HK Luxury Housing Market Unruffled By Economic Turmoil

Source : The Business Times, September 26, 2008

SO far this year the financial turmoil elsewhere has had surprisingly little effect on the luxury residential housing markets in Hong Kong and Singapore.

Following the demise of Lehman Brothers, the takeover of Merrill Lynch, and the strong possibility of future consolidation in the financial sector, it is difficult to gauge the number of European and American expats who are likely to continue to be posted to Hong Kong and Singapore. However, banks and other major multinational corporations are looking at the higher levels of growth in Asia to support future revenues, given the slowdown in the United States and European Union.

















That should provide some support for demand for high-end property in Hong Kong and Singapore, as leading locations for multi national headquarters for a range of industries.

Wealthy Asian expats are continuing to invest, where they are cash rich and less dependent on debt financing. China's new rich are buying in Hong Kong.

The discussions in the press about a downturn in the housing markets, particularly in Hong Kong, so far this year have not been seen at the luxury high end of the residential market.

Megan Walters, Asia economist for Cushman and Wakefield, commented: 'It is too soon to tell what effect the Wall Street crisis will have on the luxury residential market in Hong Kong, but people always want prime property. It is always in demand reflecting the lower risk and lower yields than that on secondary property, and invariably luxury and prime property occupy the same area of the market.'

Buying luxury residential property in leading cities can be an excellent investment, but the returns are a complicated three-way play between the point in the property cycle, long-term growth prospects and foreign currency exchange movements, as well as the particular characteristics of what may turn out to be a hot new location in a city.

The cost of buying a 120 sq m apartment in Hong Kong is comparable with buying one in London, New York or Tokyo. An apartment in a decent neighbourhood is in the order of US$1.2-1.9 million or about US$ 4,000 to US$6,000 per metre per month to rent.

Luxury property in Hong Kong can reach five times those figures, and with the level of wealth distribution much more unequal than in the US, UK and Japan, there are sufficient numbers of wealthy purchasers to support the prices. The Gini co-efficient is a measure of wealth distribution, where 0 is total equality and 100 is total inequality with very rich and very poor. Hong Kong has a higher Gini co-efficient than Japan, the UK and USA.



















In terms of where is the best long-term bet to buy a property, at the luxury end of the market, it is interesting to look at the GDP per capita figures for Hong Kong compared to those for the USA, UK and Japan.

There are no restrictions on foreigners buying in Hong Kong.

Investment yields in Hong Kong are comparable at around 4 per cent for prime 120 sq m apartment in a good neighbourhood, about the same as New York, London and Tokyo.

Foreign investors can occasionally see buying overseas property as more risky due to a lack of familiarity with local rules. For those looking to buy in Hong Kong, the country's position in the World Bank Ease of Doing Business ranking shows it to rate higher than Japan and the UK demonstrating no great risk to investments. From the property cycle perspective, luxury apartments at this level exhibit similar risk characteristics compared to other international cities and consequently exhibit similar returns.

In Hong Kong, the traditional high end luxury area of the Peak is being superseded by the new Kowloon side location. Fifteen years ago it would have been unthinkable that investment bankers would want to live anywhere other than on Hong Kong Island. Now, West Kowloon is home to fund managers and their spouses, with all the restaurants, shopping and gyms that are a prerequisite for some to lead a luxurious life style. The new Kowloon Station where the ICC is being developed is now home to prime office, retail, residential and hotel properties and prices are at historical highs.

Traditional high-end areas are Mid-Levels, Southside of HK Island and The Peak. The Peak is the traditional area for high net worth purchasers. Severn 8, a luxury town house development, concluded a transaction at HK$56,000 (S$10,220) psf in June, and developer Sun Hung Kai Properties also achieved a record price for an apartment when they sold a penthouse unit in their Arch development above Kowloon Station for HK$41,100 psf. This now holds the record price for an apartment surpassing Mid-Levels.

