More office tenants may move from suburbs to city

Market watchers said more office tenants may move from the suburbs back to the city by the second half of next year to take advantage of more competitive rentals. This could help to ease a possible supply glut in office space.

About 7.5 million square feet of office space is expected to come on stream by 2011. Analysts said some 84 per cent of that will be in the central area.

The large supply and economic downturn have already driven office rentals down 40 per cent since the peak in mid-2008.

Observers said a third of the tenants that moved out of the Central Business District (CBD) in the last two years due to high costs, may return to the city.

Donald Han, managing director, Cushman & Wakefield, Singapore, said: “If you have about S$1 to S$1.50 per square foot difference, you will look at potentially a reversal of tenants moving into the CBD when their lease comes to an expiry.

“We may potentially see about a million square feet coming back into the market place, assuming that the market improves over the next 12 to 18 months.”

On average, analysts said occupancy costs in suburban areas range from S$4 to S$4.50 per square foot, compared to S$8-S$10 for prime office rentals.

Despite falling rentals, some observers do not expect an exodus of tenants from the outskirts, but selective relocation at good value.

Moray Armstrong, executive director, Office Services, CB Richard Ellis, said: “In some cases, we are seeing developers who are prepared to underwrite part or in some cases, the whole cost of fitting out your premises, with those costs then amortized through the lease period. That will help stimulate some leasing transactions in the second half of this year.”

Market watchers said the pace of decline in prime office rentals has eased and the improvement is most visible in the Raffles Place area.

As of the middle of the second quarter, rentals here dipped by about 7 per cent, compared to a drop of 29 per cent on-quarter in the first three months of 2009.

For the full year, experts have projected that office rentals would fall by about 40 per cent.

Source: Channel NewsAsia, 8 Jun 2009