6 Floors Of Prudential Tower Being Sold

Source : The Business Times, September 1, 2009

K-Reit said to be buying space at about $1,550 psf of net lettable area

IN a deal that could help benchmark office values in the Raffles Place area and smooth the way for more office investment transactions, a property fund is said to be selling six floors at Prudential Tower for about $1,550 per square foot or about slightly over $100 million.

Back in the fold: KepLand group is buying back the property at a lower price than what it sold the space for 13 years ago -- FILE PHOTO

The buyer in the deal being stitched together is believed to be listed K-Reit Asia, which already owns 44.4 per cent of the strata area in the 30-storey building at the corner of Church and Cecil streets.

Prudential Tower is on a site with a remaining lease of about 85 years. Jones Lang LaSalle is said to be brokering the latest sale involving net lettable area (NLA) of about 67,000 sq ft.

As at the end of last year, K-Reit's existing space at Prudential Tower was valued at $224 million, or $2,066 psf based on 108,436 sq ft NLA.

So the price of $1,550 psf that K-Reit is expected to pay for its latest acquisition of six floors is about 25 per cent lower than the end-2008 valuation on its existing space.

Some market watchers described the latest pricing as 'not unreasonable'.

'They seem to be slapping themselves by buying additional floors in Prudential Tower that could affect the valuation of their existing space in the building. But one could argue that the end-2008 valuation was too high in the first place,' one property consultant said.

In any case, an industry observer points out that K-Reit could still use a higher valuation than $1,550 psf for Prudential Tower when it revalues its assets at end-2009.

It also made sense for K-Reit to raise its stake in Prudential Tower and gain control of the building as that could create other strategic options for the Reit.

The latest deal involves the 20th to 25th levels. The seller is Asia Property Fund, sponsored by LaSalle Investment Management and PruPIM. The fund bought the six floors in 2007 for $141 million or just under $2,100 psf from Prudential Assurance Company Singapore. The latter received units in the fund in exchange for selling the floors. Prudential Assurance Co Singapore and PruPIM are part of the Prudential UK Group.

Prudential Assurance Co Singapore still owns the 30th floor of the building, sources say. It had purchased the seven floors in the development in early 1996 for $183 million from Straits Steamship Land, now known as Keppel Land.

That transaction worked out to $2,200 psf. Although this figure was based on floor space and not NLA, property consultants say the dollar psf price on NLA at which KepLand sold the space in 1996 would be higher than what K-Reit (a KepLand unit) is paying in the latest deal.

In short, KepLand group is buying back the space at a lower price than what it sold it for 13 years ago.

Following its sale of the seven floors to Prudential Assurance, KepLand also sold further space in the building to other parties before divesting its remaining 44.4 per cent stake in Prudential Tower to K-Reit, which was created from a de-merger from KepLand and listed in 2006.

More Lights Up At Iluma

Source : The Business Times, August 15, 2009

New Bugis mall is 90% leased and is seeing more shoppers.

ILUMA may not have opened its doors with a bang, but it has been working to fill space and draw crowds since. The new mall in Victoria Street is now 90 per cent occupied and more shoppers are making their way there, says its management.

Traffic has 'definitely improved' in the past few months, says Han Minli, business development director at Jack Investment, which owns and manages Iluma.

Iluma entered the mall scene in March as Filmgarde Cineplex began operations. Retailers gradually opened for business in the following months. But what seemed to stand out in the mall's early days was empty space and a lack of crowds, going by reports.

Jack Investment is counting on the situation to improve as more tenants strut their stuff. 'I think we will really see the surge in (shopper) numbers when the mall is fully ready. That will probably be the end of the year,' says Ms Han.

Importantly, Iluma's anchor tenants have started operations. Wah Lian Amusement Company has invested $12 million in its flagship project Tornado, an entertainment centre comprising a cyber-gaming joint, dance club, arcades and restaurants. And K Box Entertainment Group has launched K Suites, an upmarket version of the popular karaoke chain K Box.

So far, 10 per cent of space at Iluma - concentrated on the first and second floors - is left.

There was opportunity to fill it but Jack Investment is waiting for the 'right' tenants to come, Ms Han says. Rents at the mall range from the 'high-tens' to 'forty-ish' dollars per square feet.

The mall is looking for unique retailers - many of those already in business are start-ups and may have made their first foray into a commercial shopping centre, she adds. 'We are being a little bit more experimental.'

Besides having more tenants, the completion of a link bridge from Bugis Junction at the end of the year may drive more shoppers to Iluma, says Ms Han. There will also be retail space on the 53-metre bridge, with a net rentable area of around 3,800 sq ft.

