Property consultants report a marked pick-up in leasing deals
The average monthly prime Grade A office rental fell 11 per cent quarter on quarter to $9.50 per square foot (psf) in the second quarter, slower than the 28 per cent quarter-on-quarter slide in Q1 2009, according to property consulting group Jones Lang LaSalle (JLL).
Silver lining: With the shakeup, Singapore could become more cost-competitive and regain its attraction as a hub for global banks and MNCsThe latest drop translates to an overall slide of 48 per cent from the peak of $18.40 psf in Q3 last year.
The vacancy level of Grade A space rose to 6.1 per cent as at end-Q2 2009, up from 5.4 per cent at end-Q1 and 2 per cent at end-2008. JLL's prime Grade A office basket covers the best properties in the Raffles Place area, and includes One Raffles Quay and One Marina Boulevard.
JLL expects office rents to continue falling for the rest of this year and into the middle of next year, albeit at a more moderated pace, as substantial physical supply and weak global demand continue to overshadow the market.
Property consultants point out that net demand remains in negative territory. And with around eight million square feet of new offices slated for completion between now and 2013, the office market isn't out of the woods yet.
But the silver lining is that Singapore will become more cost-competitive and regain its attraction as a hub for global banks and MNCs when they stabilise their headcounts, says JLL's head of markets, Singapore, Chris Archibold.
For now, the bright spot for the office market is a significant pick-up in leasing volumes lately. 'There has been a marked increase in the volume of leasing and inspection enquiries recently. A significant number of these tenants are looking at remaining within the CBD core area,' said Mr Archibold.
Said DTZ executive director (business space) Cheng Siow Ying: 'At least now, corporates are more willing to talk about their future real estate needs. There's recognition that a lot of good-quality office space is becoming available at competitive rents, presenting attractive leasing opportunities. Six months ago, most corporates were not even reviewing their space needs.'
CB Richard Ellis executive director (office services) Moray Armstrong, too, has seen a 'strong resurgence' of leasing activity in the past couple of months. 'But in truth, it's not representative of positive office demand. Rather what we appear to be seeing is the welcome transition to a phase of greater stability, which is allowing occupiers to re-visit premises planning. For the most part, the tenants that are active are chasing lower cost and better value - in some cases by relocating to newer buildings at the fringe of the CBD,' he added.
Giving some examples, Mr Armstrong noted that office developments such as 78 Shenton Way Tower 2 and Mapletree's The Anson - both of which are completing in the next two to three months - are attracting keen interest.
According to JLL, lease renewals continue to dominate deals in the current market where occupiers have generally cancelled if not deferred their expansion plans.
'While there has been more positive news of late, our domestic economic growth remains weak and this will likely continue to cast a shadow over the Singapore office property market over the next six to nine months,' says JLL's head of SEA research Chua Yang Liang.
Office leasing consultants say it's too early to declare a recovery. Projections of negative office take-up this year range from 500,000 sq ft to 1.5 million sq ft. Demand is expected to fall short of new supply in the next few years.
And that's not counting shadow space or excess space that companies try to sublet. In addition to some 400,000 sq ft of shadow space immediately available for occupation, JLL estimates there is a further 400,000 sq ft in the pipeline.
Summing things up, Mr Armstrong said: 'We can't really call a recovery in the office market until demand turns positive and vacancy rates reduce significantly. It's hard to imagine that will occur in the next 12-18 months, but there is a stronger case for the market turning 2011 onwards.'
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