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CBD office rents remained flat in Q2: DTZ

Average office rents in the republic’s Central Business District (CBD) remained unchanged in Q2 2015 at $10.85 per sq ft per month, DTZ revealed.

Specifically, average monthly gross rents in Marina Bay remained the highest at $13.75 per sq ft, followed by Raffles Place at $10.80 per sq ft.

According to DTZ, the slowdown in rental growth is attributed to softer office demand amidst the uncertain global situations like the possibility that Greece would exit from the Eurozone and the risk of a significant correction in China’s property market. In addition, some office tenants in Singapore delayed their expansion plans, while the growth of new market players moderated.

Despite the challenging market, net demand for office premises in the CBD surged by nearly 90 percent to 526,000 sq ft in 1H 2015 from the 277,000 sq ft seen in the preceding six months.

Office occupancy rate there also inched up by 1.6 percentage points to 96.0 percent in Q2 2015 compared to the previous quarter. In particular, occupancy rate in Raffles Place climbed the most by 4.1 percentage points to 96.6 percent, while that in Beach Road/North Bridge Road edged up by 0.7 percentage point.

However, net demand for office space in the decentralized areas declined by about 16 percent to 417,000 sq ft in 1H 2015 on a six-month basis. Despite this, occupancy rate in the area inched up by 1.0 percentage point to 94.6 percent, while office rents there were flat at S$7.45 per sq ft per month.

In Q2 2015, office rents in the CBD held firm as a result of the lack of new completions for the rest of the year, but leasing activity was modest given the 4.45 million sq ft of incoming supply for 2016. Upcoming major projects in the area for that year include Duo Tower, Marina One and Guoco Tower, which have a combined area of around 3.3 million sq ft.

“With a large supply coming on board in the second half 2016, firms will have more premium and Grade A office options in the CBD and fringe locations. Some firms may take this opportunity to relook and strategize consolidation or expansion plans, while others may employ a wait-and-see approach through the supply wave of 2016,” said DTZ’s Executive Director of Business Space Cheng Siow Ying.

“Notwithstanding, prime office space is still likely to command a premium, especially for iconic developments like Marina One and Guoco Tower,” added Cheng.

As for the decentralised areas, the forecasted supply is patchy, according to DTZ. In 2H 2015, it will get 71 percent of the 311,000 sq ft total pipeline for Singapore, but the anticipated supply for 2016 is only 130,000 sq ft. Come 2017, the supply is expected to rise sharply to 681,000 sq ft due to the completion of Vision Exchange which will yield approximately 496,000 sq ft of office space.

Despite the uneven pipeline, rents in certain parts of the decentralised areas may not be adversely affected. For example, office buildings located near the anticipated High Speed Railway (HSR) terminus could see healthy leasing interest. In fact, Vision Exchange’s leasing pre-commitment surged by 70 percent following the government’s announcement on where the terminus will be built.

As rents in the decentralized areas are 13 percent and 46 percent lower than those in Singapore’s fringe and CBD respectively, tenants will find it appealing to relocate there, although the demand shift into this area will not be immediate.

“It will take a while before the high speed rail is operational and its impact to be fully felt. Moreover, the cost savings and advantages to locate in Jurong Gateway may be offset by the possible increase in rents in the area,” explained DTZ’s Associate Director for Research Lee Nai Jia.

“Notwithstanding these factors, firms will be drawn to the Jurong Gateway area in the long run when the agglomeration economies become mature, and the supply chain links within the area are fully developed,” Lee added.

Sources: CommercialGuru , Jul 2, 2015

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