Lehman's Fall Marks Office Rent Peak Here

Source : The Business Times, September 18, 2008

Consultants expect demand for prime office space to ease as growth slows

The collapse of Lehman Brothers Holdings Inc may contribute to an easing of demand for prime office space in Singapore, where commercial rents are already peaking amid slowing economic growth, property consultants said.

Downcycle: Grade A office rents will probably drop to $14 psf a month in 2009 from $16 this year, and fall further to $10 in 2010, when the first phase of Marina Bay Financial Centre is completed, says Merrill Lynch

The market turmoil that also this week forced the sale of Merrill Lynch & Co to Bank of America Corp and a bailout of American International Group Inc will probably further slow expansion by international companies in Singapore, said analysts at DTZ Debenham Tie Leung and Cushman & Wakefield.

'Rents have peaked and with the collapse of Lehman and the further shakeout in financial markets, this is going to accelerate,' said Ong Choon Fah, Singapore-based regional head of research at DTZ Debenham, a property consulting firm. 'Financial companies are the ones occupying the very prime space and a lot of them are in survival mode.'

Home prices and office rents in Singapore have cooled after rising to records last year, and Colliers International said this month that office-vacancy rates in the US will rise to the highest in three years as financial-services companies slash jobs after reporting writedowns of US$515.8 billion.

Gains in Singapore office rents will be limited as global economic growth slows, the property researchers said. Singapore's economy is forecast to grow between 4 per cent and 5 per cent this year, slowing from 7.7 per cent in 2007, as demand for Asian-made goods wanes and writedowns mount at banks and securities firms.

Lehman, which this week filed the biggest Chapter 11 bankruptcy in history, occupies office space in Suntec Real Estate Investment Trust's Suntec development. The firm has about 270 employees in Singapore.

Suntec Reit, a property trust partly owned by Hong Kong billionaire Li Ka-shing, has dropped 26 per cent in Singapore trading this year. CapitaCommercial Trust, an office landlord run by South-east Asia's largest developer, has slumped 36 per cent during the period.

So-called Grade A office rents will probably drop to about S$14 a square foot a month in 2009 from S$16 this year, Merrill Lynch analysts led by Kar Weng Loo estimated in an Aug 26 report.

Rents may fall further to S$10 in 2010, when the first phase of the 2.6 million-square-foot Marina Bay Financial Centre is scheduled to be completed, and to S$8 by 2011, the brokerage said. For the second half of 2008, rents for prime office space will be little changed after climbing about 7 per cent in the previous six months, said Donald Han, Singapore-based managing director of Cushman & Wakefield. Still, supply of prime office space is likely to remain tight until 2010 and any office space vacated by Lehman will probably be filled quickly, Mr Han said.

'The market is still in a very healthy state and occupancy in Suntec, where Lehman has its offices, is in excess of 96 per cent,' Mr Han said.

'The only issue is that negative sentiment will creep in, with the fact that such a big investment bank that has a long history of operating in Singapore is collapsing will shock the market.' - Bloomberg