Office and Industrial Rents will decline in 2012

Published March 27, 2012

Grade A office rents may drop 10-15%

Supply excess likely when Marina Bay finance centre, Asia Square are ready

By MINDY TAN

GRADE A office rents may soften by 10 to 15 per cent this year, in light of the expected new completions at Marina Bay Financial Centre and Asia Square in 2012 and 2013 respectively, said Knight Frank in a report released yesterday.

This is expected to be further exacerbated as demand from traditional big office space users from the financial sector decline.

Based on Knight Frank's office basket, Q1 monthly gross office rents for Super Grade A office buildings dropped 12.6 per cent from the previous quarter, averaging to about $11.40 psf; gross office rents for Grade A buildings dipped 2.6 per cent quarter-on-quarter, averaging to about $10 psf.

The decline in Super Grade A rents was mainly attributed to competition among existing Super Grade A office buildings, and the new supply from Marina Bay Financial Tower 3 (slated for completion this year).

In addition, a number of lower rental transactions - due to less desirable units in buildings fronting the Marina Bay Sands but with no 'scenic view' of the integrated resort - led to a drag on average rents in the cluster.

Looking ahead, Grade A office buildings can expect more challenging times, as the 'flight-to-quality' trend continues, said Knight Frank, citing Bank of America Merrill Lynch's and Citibank's expected move to OUE Bayfront and Asia Square, respectively, by the end of the year.

Office buildings in the Suntec/City Hall area is expected to face a similar problem, noted Knight Frank.

'While current office rent in this micro market is holding strong at about $9.40 (a one per cent q-o-q drop), some 140,000 sq ft of office space is expected to be available in the market by the end of the year, which may lead to significant downward pressure in the next few quarters,' said Knight Frank.

Notably, office rents in Tanjong Pagar and CBD fringe areas remained fairly resilient, supported by leasing activities from smaller-space users, such as boutique-sized companies providing auxiliary services to MNCs.

'Current leasing activities are still relatively active as leasing enquiries continue to flow in, albeit for smaller spaces,' noted Knight Frank. 'Service offices are gaining popularity as new-to-Singapore firms adopt a more prudent approach to lease interim office spaces which are almost fully fitted out and are in ready-to-move-in conditions, before taking up a conventional office space subsequently as they establish their businesses locally.'

Monthly average gross office rents for Grade A buildings in the Shenton Way/Robinson Road/Tanjong Pagar area stayed firm at $7.80 psf.

Similarly, average monthly gross office rents in suburban locations remained relatively firm at $6.20 psf.

Published March 27, 2012

Industrial rents expected to decline

Landlords also more cautious about possible illegal use of their premises

By MICHELLE TAN

INDUSTRIAL rents in Singapore are expected to soften after holding firm for three consecutive quarters because of faltering demand amid a lacklustre macroeconomic environment, DTZ Research shows.

Bucking the trend: Newer business parks such as the Changi Business Park are commanding higher rents

Landlords have also turned more cautious in renting out their industrial properties, to avoid unauthorised uses, and this could further dampen demand.

This comes after a blog post by Minister for National Development Khaw Boon Wan and a circular from the Urban Redevelopment Authority (URA), which involved changes to the sale-and-purchase agreement for units sold by developers to ensure that approved use for the respective industrial space is clearly stated.

Said Chua Chor Hoon, head of DTZ Asia Pacific Research: 'Industrial rents are expected to fall between 5 per cent and 10 per cent, with business park rental decline on the higher end of the range due to more available supply and competition from offices . . .'

Around 1.4 million square feet of business park supply - comprising about 11.3 per cent of existing business park stock, which had an occupancy rate of 80 per cent as at the end of Q4 2011 - is expected to be completed this year, putting pressure on business park rents.

In addition, approximately 1.2 million sq ft of private multiple-user space has been parked in the pipeline for 2012, constituting around 1.5 per cent of the space's existing stock, which had an occupancy rate of 89 per cent as at the end of last year.

During the first quarter of 2012, rents for industrial space managed to hold steady, with average rates for first-storey conventional private industrial space coming in around $2.15 per sq ft per month and $1.75 per sq ft per month for higher floors.

Average rents for business park and industrial space for the high-tech industry also remained relatively flat at $4.38 and $3.00 per sq ft per month respectively during the same period, though rents for the former saw a wide variance across different locations.

Said Cheng Siow Ying, executive director for business space at DTZ: 'Newer business parks nearer to town are commanding higher rents of between $5.00 and $6.00 per sq ft per month while rents at Changi Business Park range between $3.90 and $4.20 per sq ft per month, higher than the $3.50 and $4.15 per sq ft per month achieved at the older International Business Park.'