Wednesday, May 19, 2010

Call to release office sites to avert supply crunch

THE time is ripe for government to introduce some sites for office development in the second half 2010 confirmed list to avert a potential supply crunch in future, suggest property consultants.

However, while some think these new office sites should be in prime CBD areas such as Marina Bay, others suggest the government could also be looking at city-fringe locations as well as land near the Paya Lebar and Jurong East MRT Stations which has been earmarked for development into new commercial hubs.

'We'll need to be ahead of the curve by getting land through the confirmed list in H2 2010, bearing in mind that it can take up to four years from inception to completing a new building,' says CB Richard Ellis executive director of office services Moray Armstrong.

'We could be facing a relative shortage of new office space completion in 2013-2014, assuming the current surge in positive occupier demand continues. Slightly more than 50 per cent of the 5 million sq ft-plus of Grade A new office space completing in 2010-2012 is already pre-let.'

'Strong Singapore GDP growth anticipated this year will underpin continued healthy take-up to 2011 and 2012. There are lots of positive employment pointers leading to expansion in office demand. Banks are recruiting vigorously, especially in the private wealth and asset management sectors,' he added.

DTZ South-east Asian head of occupational and development markets Angela Tan also points to the danger of an escalation in office rentals again, if the government does not sell office sites soon given that there's a limited number of new large office developments completing post- 2012. 'It's prudent for government to try and balance business costs as real estate is one of the components of business costs that government can help to contain,' she added.

Jones Lang LaSalle's head of markets Chris Archibold says that future supply that could be generated on any sites sold towards end-2010 would be ready for occupation only around 2015. And the current supply of new office space being developed will be leased well before that.

Mr Armstrong suggests that the government should seriously consider selling land for office development in the Marina Bay area as part of its H2 2010 confirmed list as 'they might as well capitalise on the success of the Marina Bay Financial Centre'.

While agreeing with this, Mr Archibold also acknowledges the merits of government selling land in other locations.

'There's currently a lack of fringe CBD and non-CBD office space coming to the market either for back office operations or for companies who do not need a core CBD location. Therefore further land releases in these areas that bring new supply to the market in a few years' time should also see good demand,' Mr Archibold says.

Cushman & Wakefield managing director Donald Han predicts that the white site at Ophir/Rochor roads currently on the reserve list could be moved to the confirmed list for the H2 2010 state land sales programme. The Jurong East and Paya Lebar locations are also likely possible locations for office sites to be offered in H2, he added.

Many office industry players have declared that Singapore office rentals effectively bottomed out in Q4 2009/Q1 2010 and are predicting a 5-10 per cent rise in Grade A rents this year. Landlords in projects under construction have already upped asking rents.

'Forward precommitment rents have probably moved up 15 to 20 per cent above the market bottom in Q4 2009,' says Mr Armstrong.

Source: Business Times, 19 May 2010

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