Around 60 per cent of the space has been taken up by retailers such as comic and accessory shops, and rents there range from the mid-$20s to around $50 psf.

Singapore's retail scene has become more interesting of late with the entrance of more new malls. Besides Iluma, Orchard Central and Ion Orchard have opened, even as the economy contracts and visitor numbers fall.

Iluma is taking the competition in its stride, explains Ms Han. 'The key opportunity for us is that we are not in a very densely populated shopping belt with a lot of new competition. So that allows us to create our own niche.'

She also notes that the Bugis area has a 'sizeable' population of students, working executives and visitors to nearby museums.

Iluma has a crystal mesh media facade touted as one of the world's biggest permanent media facades. It can be used as a canvas for advertisements or for media artists to exhibit their works. The mall will be showcasing the facade's technical capabilities at a lighting preview today.

Prepared Industrial Land Allocation Falls In Q2

Source : The Business Times, August 13, 2009

Negative 32.2 ha compares with net allocation of plus 14ha in Q1

Net allocation of prepared industrial land went into negative territory in the second quarter for JTC Corporation, as the downturn continued to take a toll.

Coming soon: Phase 2A of Fusionopolis is under construction and is expected to be finished by 2013

JTC's Q2 facilities report shows net allocation was negative 32.2 hectares, compared with a net allocation of plus 14 ha in Q1 and 34 ha in Q2 2008.

Gross allocation in Q2 this year slid to 5.4 ha. And termination jumped to 37.6 ha, from 16.7 ha in Q1. Almost half of total terminations stemmed from the electronics segment. And almost a quarter of terminations was due to companies consolidating operations.

Net allocation of generic land and specialised parks also moved into negative territory in Q2.

Net allocation of generic land was negative 7.1 ha, down from plus four hectares in Q1 and significantly lower than 26.7 ha in Q2 2008. As gross allocation fell 77 per cent quarter-on-quarter to 2.5 ha, termination rose 37 per cent to 9.6 ha in Q2. The manufacturing sector accounted for 74 per cent of gross allocation.

Net allocation of specialised parks dropped to a negative 25 ha versus plus 10 ha in Q1 and 7.3 ha in Q2 2008. This was also due to lower gross allocation and higher termination. Gross allocation plunged 85 per cent quarter-on-quarter to 2.9 ha, while termination rose three-fold to 28 ha.

Wafer Fab Park accounted for 65 per cent of termination within specialised parks, with 18.3 ha in Q2, which widened net allocation for Wafer Fab Park from negative 6.5 ha in Q1 to negative 18.3 ha in Q2.

In JTC's ready-built factory (RBF) segment, net allocation remained negative in Q2 but improved slightly, climbing to negative 7,800 sq m versus negative 8,900 sq m in Q1, thanks to a 64 per cent increase in gross allocation to 17,800 sq m. Higher gross allocation was partly offset by higher termination, which rose by 30 per cent to 25,600 sq m in Q2.

The RBF occupancy rate was 0.3 percentage points lower at 97.4 per cent.

Meanwhile, Phase 2A of Fusionopolis is under construction and is expected to be finished by 2013, JTC said yesterday.

Consultants See Slower Slide In Office Rents

Source : The Business Times, August 13, 2009

But most are conservative about the strength of space absorption for the rest of 2009

Some property consultants reckon the worst is over for falling office rents. And one even expects net take-up of space to turn positive by the fourth quarter of this year if the economy does reasonably well.



























Cushman & Wakefield's mid-Q3 analyses show the decline in prime office rents has slowed. For instance, Raffles Place Grade A office rents fell 18 per cent from $10.61 in Q1 to $8.70 in Q2. But since then, they have dipped just 2.9 per cent to $8.45.

The same trend is showing up for prime office rents in the Shenton area. They have dropped 5.8 per cent from Q2 to $6.32 - a smaller decline compared with the 17.9 per cent drop from $8.17 in Q1 to $6.71 in Q2.

The prime office vacancy rate at mid-Q3 is 6.1 per cent, up 0.4 of a percentage point from Q2.

'As economic conditions continue to stabilise, we will see the flow-through to improved space absorption happening over the next few months,' said Cushman & Wakefield research director Ang Choon Beng.

'On a more optimistic note, if Singapore's GDP performance comes in at the better end of current estimates, we could potentially see positive space absorption by Q4 2009.'

Singapore's Q2 GDP jumped 20.7 per cent quarter-on-quarter but the government remains fairly guarded, keeping its GDP forecast for the year at a contraction of 4 to 6 per cent.