For those that want houses, developers are also focusing on building villa properties in the New Territories close to the border with Guangdong Province. Wealthy factory owners in the Shenzhen SEZ prefer to live close to the border and high quality properties are between HK$5,000-9,000 per sq ft.

Gary Knowles, head of residential services at Cushman and Wakefield's Hong Kong office, suggested that 'the expat community in Hong Kong has grown on the back of the financial sector. Due to the rapid increase in office rents, many banks have moved their back office to less expensive locations and the relocation of the airport to Chek Lap Kok has led to an increase in popular residential locations away from the more traditional areas of HK Island and Sai Kung'.

Other infrastructure developments are also affecting popular locations, with the Bridge Link to Macau and Zhuhai new rail links between the New Territories and HK Island as well as the redevelopment of the old Kai Tak Airport. The new Airport Express link has seen a plentiful supply of new residential properties built on the West Kowloon reclamation above the Airport Express stations.

Land sale auctions in Hong Kong have been limited and the majority of new residential developments are being generated by Urban Renewal Authority redeveloping older areas of HK and Kowloon.

Upcoming luxury developments are The Cullinan above Kowloon Station (which will be HK's tallest glass wall residential building) and the latest phase of Residence Bel-Air in Pokfulam on the Island.

The writer is managing director, Cushman & Wakefield Singapore

CapitaLand Chiefs Defend Strategy

Source : The Business Times, September 30, 2008

CEO refutes concerns over exposure in China, says group has strengthened risk management

AMIDST a raft of downgrades by analysts and a slump in the company's share price, CapitaLand's top brass have defended the group's strategy.

On the prowl: Mr Kee (left) and Mr Liew. CapitaLand is in a position to replenish land supply at more competitive prices as it does not have a huge China landbank

'We are a company that's much stronger than when we first started in terms of our balance sheet. We've also strengthened our risk management. We have an independent risk management team to countercheck all business initiatives. At the same time, we've built up a company with enough liquidity to not only weather the current position but take advantage of it,' CapitaLand Group president and CEO Liew Mun Leong said in a recent interview with BT.

'I can't think of any project that we have invested in during the last two years that is a lemon. I can think of a lot of projects that we have divested and made money (from). That's because we're very prudent and paranoid about risk analysis,' he says.

The property giant set up the strategic corporate development team in May to study acquisition opportunities - especially in China and Japan - to grow the company.

Said CapitaLand's chief investment officer Kee Teck Koon: 'To be able to leapfrog your competitors, usually it has to happen during a crisis.'

The current financial market turmoil emanating from the US has its origins in lax macro-economic policies that led to low interest rates, excessive liquidity and high leveraging.

'Our company, if you check our history, we have not done that,' Mr Liew stresses. The group had $3.4 billion of cash as at June 30, 2008 and this was not counting recently recycled capital of $2.9 billion from the divestment of properties like 1 George Street and Somerset Orchard in Singapore, the Raffles City projects in China, Capital Tower Beijing and Citibank Menara in KL. On a proforma basis, assuming these divestments were completed on June 30, 2008, and all things being equal, the group's net debt-to-equity ratio would have been 0.43.

Besides the $3.4 billion cash, the group's private equity funds had undrawn equity commitments of $2.2 billion and an average gross debts to assets ratio of 0.24 (inclusive of equity bridges) as at end-June 2008.

Mr Liew also refuted market concerns about the group's exposure in China. 'Unlike many other Chinese residential developers, we do not have a huge landbank. This leaves us in a position to replenish land supply at more competitive prices.' The group has a 1.5 million sq metre gross floor area residential pipeline in the Beijing, Shanghai and Guangzhou regions.

Some analyst reports recently highlighted that major Chinese residential developers have been chopping prices, which will put pressure on CapitaLand to do the same. Mr Liew says land for the projects it is marketing now was bought a few years ago, when land prices were lower. As residential land values in China go down, CapitaLand, with its strong balance sheet, will be on the prowl to restock its landbank.

