Prime office rents get a lift from economic recovery, pent-up demand
RENTS for office space are finally on the way up after six consecutive quarters of decline.
The economic recovery and pent-up demand have boosted monthly prime office rents from about $6.70 per sq ft in the first quarter to $6.90 for this quarter, a rise of 3 per cent, said property consultancy CB Richard Ellis (CBRE) yesterday.
Grade A rents rose 5.6 per cent quarter-on-quarter to $8.45 per sq ft a month.
Rents outside the Central Business District (CBD) in areas such as Novena, Alexandra and Tampines have held steady in the past two to three quarters, giving tenants options of cheaper alternatives, CBRE said.
Rents for core and fringe CBD space have risen despite lingering concerns over an impending glut of supply and the hollowing-out of existing buildings within the CBD.
Leasing momentum stayed strong, in part due to pent-up demand from multinationals, which were finally in a position to act on their space needs, said Mr Moray Armstrong, CBRE's executive director of office services.
Mr Armstrong said the year- long lull after the financial crisis began in September 2008 has passed.
'With confidence restored in late 2009, decision makers initiated space planning, leading to a pick-up in requirements and in turn increased leasing volume in the first half of this year,' he added.
A number of investment banks signed leases in the first half of the year and are now following those up with multiple deals for space in new developments that should hit the market next year.
There has also been increasing demand from the insurance sector, professional services, private equity and hedge funds, with foreign legal firms 'very prominent in the market', CBRE said.
About 6.9 million sq ft of office space is scheduled to come on-stream from the second half of this year to 2015.
Just over 50 per cent of that is already pre-leased and the absolute volume of supply looks 'increasingly manageable', added CBRE.
Falling vacancy rates also reflect higher demand.
Vacancies in the core CBD area fell from 8.1 per cent in the first quarter to 6.7 per cent, while similar rates in outlying markets such as Tampines fell from 8.2 per cent to 6.8 per cent.
The fringe CBD area also saw a 3.2 percentage point decrease in vacancy rate to 9.6 per cent this quarter.
CBRE said prospects of oversupply are receding, thanks partly to the conversion of existing office stock into apartments in older parts of the commercial centre.
Mr Armstrong added that the outlook for the office sector remained favourable, thanks to strong business con-fidence and a healthy local economy.
'The only caution at present arises from external macroeconomic issues such as European Union debt,' he added.
'Nonetheless, medium-term demand is expected to remain positive as business expands and multinationals continue to view Singapore as one of the few growth stories to help counter the more sluggish markets in Europe and the United States.'
Source: Straits Times, 25 Jun 2010