Net take-up of office space here has been negative for three consecutive quarters since Q4 2008 - a result of weakening demand for office space and rising supply.

Other consultants that BT spoke to agree that office rents have fallen at a slower pace, but are more conservative about the strength of space absorption for the rest of the year.

'It's probably a little bit early to forecast positive take-up over the second half,' said CB Richard Ellis's executive director for office services Moray Armstrong. For one thing, some companies may have introduced downsizing plans that will only take effect in the months ahead, he said.

There could still be downward pressure on rents in the next few quarters and positive take-up of space might not emerge until next year, he added.

Jones Lang LaSalle's head of markets in Singapore Chris Archibold is also cautious about where net take-up could head in Q4. 'There are little bits of expansion here and there but they are very few and far between at the moment . . . and we're still seeing some organisations downsizing,' he said.

All three consultancies reckon a game of musical chairs is going on in the office market - leasing activity has been dominated by companies relocating for better propositions, such as more competitive rents or more efficient floor plates. As BT reported last week, several firms are moving to new buildings such as Mapletree Anson and Straits Trading Building.

Office Leasing Scene - Musical Chairs With Extra Seats

Source : The Business Times, August 5, 2009

Some tenants factor in higher headcount as they move to new locations

There's a buzz in the office leasing market. Many new leasings are at the expense of space being given up in existing locations as occupiers are drawn to better-value propositions in newer buildings. But a few are taking up more space in their new locations than what they are giving up in their existing premises to cater to future increases in headcount.

'It's not all musical chairs. There's also a smattering of improved headcount numbers, even as most occupiers chase lower cost, better value locations,' a seasoned office property consultant said.

Another office consultant, Knight Frank director of office leasing Agnes Tay, said: 'I don't expect net office demand to turn positive this quarter, but the negative demand will be smaller in the second half of this year. Companies in general are more optimistic now compared to the end of last year. More of them are now taking a position on headcount and real estate requirements and a few are even making plans for future growth.'

Much of the leasing activity has centred on new buildings - including Mapletree Anson and Straits Trading Building.

More than 80 per cent of Straits Trading Building is said to be let out, ahead of its completion later this year.

Tenants are said to include Rajah & Tann (which is understood to be taking up at least 80,000-90,000 sq ft), overseas law firm Conyers Dill & Pearman and serviced office operator Asia-Pacific Business Centre. Colliers International is said to have brokered these leasing deals.

Rajah & Tann is expected to move from its existing premises at Bank of China Building nearby; Conyers, which is leasing a floor at Straits Trading Building, will move from Singapore Land Tower.

Over in the Anson Road/Tanjong Pagar corner of the CBD, Mapletree Anson, which received Temporary Occupation Permit recently, is said to be 35 per cent let out, with more than 100,000 sq ft leased. Tenants include AON, QBE (both involved in the insurance and reinsurance business) and a Japanese MNC, understood to be Sumitomo.

AON is moving from Singapore Land Tower, QBE from OCBC Centre and Sumitomo from Equity Plaza. CB Richard Ellis is said to have brokered the three leasing deals in the project.

Tenants are said to have been drawn to Mapletree Anson's efficient floor plates, with column-free space of 20,000 sq ft per floor allowing more effective layout of workstations.

A stone's throw away, a La Salle Investment Management fund will be completing its 20 Anson Road project in a few months.

Both office buildings have attained Singapore's highest green building certification of Green Mark Platinum.

An office developer said: 'Most of the leasing deals in the past six to nine months involve relocations or consolidation from several buildings into a single location. In contrast, 12 to 24 months ago, leasing deals involved occupiers upsizing their space requirements.'

Jones Lang LaSalle's head of markets, Singapore, Chris Archibold said: '2009 will be a negative take-up year but in terms of market activity, leasing deals will be higher in the second half of this year. A lot of relocation is being driven by consolidation or downsizing rather than expansion. Hopefully, expansion will come back next year. There are tenants with passing rents below current market rents and who are therefore looking for cheaper alternatives like new buildings in peripheral CBD locations.'

Office consultants expect office rents to continue easing for the rest of this year - but at a slower pace. The demand is still weak but there is substantial supply coming on the market in the next few years.

According to government figures, the pipeline supply for the office sector stood at about 13.3 million sq ft gross floor area as at end-Q2 2009, of which about 12 million sq ft is slated for completion by 2012.

JLL's average monthly rental value for prime Grade A Raffles Place (small space) stood at $9.50 psf in Q2 2009, about half the peak figure of $18.40 psf in Q3 last year.

