Office Rents Continue Slide

Source : The Straits Times, July 6, 2009

OFFICE rents continue to fall, weighed down by rising supply as demand weakens.

CBRE said monthly prime office rents fell about 18 per cent to $8.60 psf in the second quarter, after a 18.6 per cent quarter-on-quarter drop in the first quarter.

Raffles Place office rents are now close to the levels at the end of 2006 and are 49 per cent below the peak in the third quarter of 2008. -- ST PHOTO: FRANCIS ONG

Grade A office rents are down 17.5 per cent to $10.l5 psf a month. They also fell 18 per cent in the first quarter.

DTZ said Raffles Place office rents are now close to the levels at the end of 2006 and are 49 per cent below the peak in the third quarter of 2008.

Ms Cheng Siow Ying, DTZ's executive director (business space), noted that there has been an increase in the level of leasing enquiries as companies began to explore leasing options given that rental values had fallen substantially.

There is intense competition among new and existing developments and incentives such as longer rent-free periods, more rent holidays and fit-out contributions are increasingly being offered by landlords to lower the effective rents for tenant, she said.

However, in such cases, tenants are expected to commit to longer lease periods, she added.

Islandwide average office occupancy eased by 0.9 percentage point to 92.8 per cent. Offices in Orchard Road saw the largest fall in occupancy rate, which plunged by 2.8 percentage points to 91.5 per cent due partly to more shadow space being made available in the area.

About 406,000 sq ft of shadow space - space given up by occupiers before lease expiry through subletting, pre-termination, assignment or novation - were available for lease in the second quarter.

The quantum of shadow space will probably peak in the next six months, said CB Richard Ellis. Sub-lease space competes with primary vacant space from landlords and tends to have a dampening effect on rents as sub- lessors often offer space at a discount, it said.

There is no lack of supply in the office market, with 8.3 million sq ft of new space in the development pipeline between now and 2013, it said.

CBRE's executive director, office services, Mr Moray Armstrong said the second half of this year will likely be a busy period for the office leasing market.

However, while new lease transaction volumes will be higher, the focus is likely to remain on lower cost and better value options, he said.

'The best occupier deals may well emerge in the next six to twelve months before market recovery is at hand.'

In the industrial market, rents continue to fall, particularly for the high-tech space segment.