Strong fundamentals

Asian real estate markets have started to tank but Mr Liew maintains that 'Asian economies and real estate will outperform western economies', citing strong demand fundamentals. 'In the Asian context, the buying power and source of funds through capital markets or other sources is still not as seriously affected as in USA, where the thing has completely frozen. The Arabs also have money.'

Mr Kee said German core funds and North European funds have also raised their allocation for Asian real estate over the years.

CapitaLand's head honchos also dis- agree with the view that the group has increased its risk profile in the past few years by undertaking more development projects, moving away from the earlier stated asset-light strategy underpinned by stable recurring income from investment properties and fund management.

Sharing risks

Despite undertaking more development projects lately, Mr Liew said the group has reduced its exposure by sharing the risks with joint-venture partners or by undertaking the developments through its private equity funds.

The group has also been collecting a steady stream of recurring income from its funds. Its five Reits, with about $16 billion of assets under management as at June 30, 2008, last year generated $124 million distributions to CapitaLand. In addition CapitaLand Financial produced $70 million earnings before interest and tax last year from managing various funds in the group. CapitaLand's stake in Australand also produced recurring earnings of A$58 million (S$67.5 million) from investment properties in 2007.

Some say CapitaLand has earned handsomely from divesting assets in the past few years but with the choicest ones sold, it may be a tough act to repeat.

Mr Liew acknowledged that the investment sales market will slow down for now and possibly next year, but says the group has in the meantime built up a portfolio of investment and development properties in various private equity funds - including the Raffles City mixed development projects in China and a string of malls across China - and through joint ventures, as in the case of Ion Orchard. 'These were acquired at prices which would still enable us to monetise, at the right time, for good returns to our shareholders,' he added.

Mr Liew also notes that over the past two years, the group has divested more than $9 billion of assets, double the $4 billion it has invested over the same period. 'I want to conserve liquidity. My principle is: If you want to buy $1 of assets, you must give me $2 (of divestments).'

Singapore assets divested in the past 24 months include Hitachi Tower, Chevron House and Temasek Tower. 'On hindsight, we think the divestment of many of our stable assets was nearly perfectly timed. The main point is that we have recycled (capital). We have sold at high prices and bought at low prices. Because of that, every time we do a divestment, we have a gain. It's no point telling shareholders we have divested at a loss. Then you're in trouble. We are always selling at a gain. All of them. I'm quite proud of it.'

Looking back, Mr Liew says CapitaLand has emerged stronger from weathering two crises - the Asian Financial Crisis in 1997 and the prolonged economic slowdown from 2001 to 2003 that took place after the group's formation in 2000 from a merger between Pidemco Land and DBS Land. 'We've emerged as a stronger company, further extended our leadership in the real estate sector and adopted lessons to address this current global financial crisis.'

With its disciplined capital management culture and stronger risk management checks put in place recently, 'we're aggressive in our growth as before and not emotional in divesting our mature properties when return targets are reached, generating liquidity for the next business cycle'. 'This disciplined aggression is the hallmark of our management team,' says Mr Liew.

UK August Mortgage Approvals Fall To Lowest Since 1999

Source : The Business Times, September 30, 2008

(LONDON) UK mortgage approvals slid in August to the lowest since at least 1999 as the global credit squeeze prompted banks and building societies to curtail credit.

Huge slump: House prices in the UK fell an annual 6.2 per cent in September, says Hometrack, a London-based property research group that has been following property prices since 2001

Lenders approved 32,000 loans for house purchases, down from 33,000 in July, the lowest since comparable data began nine years ago, the Bank of England said.

The value of those loans fell to £143 million (S$370 million), the lowest since April 1993.

The worst house-price slump in at least a quarter century and a tightening global credit squeeze threaten to push the economy into its first recession since 1991. Central bank policy maker Kate Barker said last week that market turmoil may constrain bank lending 'for a considerable period'.

'The reading is very low, and consistent with a further decline in house prices,' said Alan Clarke, economist at BNP Paribas SA.

