Singapore office market turns resilient

Singapore office market turns resilient
Dec 16, 2009 - PropertyGuru.com.sg
Press Release: Jones Lang LaSalle


The Singapore office market in 2009 was marked by falling rentals, on the expectations that some 2.2 million sq ft of space was to come on-stream island-wide in this recessionary year. In 4Q09, the positive outlook of an economic recovery in US and Asia lifted business sentiments and led to a retardation of the rental declines seen in the previous quarters. Based on Jones Lang LaSalle preliminary estimates, average gross effective rent of Prime Grade A properties in CBD Core has slowed to only 4.9% q-o-q to $7.80 per sq ft per month in 4Q09.

The return of market activity has given office demand some much needed lift. Consolidation and ‘flight-to-quality’ remain the key trends as occupiers continue to consolidate into a single location and/or upgrade into the new and better quality buildings. In CBD Core where around 1.2 million sq ft of good quality space came on-stream this year, absorption of the new supply has been encouraging with around 46% of these new spaces being taken up.

Some expansions have also taken place on the back of occupiers’ improved business outlook. Norton Rose recently expanded in One Raffles Quay North Tower to occupy a whole floor while BHP Billiton increased its take-up from 150,000 sq ft to 230,000 sq ft in the upcoming Marina Bay Financial Centre Tower 2. Many financial institutions are now planning for moderate growth and have already withdrawn some of the shadow space that they were previously marketing from the market. This led to island-wide shadow space shrinking to circa 600,000 sq ft in 4Q09 from 800,000 sq ft at its peak in 2Q09.

Landlords have also turned more positive with the return of market activity and the recovery of the office market seemingly in sight. Most landlords who have secured their buildings’ occupancy are maintaining their rentals. However, those that are competing for tenants to fill up their buildings continue to lower rentals and roll out incentives including rent-free periods and capital expenditure subsidies, albeit at a more moderated pace.

If the global and regional economies remain on their recovery track, leasing activity is expected to become increasingly stronger over 2010 as firms become more confident about business outlook. “Many large MNCs see business opportunity ahead and are planning for moderate growth but are having difficulty establishing headcounts due to the uncertainty ahead,” Mr Chris Archibold, Head of Commercial Leasing at Jones Lang LaSalle, noted.

Given the recent developments in the office market, the end of this down cycle may be near. For the new Prime Grade A properties which have been well-received by the market thus far, the bottom of rentals for such properties may be as early as 2H10. However, the rentals of existing office buildings may continue to fall till the end of 2010 as vacancies are expected to rise on the back of ‘flight-to-quality’. Dr Chua Yang Liang, Head of Research of South East Asia at Jones Lang LaSalle, noted that the new supply amounting to almost 2 million sq ft per annum in the CBD Core over the next three years is likely to put a dampener on rental growth. “The rate at which the market is able to absorb the available space, which is dependent on new demand, is crucial when the new supply comes onto the market next year. A growing gap between newly completed Prime Grade A and other existing Prime Grade A buildings will emerge, similar to what was seen in 2006 with a premium gap of around 28% or $2 per sq ft per month.”