Steepest Fall In Office Occupancy Cost Here

Source : The Business Times, August 4, 2009

Some firms may expand as rents fall and the economy stabilises

A plunge in Grade A office rents has raised Singapore's competitive edge somewhat. According to Colliers International, office occupancy costs here were the fourth-highest among 26 Asia-Pacific cities in Q2 this year - down a notch from a quarter ago.

Getting cheaper: Singapore fell from third to fourth place in a ranking of office occupancy costs after rents slid 26.2 per cent quarter-on-quarter, averaging at $6.73 psf per month in Q2

As rents stay weak while the economy stabilises, property consultants also expect some companies to take advantage of the situation to expand.

Colliers noted that monthly gross rents for Grade A offices in Singapore's central business district (CBD) posted the sharpest fall in Q2, compared with other major cities in the region. Rents slid 26.2 per cent quarter-on-quarter, averaging at $6.73 psf per month in Q2.

As a result, Singapore fell from third to fourth place in a ranking of office occupancy costs. Tokyo remained the most expensive place in the Asia-Pacific to rent an office - average Grade A CBD office rents there were 2.2 times that of Singapore's, up from 1.6 times in Q1.

Hong Kong also kept its No. 2 spot. Average Grade A CBD office rents there were 1.4 times that of Singapore's, growing from 1.2 times in Q1. Ho Chi Minh City rose one notch to replace Singapore in third place on the list.

Colliers expects office rents in Singapore to continue falling up till H1 next year, albeit at a slower pace. This is because demand from most companies is likely to stay subdued, while supply of shadow space could increase.























This means that Singapore could continue slipping in the list of the most expensive Asia-Pacific cities to rent an office, said Colliers research and advisory director Tay Huey Ying.

While most companies may be cautious about expansion, some may take advantage of lower rents to grow in anticipation of better times ahead. 'Flight to quality and opportunistic expansion can be expected to intensify on the back of continued rental weakness,' Ms Tay said.

Cushman and Wakefield managing director Donald Han agreed, noting that companies have been more willing to relocate to larger premises since May or June this year.

'The economy now looks like it's on the mend' and some companies 'are budgeting for a possible increase in headcount' by some 10-15 per cent, he said.

Mr Han added that a few quarters ago, most firms were still watching the rental market and would rather extend their leases than commit to more space. As rental declines moderate, 'tenants are going to say - how low can it go?'

Colliers cited Dresdner Bank as an example of companies expanding or upgrading their space requirements as office rents fall. The bank will be moving from Tung Centre at Collyer Quay to 71 Robinson Road where it will take up 20,000 sq ft of space.

Negative Take-Up Shrinks In Q2: URA

Source : The Business Times, July 25, 2009

THE office market has posted a third consecutive quarter of negative take-up, according to government data for Q2. However, the negative take-up of 247,570 square feet in the second quarter was smaller than the 322,917 sq ft in Q1 and the 365,973 sq ft in Q4 last year.

CB Richard Ellis executive director Li Hiaw Ho expects take-up to remain in negative territory for the rest of the year. 'The impact of downsizing will be felt in the office sector for the next six months at least.'

Urban Redevelopment Authority (URA) figures show that the islandwide vacancy rate for offices continued to increase, hitting 10.8 per cent as at end-Q2 2009, compared with 10 per cent at end-Q1 2009 and a low of 7.3 per cent in second half 2007.

The vacancy rate for Category 1 space - office space in buildings in the Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area - was 6 per cent at end-Q2, up from 5.3 per cent at end-Q1. The vacancy rate for Cat 2 space (the rest of Singapore's office stock) rose from 11 per cent at end-Q1 to 11.9 per cent at end-Q2.

The median rental contracted in Q2 for Cat 1 offices was $10.59 per square foot per month, down 8.4 per cent from the preceding quarter. The drop was smaller than a 12 per cent decline in Q1.

However, the median rental for Cat 2 space fell 7.6 per cent to $5.11 psf per month in Q2 - a bigger fall compared with the 6.9 per cent drop in Q1.

Cat 1 median rental has eased nearly 28 per cent from the peak of $14.70 psf in Q2 2008. Over the same period, the Cat 2 median rental has slipped 21 per cent.

Looking ahead, property consultants are predicting gentler declines in office rents for the rest of 2009, while cautioning that the office market is unlikely to be out of the woods until demand turns positive.

In the retail property sector, the completion of ION Orchard and Orchard Central caused the vacancy rate for shop space in the Orchard Planning Area to spike to 16.2 per cent at end-Q2 from 4.7 per cent a quarter earlier. URA pointed to the lag time taken for tenants to retrofit and occupy the shop space in the newly completed malls.