'With credit conditions likely to tighten further, the supply of credit will deteriorate.' Economists had forecast that UK lenders would approve 30,000 new home loans last month, according to the median of 27 estimates in a Bloomberg News survey.

During the past month, the Bank of England joined a coordinated effort by world central banks to increase the availability of dollars and ease money-market strains, with new auctions of overnight and one-week funds totalling US$40 billion.

UK authorities earlier yesterday seized the lending book of Bradford & Bingley p+lc, the nation's biggest lender to landlords, and forced the company to sell its savings accounts to Banco Santander SA, Spain's biggest lender, after it had trouble financing its daily operations.

For lenders facing global financial-market turmoil, 'the adjustment is proving highly painful and it is clear that lending by UK banks will be very constrained, relative to the past few years, for a considerable period', Ms Barker said on Sept 25.

UK house prices fell an annual 6.2 per cent in September, Hometrack, a London-based property research group that has been following property prices since 2001, said yesterday. Prices fell by the most in a quarter century in August from a year earlier, HBOS Plc, whose survey began in 1983, said on Sept 4.

Households, which have a record £1.4 trillion of debt, added to their unsecured borrowings, yesterday's report showed. Net consumer credit, which includes credit cards, personal loans and overdrafts, rose by £1.2 billion.

Bank of England policy makers voted to keep the key interest rate at 5 per cent this month as inflation quickened to 4.7 per cent, more than double the target. The economy's growth rate stalled in the second quarter.

The bank will make its next interest-rate decision on Oct 9. -- Bloomberg

S'pore In For 'Biggest Office Space Excess In 20 Years'

Source : The Straits Times, Sep 30, 2008

DEMAND for Singapore offices is likely to fall to recession-level lows next year and in 2010, resulting in the biggest excess supply of office space in 20 years, said Credit Suisse yesterday.

It expects office vacancy rates to hit a high of 16.5 per cent in 2010 - up from an islandwide vacancy of about 2 per cent currently - as firms' expansion plans are hit by the global financial turbulence.

Office rentals are also predicted to peak earlier than expected this year, and fall 50 per cent by 2011, said research analyst Shirley Wong, who has downgraded the Singapore office trusts sector to underweight.

After her report was released, office trusts CapitaCommercial Trust (CCT) and Suntec Reit saw large drops in their unit prices that put them among the worst-performing property stocks yesterday. Property counters fell across the board as the wider stock market faltered.

CCT fell 17 cents to its lowest level in almost four years, while Wing Tai and Keppel Land each dropped more than 6 per cent to three-year lows.

'Focus of the office sector has always been on supply, but actual demand is hurting, and repercussions from the US economic shocks could strain it further,' Ms Wong said in the report. Tenants are resisting rent rises, while capital values have been flat for three quarters and vacancies have risen for two quarters.

But not all analysts are as bearish.

The supply of offices in the pipeline could be affected by construction delays, while property market sentiment and prices may start picking up at the end of next year when the integrated resorts take shape, said Kim Eng analyst Wilson Liew.

'I do not foresee drastic cuts in the headcounts of financial institutions in the Asia-Pacific and, in fact, the private banking sector may provide some support.'

But Mr Liew conceded that the looming imbalance caused by more supply and less demand will ultimately lead to lower office rentals. He expects a moderate decline in rents of 10 to 15 per cent between now and the end of next year.

More broadly, property developers may soon be forced to write down their assets as real estate prices fall around the world, said another Credit Suisse research analyst in a separate report.

Developers were holding out for a recovery in sentiment, but 'a confidence crisis from the recent near-collapse of global financial markets could hasten and steepen price falls', said Ms Tricia Song.

Catalysts include the large upcoming supply of homes, a slower expatriate influx, potential job losses, and delays to the completion of the integrated resorts.

Ms Song noted that major write-downs in previous property downturns triggered developers' stocks to plunge as much as 79 per cent in 1998 and up to 50 per cent in 2001.

