for sale. The parcel which is available under the Reserve list could potentially yield about 1.0 million sf (NLA) of office space if triggered.
Under the draft Master Plan 2008 launched on 23 May, there are three other growth areas identified in addition to the planned development of the Ophir/Bugis/Beach Road, Marina Bay and Tanjong Pagar regions. These new areas are Jurong Gateway/Jurong Lakeside, Kallang Riverside and Paya Lebar Central. The three new growth areas will contribute about 11.78 mil square feet (GFA) of office space in the next 10–15 years.
At face value, potential confirmed supply seems abundant, but it should be viewed in context with strong take- up. Some 22 per cent of known supply from Q3 08–2012 is pre- committed, with around 9 per cent under offer.
Mr Armstrong added “With a significant number of new developments within the CBD now under construction, it is likely to lead to a more competitive environment for preletting. Existing landlords can be expected to adopt more defensive positions with tenant retention given greater priority as the completion of new supply is now more
imminent. Increasing competition from higher quality new buildings should serve to cap rental appreciation from today’s levels.”
About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2007 revenue). With over 29,000 employees, the Company serves real estate owners, investors and occupiers through more than 300 offices worldwide (excluding affiliate offices). CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. CB Richard Ellis is the only commercial real estate services company named one of the 50 “best in class” companies by BusinessWeek, and was also named one of the 100 fastest growing companies by Fortune. Please visit our Web site at www.cbre.com.sg
Send an email to Geraldine Cheong of CB Richard Ell is (Pte) Ltd
6326 1246/ 9691 6449
Keywords:
Office Rents, Asia real estate, property management Singapore
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