Office occupancy posts steepest fall since 1997

Rents set to slide further after 18% average islandwide drop in Q1

(SINGAPORE) The islandwide average office occupancy rate slid 2.1 percentage points quarter on quarter to 93.6 per cent in Q1 2009, according to DTZ. This is the steepest quarterly fall since Q3 1997, when a decline of 2.6 percentage points was recorded.

No lack of space: During the last office slump, shadow space also emerged, and according to CB Richard Ellis research reports, this amounted to more than one million sq ft at end-2002

The average office occupancy rate at Raffles Place was 92.9 per cent at end-Q1 2009, translating to the greatest quarterly decline of 2.7 percentage points since Q4 2004 when the occupancy rate fell 2.8 percentage points, DTZ said.

'Office occupancies in Anson Road/Tanjong Pagar and decentralised areas suffered even larger declines of 3.6 percentage points to 93.7 per cent and three percentage points to 95.2 per cent respectively, due partly to the completion of Murray Terrace and two transitional office projects - 11 Tampines Concourse and Mountbatten Square,' the property consultancy group said yesterday. Office vacancies are expected to rise further and rents will slide.

DTZ executive director Ong Choon Fah said: 'Office demand has almost collapsed. Substantial new supply is starting to come on stream from this year, followed by more supply next year and in 2011. In addition, there is competition from shadow space.'

Shadow space refers to excess space that companies try to sub-let. There was at least 106,000 sq ft of such space available for leasing in Q1, according to DTZ. 'This constituted only 2.9 per cent of the total vacant office space, but is expected to grow in the next few quarters as more companies are likely to return excess space to the secondary market through cost-cutting measures,' DTZ said. 'In addition, some companies which have pre-leased space in new projects completing within these two years are likely to sub-lease excess space as they further streamline business operations and intensify space usage.'

BT understands that Macquarie is prepared to sub-let some of the space it has signed up for at Marina Bay Financial Centre's (MBFC) Tower 2 under the project's first phase, which is slated to be ready in Q2 2010. Macquarie has taken more than 74,000 sq ft on levels 16 to 18 of the tower.

Market watchers said they would not be surprised if DBS Group too tries to sub-let part of the 700,000 sq ft it has leased at MBFC's Tower 3, in the project's second phase, given that it axed some 900 staff in November.

Elsewhere in Singapore, Citibank is said to be offering over 100,000 sq ft of shadow space at various locations, including Capital Square, Marsh & McLennan Centre and Millenia Tower.
DTZ executive director Angela Tan said: 'Shadow space, which usually comes with existing fit-outs and shorter lease terms, allows tenants to save on initial set-up costs and provides flexibility.'

Shadow space also emerged during the last office slump. According to CB Richard Ellis research reports, this amounted to more than one million sq ft at end-2002.

DTZ said the fall in office rents gathered momentum in Q1 2009, with an average decline of 18 per cent from the preceding quarter across the island. Prime office rents in Raffles Place dived 25 per cent quarter on quarter to an average of $12 psf per month in Q1.

Average office rents in Tampines Finance Park fell the most, easing 32 per cent to $5 psf per month amid an increase in supply emanating from the newly completed 11 Tampines Concourse and the availability of shadow space at Tampines Plaza.

Source: Business Times, 2 Apr 2009