'CapitaLand and Keppel Land wrote down the most and could do so again due to aggressive acquisitions and revaluation gains in recent years,' she added.

The only major property counters spared yesterday's carnage were GuocoLand, up one cent at $1.85; CapitaMall Trust, up six cents at $2.31; and Bukit Sembawang, up 10 cents at $6.30.

Thomson Collective Sale Back On Track After SLA Appeal

Source : The Straits Times, Sep 30, 2008

THE collective sale of five small estates in Thomson Road is back on track after getting stalled two months ago.

An appeal by buyers Mergui Development has been granted by the Singapore Land Authority (SLA), to reduce the price of a 1,000 sq m section of a road needed for redeveloping the project.

Developer KSH Holdings, the parent company of a firm in the Mergui Development consortium, told the Singapore Exchange yesterday that the SLA had cut the land premium payable from $16.74 million to $8.37 million.

KSH project manager Richard Tham said the SLA's revised offer was more in line with the price 'initially expected'. The buyers were caught off guard by the initial $16.74 million land premium, which is believed to have delayed the completion of the $120 million sale.

Owners at the five estates - Norfolk Court, Mergui Lodge, Northern Mansion, Mergui Court and The Mergui - were said to be considering walking away with the 10 per cent deposit of $12 million because buyers had failed to complete the sale, despite a two-month deadline extension.

Both sides have since agreed on a deadline extension until November, but this involved paying a further $3 million deposit to the 88 sellers.

The SLA said it had originally priced the land 'similar to that offered by the developer to the existing land owners along Mergui Road'. However, on review, it noted the land had some development constraints and considered the revised price 'in order to facilitate the development proposal'.

Mergui Development is a joint venture between Bursa-listed IOI Properties unit Multi Wealth Singapore, a local private firm LBH, and KSH unit Kim Seng Heng Realty, which holds 35 per cent.

The strip of land is needed so the five estates near Rangoon and Moulmein roads can be combined and developed into one project. This will give a land area of 74,355 sq ft and a gross floor area of 208,196 sq ft. It will allow a high-rise block with about 140 luxury flats each measuring 1,250 sq ft on average.

Even Pricey Flats In Great Demand

Source : The Straits Times, Sep 30, 2008

HDB BALLOTING EXERCISE

Pinnacle draws 3 times more applications than the number of flats

THEY are among the priciest flats ever launched by the Housing Board, but there has been no shortage of potential buyers.

The 50-storey Pinnacle@Duxton in Tanjong Pagar has attracted 1,467 applications for the 428 four- and five-roomers on offer - that is about 3.5 hopefuls for each unit.

Cheaper homes in less central areas were in even more demand, with applications streaming in at a rate of 20 per new flat in some districts.

HDB's balloting exercise on Friday attracted a total of 4,463 applications for 992 flats on sale in Ang Mo Kio, Queenstown, Jurong West, Kallang/ Whampoa and Tanjong Pagar as of 5pm yesterday.

The 111 five-roomers at the Pinnacle start at $545,000 and hit $645,800 for a 49th storey unit - the most expensive new HDB flats - yet there were still 372 applicants.

Demand for those flats paled in comparison with the 762 applications for just 39 four-room flats in Kallang/Whampoa, priced at between $364,000 and $435,000.

Property analysts said the response was not surprising, considering the underlying demand for new flats from first-time buyers and the preference for cheaper units.

Still, the fact that the Pinnacle racked up more than three times more applications than flats available proves there is strong demand, said PropNex chief executive Mohamed Ismail.

'Buyers have to expect to pay a premium for the prime location of city flats,' said Mr Ismail.

The HDB said the prices of Pinnacle flats were still lower than those of resale flats in the area. HDB figures show five-room flats in Tiong Bahru's Jalan Membina recently selling for $670,000 above the 20th floor. The average price of a five-room flat sold in Jalan Membina and Cantonment Close over the last three months was $624,000.