CBRE's Mr Li said: 'These new malls already have high pre-commitment levels and vacancy rates in Orchard should move back to the 90 per cent level within a year, once tenants have moved in and started operations.'

The median rental signed in Q2 eased 2.4 per cent over Q1 in Orchard and Rest of City Area and fell a smaller one per cent in Outside City Area.

URA's rental indices for flatted factories and warehouses slid 4.2 per cent and 9.2 per cent respectively in Q2 over Q1. Warehouse vacancy rate rose from 7 per cent in Q1 to 9 per cent in Q2. Factory vacancy increased from 7 per cent to 7.8 per cent over the same period.

60% Of Nex Mall At Serangoon Central Leased Out

Source : Channel NewsAsia, 23 July 2009

The upcoming suburban mall Nex located at Serangoon Central has leased 60 per cent of its lettable space.

Artist's impression of nex

Its developer Gold Ridge said retailers like Isetan, Courts and Challenger are among its key tenants.

Gold Ridge added that Isetan has secured a 53,000-square foot space, spanning three floors. This will be Isetan's first new department store in Singapore since 1995.

Another first, the developer said supermarket chains Cold Storage and Fairprice Xtra will be housed together under the same roof.

The six-storey mall will also have a wide variety of F&B and entertainment options.

To be developed at a cost of S$1.3 billion, Nex will be ready by the end of next year. - CNA/vm

Facelift For Parkway Parade

Source : The Straits Times, July 23, 2009

Works to help mall compete with those in East, Orchard Rd

PARKWAY Parade, one of the first suburban malls in Singapore, is undergoing an extensive $15 million revamp. The renovations will add an annex block and an alfresco dining area to the popular shopping centre in Marine Parade.

Parkway Parade, which turned 25 in March, sees about 1.7 million shoppers each month. -- PHOTO: NP

The revamp, which began three months ago and is set to be completed in October, will integrate part of the mall's ground-floor area - previously occupied by tenants like fast-food restaurants Burger King and Kentucky Fried Chicken - with its 720 sq m outdoor refreshment area.

Before the changes, the outdoor area housed food outlets and cafes such as Long John Silver's and Starbucks.

When completed, the new wing will be air-conditioned and will feature new tenants, including an outlet of the Western casual dining chain New York New York and Pu Tien Restaurant, which serves Heng Hua cuisine.

To cater to Singaporeans' love affair with food, more food and beverage outlets will be added and the alfresco dining area will be set up on the second level of the new wing. The rest of the mall will also be spruced up.

New floor tiles will be added to make it look brighter, while waterless urinals will be installed.

Parkway Parade, which turned 25 in March, sees about 1.7 million shoppers each month.

The main reason for the revamp, said its property manager Lend Lease, is to allow the mall to 'stay ahead of the competition...especially in the face of increasing competition from malls in the East and the others in the Orchard belt'. Several new shopping centres have opened this year, including Tampines 1, Orchard Central and Ion Orchard.

Parkway Parade, which has six floors of shops and a 17-storey office tower, opened in 1984. Once touted as the biggest shopping complex here, with a total floor area of 123,000 sq m, it was very popular at the start. However, when MRT trains began running in 1987 - making it much easier for Singaporeans to travel from the suburbs to areas like Orchard Road or to other suburban malls - the centre lost some of its sheen.

Lend Lease, which took over management of the mall in 2000, carried out development works seven years ago, bringing in new tenants like Giant Hypermarket and upgrading parts of the centre. Retailers at the mall are hoping the latest upgrade will give business a shot in the arm.

Read the full story in Thursday's edition of The Straits Times

Eye On Ion

Source : The Straits Times, July 21, 2009

Orchard's newest mall is not only striking, but more than 70 per cent of its stores are also new

At 640,000 sq ft, Ion Orchard is far smaller than VivoCity and Ngee Ann City.

Ion Orchard has many entry points. -- ST PHOTOS: SAMUEL HE

But the hype and expectations surrounding Singapore's newest mall are much larger than its size might suggest, not least because of its literally flashy appearance and prime location at the busiest junction of Orchard Road.

Some analysts say it could change the shopping experience in Orchard Road when it opens its doors today.

More than 70 per cent of its 335 stores will be new to Singapore. Among them are jeweller-to-the-stars Harry Winston, Italian label DSquared2, Spanish high street label Bershka, Chinese sportswear retailer Li-Ning and Australian shoe company Rubi Shoes.

Ion Orchard's soft opening comes 2 1/2 years after its ground breaking in 2006. The mall is part of a $2-billion retail and residential development called Orchard Turn, which is a joint venture between CapitaLand, Singapore's biggest developer, and Hong Kong's Sun Hung Kai Properties, one of the largest developers in Asia.

