SINGAPORE is now a relative bargain for office tenants. Thanks to a sharp fall in rents, it has fallen right off one key ranking of the world's 20 most expensive office locations.

sat in 26th spot as at June 30, having tumbled 20 places from No. 6 just six months earlier, according to a global office report yesterday by Colliers International.

Indeed, average office rents here are now below the 20-year historical average of $8.40 per sq ft (psf) a month, after diving nearly 55 per cent from their peak a year ago, said another report from Jones Lang LaSalle yesterday.

Its preliminary data showed that average gross effective rent of prime Grade A properties in the main central business district area fell by 12.6 per cent quarter-on-quarter to $8.30 psf a month in the current third quarter.

The Colliers ranking showed that Hong Kong remained in the No. 1 spot ahead of cities such as London, Moscow and Tokyo.

It said Singapore's office property market was one of the most severely hit by the global financial crisis in the first half of the year. It registered the second biggest drop of 42.3 per cent in Grade A office rents to US$55.53 (S$78) psf a year.

Latvian capital Riga posted a drop of 49.6 per cent, the largest in the first half of the year, while New Delhi came in third with a 38.6 per cent fall. Hong Kong saw a 22.4 per cent fall during this period.

Unlike Hong Kong, Singapore has a supply problem. The Colliers report showed that Singapore ranked No. 8 among the cities with the most office supply in the pipeline.

Singapore has 10 million sq ft of office space under construction - likely to keep rents in the doldrums for a while more, despite the improving economic outlook, said Colliers International's director of research and advisory, Ms Tay Huey Ying.

'Singapore will stay out of the Top 20 ranking for at least the next 12 months, which means it will remain a very competitive location.'

Jones Lang LaSalle said market activity has risen significantly in the third quarter but much of the demand is a 'flight to quality' rather than evidence of expansion.

This was the case at 78 Shenton Way Tower 2. Commerz Real said yesterday that it has secured an anchor tenant - its first - for the building, which was completed in June.

The Singapore branch of American Home Assurance Co, an operating unit of Chartis, will take up about 85 per cent of 64,000 sq ft of space for 10 years, with an option to extend for a further three years.

The firm will move there next January from its present offices in Martin Road.

So far, increased activity is not enough to absorb new supply, as core CBD office stock grew 600,000 sq ft in the third quarter with the completion of 71 Robinson Road, Mapletree Anson and 78 Shenton Way Tower 2, said Jones Lang LaSalle.

'Under pressure to secure occupancy, some landlords continue to be aggressive on rentals,' it said. 'There have also been instances of landlords offering cash subsidies to attract prospective tenants in order to keep effective rentals high.'

Rent-free periods while negotiated on a case-by-case basis, are also becoming more widespread as landlords seek to maintain headline rents, it added.

With firms still cautious, new leases are likely to be signed at competitive rates and that will continue to weigh on the market, said Ms Tay.


Source, Straits Times 23 Sep 2009