Net office demand highest since Q3 2007

NET office demand surged in the second quarter of this year to its highest quarterly level since Q3 2007.

Urban Redevelopment Authority figures released yesterday showed a net increase in demand of 398,264 square feet in Q2, up about 68 per cent from the previous quarter. The Singapore office market has not seen such strong quarterly take-up since Q3 2007, when net demand of 646,000 sq ft was created.

The strong Q2 demand takes the first-half tally to about 635,000 sq ft. CB Richard Ellis is forecasting that the full-year 2010 take-up could be about 1.8 million sq ft, given that the first phase of Marina Bay Financial Centre is fully leased and pre-committed. The estimate exceeds the 1.28 million sq ft average annual take-up for the past five years (2005-2009).

'This fast and furious recovery from the negative take-up of about 236,000 sq ft last year reflects the close correlation between economic growth and office demand,' says CBRE executive director Li Hiaw Ho.

Roaring demand during the office market's heyday back in 2006-2007 sent rents skyrocketing in the face of a supply shortage. This time around, there is still ample supply in the pipeline for now, with about 9.6 million sq ft in gross floor area of offices expected to be completed between Q3 this year and 2013, according to URA figures.

Says Knight Frank chairman Tan Tiong Cheng: 'While some of this space is already pre-committed, much of it is still available. And don't forget, some of the leasings at new buildings are a game of musical chairs being played as occupiers vacate older buildings. So right now there's no shortage of space.'

Still, some market watchers such as CBRE's Mr Li have been calling on the government to address the market's concerns about a potential gap in office supply after 2013.

Knight Frank's Mr Tan believes that the government policy would be to release office sites on a regular basis through both the confirmed and reserve lists. Under the second half 2010 Government Land Sales Programme, a white site next to International Plaza with a minimum office and hotel component is expected to be launched next week. Sites at Paya Lebar and Jurong East with minimum office components will also be made available for application under the reserve list later this year.

However, some market players are asking the government to do more and release a choice plot or two in the Marina Bay area, where Singapore's new financial district is coming up, to cater to future demand for prime office space from international financial institutions and MNCs.

Singapore's existing office stock may also be reduced by the removal of some ageing office blocks which are torn down for redevelopment, very often into apartments.

For example, last month, Ececil Pte Ltd received provisional permission to redevelop Aviva Building and Cecil House, two adjoining office blocks at Cecil Street, into a new project that will have 227 apartments.

Ececil is controlled by Cheong Sim Lam, whose family developed International Plaza in the 1970s. Mr Cheong is said to have bought Aviva Building and Cecil House from Yi Kai Group and Fission Group, which in turn picked up the two office blocks last year for $101 million from insurer Aviva.

Source: Business Times, 24 Jul 2010