Ion Orchard has many entry points and all the shops, including American footwear label Steve Madden (left) can also be accessed easily. -- ST PHOTO: SAMUEL HE

About 70 per cent of the stores open today and 90 per cent will be opened by the mall's official opening in October. The remaining 10 per cent will open by next year.

The eight-storey mall is within a 218m-tall, 56-storey luxury building. The other 48 floors will contain 175 high-end apartments called The Orchard Residences, which will be completed by next year. About 84 per cent has been sold. Last month, an apartment sold for $3,299 psf.

Speaking at a press briefing yesterday, Orchard Turn chief executive Soon Su Lin says the opening of the mall is a 'significant milestone that heralds new beginnings for Orchard Road'.

She adds that the vision for Ion Orchard is to create an icon befitting its unmatched location at the gateway to one of Asia's most vibrant shopping strips.

While the public loos (left) are spacious and grand, the $10,000 VIP restroom is even more upscale. The toilet comes with an automates seat cover that lifts up when the the user enters and closes after use.

The aim could be achieved even though VivoCity at 1.04 million sq ft and Ngee Ann City at 1.1 million sq ft are larger.

Looks-wise, Ion is striking. It was designed by Hong Kong-based architect David Buffonge, a director of Benoy architecture firm.

He says he was inspired by the history of the site - it was an orchard about 160 years ago.

'The seed and skin of a fruit form the facade of the building, while the residential tower is the stem,' he says. The facade can be a canvas for multimedia art as well as a screen for live telecasts of events held within the complex.

Inside, the ceiling on the fourth floor has a distinctive grid-like pattern which Mr Buffonge likens to the veins on a palm leaf.

While the public loos are spacious and grand, the $10,000 VIP restroom (left) is even more upscale. The toilet comes with an automates seat cover that lifts up when the the user enters and closes after use.

Four levels of shops are above ground and another four are under. There are no nooks and crannies which obscure shopfronts, and all shops can be seen and accessed easily.

'I made the design compact, so no one will get lost,' says Mr Buffonge.

Levels 1 to 4 are dedicated to luxury and premium international brands while levels B1 to B4 offer popular high-street labels and lifestyle shops.

Foodies will love that more than 21 per cent of the mall is dedicated to food and dining. Once in full swing, Ion will have 28 restaurants and cafes, a food hall with 80 stalls and about 60 dining options that are new here.

Among them is Itacho Sushi, a well-known sushi chain from Hong Kong making its debut here.

Its administration manager, Ms Zoe Tan, says: 'Ion Orchard is the newest mall, so opening our first restaurant here will have greater impact.'

She adds that the company plans to open four more outlets next year, but has not decided where.

Ion's design also has many access points, making it convenient to get in and out of it, whether you are driving or commuting on public transport.

There is a spacious drop-off area on Level 2, which also leads to the carparks. On street level, shoppers enter the mall's first level. The mall is connected to Orchard MRT station on basement two. On this level, there is also a underground walkway called Ion Paterson Link that takes pedestrians from the Orchard MRT Station to Paterson Road across the street, where Wheelock Place is located. The underpass is open 24 hours.

The mall has 516 parking lots on Levels 5 to 8 as well as valet parking service.

Secretary Maggie Leow, 37, is excited about the new mall. 'I heard so much about it, I definitely want to check it out after work,' she says.

Next year, visitors will have more to do at Ion besides shopping and dining. A double-storey observation deck located on the 55th and 56th floors will open.

Shoppers can access it via a separate lift lobby from the residences.

Called Ion Sky, it will offer a panoramic view of the city.


POSHEST LOOS IN ORCHARD

You know you are someone when you use one of two $10,000 toilet bowls in Ion Orchard.

There are two special restrooms tucked away discreetly on Level 2. They each have their own small sitting area, decorated with a chandelier, black-and-gold wallpaper, black marble flooring and a full-height mirror.

There is only one cubicle in each restroom, decked out in gold and brown glass mosaic tiles, with warm lighting. The toilet is a fancy Toto Neorest unit, which costs more than $10,000. Its seat cover automatically lifts up when a user approaches and closes after use.

Only VIP guests, defined by an Ion spokesman as 'dignitaries and celebrities', may use these restrooms which are locked. Luxury brand stores will inform the concierge about the VIPs, who are then escorted to the loos.

The public restrooms in Ion are not shabby, either. In fact, they may well be the poshest ones in Orchard Road. Each restroom is spacious and comes adorned with vases of fresh flowers. One women's restroom that Life! saw had 15 cubicles.

