Rental gap between newly completed and existing Prime Grade A blocks expected to widen
The average monthly rent for Prime Grade A office in the CBD core has fallen at a slower pace in the current fourth quarter, slipping 4.9 per cent from Q3, according to data from Jones Lang LaSalle (JLL).
This is a smaller quarter-on quarter decline than the drops of 13.7 per cent in Q3, 11.6 per cent in Q2 and 28.1 per cent in Q1 this year.
The $7.80 per sq ft average rental value in Q4 reflects a 47.8 per cent full-year slide. Against the high of $18.40 psf set in Q3 last year, the figure is now off 57.6 per cent.
JLL says the gap between newly completed Prime Grade A and other existing Grade A buildings is likely to widen over the next few years as new developments are completed. The gap is now 85 cents or 11 per cent. But it has been much wider – at $2 or more in Q3 2006, most of 2007 and even as recently as Q4 last year. In percentage terms, the difference was widest in Q3 2006, when rent for newly completed space was about 28 per cent higher than for existing offices.
Over the next three years, the average annual supply of new office space will be almost 2 million sq ft in the CBD core, and this is likely to dampen rental growth, says JLL’s head of SE Asia research Chua Yang Liang.
For new Prime Grade A properties that have been well received by the market so far, rents may bottom out as early as H2 2010. However, rents in existing office blocks may continue to slide until the end of next year, as vacancies are expected to rise on the back of a ‘flight to quality’ by tenants.
JLL also says shadow office space – surplus stock put up for subletting by occupiers – has shrunk to about 600,000 sq ft this quarter from some 800,000 sq ft at its peak in Q2 2009.
If global and regional economies remain on the recovery track, JLL believes leasing activity is expected to become increasingly stronger during 2010, as companies become more confident about business prospects.
Source: Business Times, 17 Dec 2009
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