BT : Pent-up demand leads to Q2 pick-up in prime office rents

Business Times - 25 Jun 2010

Pent-up demand leads to Q2 pick-up in prime office rents

By EMILYN YAP

PRIME office rents finally picked up in the second quarter after a six-quarter slump, CB Richard Ellis (CBRE) said yesterday.

With strong leasing activity, the large supply of commercial space coming up looks 'increasingly manageable', the property consultancy added. In fact, it has become concerned about whether there will be enough space 4-5 years down the road.

In Q2, the average monthly prime office rent was $6.90 per square foot, up 3 per cent from $6.70 psf in the previous quarter. The average monthly Grade A office rent was $8.45 psf, rising 5.6 per cent quarter-on-quarter.

The vacancy rate in the core central business district was 6.7 per cent, improving from 8.1 per cent a quarter ago. Outside the CBD - in areas such as Orchard, Novena and Alexandra - rents remained stable in the past 2-3 quarters.

Pent-up demand from MNCs supported leasing momentum, said CBRE's executive director of office services Moray Armstrong. 'With confidence restored in late 2009, decision makers initiated space planning, leading to a pick-up in requirements.' Space demand from firms in the investment banking, insurance, professional services, private equity and hedge fund sectors also grew.

CBRE has become more optimistic about the take-up of new office space. There will be around 6.9 million sq ft of new offices coming onstream between H2 this year and 2015, and just over 50 per cent of that has been pre-leased.

It projects the market can absorb an average of 1.5 million sq ft of new space every year for the next 4-1/2 years. This exceeds the average annual take-up of 1.28 million sq ft in the past five years.

With the outlook for the commercial sector improving, CBRE said it was surprising that the government land sales programme for the second half of 2010 did not include prime development land in the core business district.

'Projecting forward 4-5 years, some early concerns on a potential gap in the office supply pipeline start to emerge,' it said.

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