Women will also love the vanity table near the hand basins and huge swivel mirrors on the table for make-up.

The men's toilets are less spacious and do not have vanity tables, but they still boast the same posh marble flooring.

The public restrooms are located on all levels of the mall, except B2, L1 and L2.

Far East Scheme Helps New Entrepreneurs

Source : The Business Times, July 15, 2009

Tenants pay for space in its malls with preference shares, not rent

FAR East Organization has launched a scheme that allows budding entrepreneurs to pay for space in its malls with preference shares instead of regular rents.

A first for Singapore retail market: Far East Organization will allocate up to 5 per cent of rental space at six of its malls for the Rental Space for Equity Programme including Orchard Central (left)

Under the Rental Space for Equity Programme - a first for Singapore retail market - selected tenants will sign a two or three-year lease with Far East. To pay for space, the tenants will issue redeemable, convertible, cumulative, preference shares (RCCPS) to the company in lieu of monthly base rent. The shares come with a cumulative dividend of 4 per cent per year.

Tenants can choose to redeem the RCCPS after one or two years or at the end of the lease period. When redeeming the shares, they will pay all the rent they owe, as well as the 4 per cent a year interest they accumulated.

Alternatively, the RCCPS may be converted to ordinary shares, which means Far East will own a stake in the retail business. The choice will be left to tenants.

Far East will allocate up to 5 per cent of rental space at six of its malls for the scheme - Central, Far East Square, Orchard Central, Pacific Plaza, Square 2 and West Coast Plaza.

The programme aims to encourage the entry of new brands and retailers into the retail scene here.

Far East Organization's executive director of investment properties Eddie Yong said the group has always supported businesses in its own way.

'We always want the best for our tenants and to see them grow,' he said. 'That is why we are responding to the needs of the market with the Rental Space for Equity Programme. We see it as a pro-active partnership by lowering the entry barrier for prospective tenants who have exciting brands or concepts.'

Target participants include vendors with new brands, existing retailers who want to expand and budding entrepreneurs who want to get a headstart.

For first-time entrepreneurs, Far East has identified an audit firm to help them form their new company and will help defray these administrative expenses.

Retail Initiative For Tenants

Source : The Straits Times, July 14, 2009

MAJOR landlord Far East Organisation has come up with a novel way to help tenants defer rent for up to three years.

Far East Organisation launches first Rental Space for Equity Programme to bolster exciting new retail brands and concepts. --PHOTO: FAR EAST ORGANISATION

Here's how it works: Tenants register online and go through an evaluation process before being selected. Those chosen will 'sell' company shares, which are based on their monthly base rent, to Far East Organisation each month.

Sales are capped at 49 per cent of their paid up capital, or $500,000, whichever is lower.

The catch? They buy back the shares they have sold - not more than three years later - at an interest rate of 4 per cent.

Alternatively, if both parties agree, co-ownership can occur.

Far East is the first mall owner to offer such a scheme. Other mall operators, like Orchard Turn Developments and Asia Malls, have resorted to rental rebates and waivers to help tenants open on time.

The scheme, said Far East Organisation, aims to attract budding designers who want a headstart, international retailers with new concepts and existing retailers who want to expand.

Only 5 per cent of rental space in six of its malls - namely Central, Far East Square, Orchard Central, Pacific Plaza, Square 2 and West Coast Plaza - will be allocated to this scheme.

This comes up to 45,000 sq ft. Depending on the size of each lot, this is expected to cater to about 90 tenants.

It is a support programme, said Far East Organisation's executive director of investment properties Eddie Yong. 'Running a business is like a marathon,' he said. 'We are just providing a helping hand to get them off the starting block or encourage them to start the race, by easing cash flow constraints.'

He stressed: 'It is not our intention to own or run our tenant's business.'

Mall Owner Offers Shares-For-Rent Plan

Source : The Straits Times, July 14, 2009

Tenants can sell firms' shares to Far East in lieu of rent for 3 years

A LEADING landlord has come up with a novel way to help eligible tenants defer rent for up to three years.

New tenants of Far East Organization may be able to sell shares of their companies, worth their base rental amounts, to their landlord each month. --ST PHOTO: NG SOR LUAN

New tenants of Far East Organization may be able to sell shares of their companies, worth their base rental amounts, to their landlord each month.

They will have to buy back the shares not more than three years later, at an interest rate of 4 per cent per annum.

Alternatively, if both parties agree, Far East will become a co-owner of the companies.

Sales are capped at 49 per cent of their paid up capital, or $500,000, whichever is lower.