The response to the ballot also highlighted another emerging hot spot - Jurong, an area once spurned by buyers for being too far from the city.

Five-room flats here were about 11 times oversubscribed - 335 applications for the 30 flats.

ERA Asia-Pacific's assistant vice-president Eugene Lim said new flats here are now more attractive after a masterplan to rejuvenate the area was announced recently.

'It's also currently one of the cheapest housing spots in Singapore. It's not surprising it's moving now,' said Mr Lim.

He also feels those priced at $650,000 are at the top end of what buyers can afford.

'With two incomes, it's still manageable,' he said. In many cases, these flats are cheaper than buying from the resale market, where buyers usually need to pay a cash component upfront to sellers. This is not required for new flats, he added.

Still, HDB 'should be conscious that such pricing of flats are affordable only to a small cross-section of HDB home buyers,' said Mr Ismail.

But the true popularity of the flats has yet to be seen as the number of applications might not reflect the actual take-up rate. Applications for the new flats close on Oct 9.

Concorde Hotel Checking In Again

Source : The Straits Times, Sep 30, 2008

THE hotel arm of Singapore-listed HPL Properties has taken over an Orchard Road hotel and will make it part of its Concorde chain.

HPL Hotels and Resorts Group will take over the management of Le Meridien Singapore from tomorrow and turn it into Concorde Hotel Singapore.

The multimillion-dollar rebranding and 'major refurbishment' works will make the Concorde a four-star business hotel.

Updated suites and rooms will boast 'more spacious lodgings, larger desk space and upgraded amenities', complete with a sleeker and more chic design, said HPL.

HPL added that the revamp, which will be completed in early 2010, will cause only 'minimal inconvenience' to guests.

The hotel, which is on the main shopping belt and a stone's throw away from the Istana, will be the fourth Concorde managed by the group. The other three are in Malaysia.

The 417-room Le Meridien was managed by Starwood Hotel and Resorts Worldwide, whose management contract ends today.

HPL said in a statement that it will be 'taking this opportunity to re-establish the Concorde brand in Singapore', with 'plans of possibly bringing the brand name to countries such as Thailand, Indonesia and India'.

The first Concorde Hotel here was in Havelock Road and owned by HPL managing director Ong Beng Seng through his privately held company Avant Hotels.

But in January 2005, it was renamed the Holiday Inn Atrium and managed by InterContinental Hotels Group Asia Pacific.

HPL also said it has appointed Mr Andrew Khoo as general manager of the new Concorde.

HPL Unit To Manage Le Meridien

Source : The Business Times, September 30, 2008

HOTEL Properties Ltd (HPL), through wholly owned HPL Hotels & Resorts, is taking over management of the Le Meridien Singapore hotel tomorrow and rebranding it Concorde Hotel Singapore, in line with plans to establish the brand in more markets.

This is HPL Hotels & Resorts' fourth Concorde hotel but its first in Singapore, as the other three are in Malaysia. The company is looking to expand the brand in other markets such as Thailand, Indonesia and India.

Le Meridien's management contract with Starwood Hotel & Resorts Worldwide ends today and the four-star business hotel will carry the Concorde name from tomorrow.

When contacted, a spokesman for HPL Hotels & Resorts declined to comment on the value of the deal, saying only that it was a 'substantial amount'.

The 417-room hotel will undergo renovations in several phases, to minimise disturbance to its guests, starting from November.

The refurbishment works are slated for completion in the first quarter of 2010.

Andrew Khoo, newly appointed general manager, said: 'These will be exciting and challenging times for the Concorde brand and the HPL group as a whole as we move forward with our plans to expand the brand in Singapore and the region. Guests familiar with the Concorde brand have always associated it with quality and good service.'

HPL Hotels & Resorts is headquartered in Singapore.

Grade A Office Rents In CBD Slide For First Time In Years

Source : The Business Times, September 29, 2008

Average monthly rent at Raffles Place slips 1.4% to $17.64 psf in Q3

Grade A office rents in Singapore's Central Business District (CBD) have declined for the first time since the office market troughed in 2004.

