GradeA office rents decline in Q42011 as office stock climbs

Business Times: Fri, Jan 20

SINGAPORE'S office leasing market buckled in Q4 2011 under the stress of the heightened uncertainties and volatility arising from the debt crisis in the eurozone, said a new report from Colliers International. According to the property firm, the average monthly gross rents for Grade A office space in the Raffles Place and New Downtown micro-market fell by 4.3 per cent to $10.31 per square foot per month (psf pm) in Q4 2011 - marking the first time rents fell quarter on quarter since the market bottomed out in Q4 2009. The rental dip was in tandem with a fall in the micro-market's occupancy rate to below 90 per cent for the first time since Q3 2005. Occupancy eased to 88 per cent from 90.9 per cent in Q3 2011. Colliers said that the increase in office stock was not met with corresponding new occupier demand as many firms - including major financial institutions and accounting firms - turned cautious about their expansion plans. 'The demand and supply equilibrium is further tipped with more office tenants relocating or locating some of their operations - including regional functions, back offices and business continuity premises - out of the central business district (CBD),' noted Calvin Yeo, Colliers' executive director of office services. These moves are facilitated by the availability of compelling suburban options in the form of new office and business park developments, which have specifications and amenities similar to Grade A office buildings in the CBD, he added. Rents in two other Grade A micro-markets also saw corrections in the final quarter of last year. Rents in the Marina and City Hall areas retreated by 2.3 per cent from the previous quarter, while those in Beach Road edged down by 0.8 per cent. On the whole, average CBD Grade A office rents fell by 1.6 per cent in Q4 2011 to $8.93 psf pm by end-December 2011. However, Colliers noted that the sales market stirred, underpinned by new launches of strata-titled office projects and the continued low interest rate environment. Healthy buying momentum in the sales market enabled capital values to hold stable in Q4 2011, despite the softening rental market. The average capital value of Grade A office space in the Raffles Place and New Downtown micro-market was $2,459 psf in Q4 2011, relatively unchanged from the $2,460 psf recorded in Q3. However, it is still some 12.6 per cent below its previous peak of $2,814 sq ft in Q3 2008. For the whole of 2011, the average capital value of Grade A office space in the Raffles Place and New Downtown micro-market grew by a total of 17.8 per cent. Looking ahead, Colliers expects rents to dip further as a large pipeline of around 11 million sq ft of office space is set to come on stream from 2012 to 2016. 'The large pipeline of office space supply coming on stream from 2012 to 2016 is of concern,' said Colliers' director of research & advisory Chia Siew Chuin. 'The future supply of islandwide office space is forecast to amount to close to 11 million sq ft, which translates to an average 2.2 million sq ft per annum.' Source: Business Times