Office Redevelopment Worsens Space Crunch; Rents Soar

Source : The Business Times, January 11, 2008

CBD supply fell 3.7% y-o-y in Q4 2007 to 19.98m sq ft: DTZ

ONLY 341,180 sq ft of new office supply became available for the whole of last year. At the same time, 1.02 million sq ft of office space was taken away, as a result of buildings undergoing redevelopment or addition and alteration work.









A report by DTZ Debenham Tie Leung shows that existing stock in the central business district (CBD) was 19.98 million sq ft in the final quarter of the year, a decline of 3.7 per cent year-on-year.

Island-wide, the decline of existing stock was marginally less at 1.2 per cent to 56.04 million sq ft.

For non-central areas, existing stock increased by 0.6 per cent to 15.16 million sq ft.

Tight supply has pushed up occupancy levels to 97.5 per cent island-wide, an increase of 2.5 percentage points from the comparable quarter in 2006.

DTZ says that office rents have consequently risen to record levels, with prime office rents in Raffles Place for the quarter 94.1 per cent higher than 12 months previously, at $16.50 psf per month.

High rents prompted companies to consider relocating to lower-cost premises in the CBD fringe, non-central areas and several business parks.

Average monthly gross rents for office buildings in areas like Marina Centre, Alexandra Belt and Tampines Finance Park jumped 81.3 per cent to $14.50 psf per month, 85 per cent to $7.40 psf per month and 62.2 per cent to $7.30 psf per month respectively year-on-year.

While the short-term situation remains challenging, DTZ believes the mid and long-term situation could prove better for office tenants.

DTZ executive director Cheng Siow Ying said: 'The pace of rental growth is expected to moderate as tenants become more rent-sensitive and more choices of office supply such as transitional offices, disused state properties and business park space are made available to occupiers.'

DTZ is forecasting that about 7 million sq ft of net lettable area could come on stream in the next four years.

In 2007 alone, it estimates that 1.9 million sq ft of gross floor area of office space was generated through the conversion of disused state properties for office space and transitional office sites.

Supply of business park space in the industrial sector also increased in 2007.

Island-wide, existing stock of industrial space increased 4.1 per cent to 297.36 million sq ft.

Of the 7.6 million sq ft of private industrial space that was completed in the first three quarters of 2007, DTZ said that 5 per cent was business park space. DTZ also estimates that 7 per cent of the 20.4 million sq ft potential supply of private industrial space over the next three years could be business park space.

DTZ executive director Chua Wei Lin said: 'An increased number of business park developments, built-to-suit and high-tech facilities are expected to come on stream, partly due to heightened demand from qualifying office users as the office market tightens.'

Average monthly gross rents for business park/science park/high- tech industrial space recorded increases of 50 per cent year-on-year to hit $3.90 psf per month.