The average gross monthly Grade A rental value for the Raffles Place area slipped 1.4 per cent to $17.64 per square foot (psf) in the third quarter, from $17.89 psf in the preceding quarter, according to the latest data from Knight Frank.



























The Suntec/Marina Centre/City Hall area led the declines in Grade A office rentals in Q3, with a 6.2 per cent quarter-on-quarter fall to $15.13 psf. In the Shenton Way/ Robinson Rd/Tanjong Pagar area, the drop was 2.8 per cent, followed by a 2.7 per cent decline along Orchard Road.

Knight Frank director (research and consultancy) Nicholas Mak said that he expects office rentals to continue declining by 14-19 per cent islandwide in the next 12 months (from current levels) as the global financial turmoil and possible mergers and acquisitions contribute to consolidation and reduction in office demand.

Giving her take on weakening office demand, DTZ executive director Ong Choon Fah said: 'Most companies are in cost containment mode and would be looking for ways to manage the increase in their accommodation costs. There has also been quite a lot of leakage of CBD office demand to business parks and vacant state properties converted to offices.'

Mrs Ong reckoned that headline office rents may not come down much but noted that leasing incentives like rent-free periods have started to reappear. Agreeing, an analyst said: 'Major landlords will try to maintain headline rents, because once rents come down, it affects their whole portfolio.'

Besides weaker demand for office space amid the financial turmoil, Knight Frank's Mr Mak attributed the softening rentals in Q3 to the government's efforts to increase office supply (including transitional office sites). 'In addition, landlords are more cognisant of the substantial supply of office space that will be completed from 2010 and have become more realistic and flexible in their rental expectation when it comes to lease negotiations; they want to hold on to their tenants and maintain their buildings' occupancy rates,' Mr Mak said.

The fall in the average Grade A Raffles Place rental value in Q3 marks the first quarterly decline since Q2 2004. This incipient weakening follows a rapid escalation in office rentals over the past two years on the back of tightening supply and strong demand from occupiers, including global financial institutions expanding their operations in Singapore. Average Grade A Raffles Place rents surged 82 per cent last year and that was on top of the 67 per cent gain posted in 2006, according to Knight Frank.

But it's a different story now. 'Since Q1 2008, there appears to be a crack in the growth momentum for office demand in the Downtown Core area due to external factors such as the US sub-prime crisis that began in the second half of last year,' said Mr Mak.

The slowdown in demand in the Downtown Core area - which includes the key office districts like Raffles Place/Marina Bay, Shenton Way and Marina Centre - and tapering off in rentals in Q3 does not come as a surprise, he adds. 'The tenants in this area are primarily financial institutions, many of which had already completed their expansion or consolidation plans over the last 24 months and some are adopting a more cautious approach by putting any further expansion plans on hold,' Mr Mak observed.

Knight Frank's data showed that Grade B offices in Singapore also experienced downward pressure on rentals in Q3. The biggest fall was in the Orchard Road location, where the average rent decreased 7.8 per cent quarter-on-quarter to $10.70 psf a month in Q3. Raffles Place and Shenton Way/ Robinson Rd/Tanjong Pagar Grade B offices were less impacted by easing office rentals and dipped by 1.8 per cent and 2 per cent quarter-on-quarter respectively.

As a whole, offices in non-CBD locations also mirrored the general slowdown in rental in Q3. Rentals continued to weaken for the Beach Road/Middle Road area, with a 3.4 per cent quarter-on-quarter drop. Suburban areas too met a similar fate with quarter-on-quarter rental decreases ranging from 1-8 per cent.

Looking ahead, Knight Frank said that in the short term, the beleaguered financial markets are expected to lead to many firms either postponing their expansion plans or consolidating their space usage. Restructuring at some organisations could lead to sub-letting of excess space to ease cashflow problems.