Office Rents Moderate In First Quarter Of This Year

Source : The Straits Times, Apr 08, 2008

Figures expected to stay strong due to high demand, tight supply, says CBRE

THE verdict is in: prime office rents - which shot up last year - have slowed down in the first three months of this year.

Like residential property, office rentals did appreciate in the first quarter but at a slower pace than in the four quarters last year, said property consultancy CB Richard Ellis (CBRE).

But unlike homes, offices will still be able to achieve high rents due to strong demand and a lack of supply, said CBRE in a report released yesterday.

Prime office rents were up 6.7 per cent at an average of $16 per sq ft (psf) per month in the first quarter, while Grade A office space - the best grade of space - climbed 8.7 per cent to average $18.65 psf.

By comparison, quarterly rises for Grade A space last year ranged from 13.7 to 23.6 per cent and 10.3 to 25.6 per cent for prime office rents.

CBRE said rising rents coupled with the lack of space in the Central Business District (CBD) led some companies to relocate to refurbished state properties such as 991 Alexandra Road and the Phillip Investors Centre at the former Moulmein Community Centre.

Supply remains tight with occupancy levels at 97.6 per cent in the core CBD and 97 per cent in decentralised areas.

Grade A vacancy remained below 1 per cent, but increased slightly from 0.2 per cent in the fourth quarter of last year, to 0.6 per cent in the first quarter of this year.

CBRE estimated that about 10.3 million sq ft of office space could be completed by 2012, with the bulk coming online in 2010 and 2011.

On the supply side, a transitional office site that could yield 180,000 sq ft at Mountbatten Road was awarded in January. Also, two sites at Scotts Road and Anthony Road, comprising 243,191 sq ft in total, were launched by the Urban Redevelopment Authority in late February but have yet to be awarded.

Government agencies are also slated to relocate from the CBD, freeing up 212,000 sq ft of office space.

CBRE's executive director of office services, Mr Moray Armstrong, said given the significant supply to come in the next few years, 'we expect some landlords may start to moderate rental expectations'.

The office market 'is likely to stabilise' and the supply does not seem excessive, but Mr Armstrong added that the government needs to be 'sensitive to the forces of demand and supply' and exercise prudence in future land sales.

He also added that pre-leasing activities are strong, especially in decentralised areas such as Tampines, Changi, Alexandra and HarbourFront due to cost-cutting measures taken by multinational companies.