Wednesday, December 30, 2009

Office rents down in 2009 and likely to keep falling in 2010, say analysts

Office rents in Singapore are down almost 50 per cent for the entire 2009 and observers said this is mainly due to the global economic crisis.

But the fall is not cause for undue concern as it follows a 90 per cent spike in rents in 2008.

However, analysts said there’s room for rents to fall further in 2010.

Singapore’s office rentals have suffered amid the global downturn as many companies with offices here either wound-up operations, or cut back on space needs.

Chua Chor Hoon, senior director, Research, DTZ Debenham Tie Leung (SEA), said: “I think it swung from extreme pessimism in the beginning of the year to hopeful optimism at the end of the year. In the beginning of the year, no one was looking at lease renewal or expanding, but towards the end of the year we see more activity coming in.”

Donald Han, managing director, Cushman & Wakefield, said: “It’s been pretty much a slide down the hill in terms of rents concerned, mainly because of the fact that after the global financial crisis, a lot of banks have started to retrench staff and give up premises.

“We have pretty much bad news in the first and second quarter where rents came down by as much as 40 per cent in the first half of 2009. The good news is we started to see an uptick in demand in the third quarter.”

However, rather than stop rents from falling further, the demand only helped slow down the pace of the decline.

At the beginning of the year, renting office space in Singapore in the prime areas would cost about S$16 per square foot. But that’s down to about S$7.90 now. The lowest rents have ever been is S$4.30 in 2003.

Analysts said that the fall this year isn’t as bad as it seems when taken in historical context.

Mr Han added: “In 2007, when the market went up at stratospheric levels, rents went up by 89 per cent in just one year. So to come down 55 per cent in 2009, versus an uptick of almost 90 per cent, we still have a balance of upside in that sense.”

At its peak, prices for some office buildings hit as high as S$21 per square foot.

And property watchers said rents are likely to continue falling before bottoming out at the end of 2010 at about S$6.

They said one reason for a continued fall is new supply coming on stream.

Mr Han added: “The biggest problem for office market is the supply element has been huge mainly because of Government Land Sales introduction in 2007. A lot will start to complete in 2010 and 2011.”

Mr Chua added: “The supply is substantially higher than historical average. There is more than two million square feet of new supply this year compared to historical average of 1.5m square feet. And we are going to have more than two million square feet of new supply over the next two years. That’s something that’s going to weigh down on the office sector.

DTZ added that the outlook for the office sector will depend largely on Singapore’s economic recovery as this will affect expansion plans for businesses.

It also added that it’s unlikely that the government can help as its main control method is to use supply via the government land sales programme.

However, any action is unlikely to be felt in the near term as office buildings usually take about four to five years to complete.

Source: Channel News Asia, 30 Dec 2009

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