Tenants have to register online, at www.fareastretail.com.sg, and go through an evaluation process before being selected. Current tenants who want to expand can also apply.

Far East is the first mall owner to offer such a scheme. Other operators, like Orchard Turn Developments and Asia Malls, which run ION Orchard and Tampines 1, offered rental rebates and waivers to help tenants open in time with the opening of the malls.

Far East said the scheme is aimed at budding designers who need a headstart, international retailers with new concepts and existing retailers who want to expand.

Only 5 per cent of rental space in six of its malls - namely Central, Far East Square, Orchard Central, Pacific Plaza, Square 2 and West Coast Plaza - will be allocated to it. This comes up to 45,000 sq ft. Depending on the size of each unit, the scheme would cater to about 90 tenants.

'It is a support programme,' said Far East Organization's executive director of investment properties Eddie Yong. 'Running a business is like a marathon. We are just providing a helping hand to get them off the starting block or encourage them to start the race, by easing cash flow constraints.'

He stressed: 'It is not our intention to own or run our tenant's business.'

In fact, business owners like 28-year-old Sam Su see the scheme as a possible way to snag a good location at deferred rents.

'It is pretty attractive because rental is the largest cost when it comes to opening a business here,' said Mr Su, who owns T.S. Rarity, a men's apparel store at 45 Haji Lane. 'Take away rental, and cash flow will be eased a great deal. I will take it if the location is good.'

The owner of Don's Pie, a popular pie shop located in the business district, is also mulling over the option. Mr Don Lim, 50, was forced to close down two outlets after 'rental killed (my) business'. He now has one outlet near Far East Square.

'With this scheme, I can wait till business is good before I pay rent,' he said.

Analysts say that the scheme could be a way for the property developer to keep rents high.

'The motivation of this scheme is to maintain rents and fill up the shopping centre,' said Mr Colin Tan, director of research and consultancy at real estate consultancy Chesterton Suntec International. 'Landlords will not have to reduce rents because tenants unable to afford market rent can now do so with such a scheme.

'Many landlords are reluctant to lower rent because if word spreads, it will be hard for them to demand high rents from those who can afford it.'

The Singapore Retailers Association's executive director Lau Chuen Wei said it would help companies with cash flow.


HOW THE SCHEME WORKS

FAR East's executive director (property services) G.L. Yap explains:

The scenario

# An eligible tenant signs a two- or three-year lease for a 1,000 sq ft unit at $15,000 per month ($15 psf).

The process

# The tenant will be instructed to set up a new company.

# Each month, he will issue company shares - named Redeemable, Convertible, Cumulative Preference Shares (RCCPS) - in lieu of rent. The value of each share depends on the structure of the company. Share issues will be capped at 49 per cent of the paid-up capital, or $500,000, whichever is lower.

# The tenant can opt to buy back the shares after a set period or after the lease expires at the original selling price plus interest of 4 per cent per annum. Alternatively, he can convert the RCCPS into ordinary shares at the current market value of the company.

# He will now start paying the rent in cash.

If the business fails at any time, the losses will be shared among shareholders - including Far East Organization - in proportions based on the structure of the company.

CBRE Expects Smaller Fall In Retail Rents This Year

Source : The Business Times, July 14, 2009

It cites healthy demand for Orchard Rd space, limited suburban supply

CB RICHARD Ellis (CBRE) now expects Orchard Road retail rents to fall 10-12 per cent this year - less than its earlier estimate of 15-20 per cent.

Good demand at new malls: Ion Orchard said recently that it is 94 per cent leased while 80 per cent of the space at Orchard Central (above) is committed

'We expect the rate of rental decline for prime space along Orchard Road to ease given the healthy demand for existing shop space as well as high pre-commitment levels at yet-to-be completed malls,' CBRE said in a report released yesterday.

The firm now also expects suburban mall rents to contract just 5-6 per cent for the whole year - down from its earlier estimate of 10-15 per cent.

Prime Orchard Road rents fell to $33.90 per sq ft (psf) per month on average in Q2 2009 - down 2.9 per cent quarter-on-quarter and 7.8 per cent year-on-year. This means that according to CBRE's data, prime Orchard Road rents fell 6 per cent in the first half of this year.

Prime suburban rents were unchanged in Q2, averaging $28.30 psf pm. They were supported by the limited pipeline of supply in the suburbs, and the fact that suburban malls owned by real estate investment trusts (Reits) are under pressure to be yield-accretive and so are less likely to drop rents drastically. Prime suburban rents dipped a marginal 2.4 per cent in H1 2009.

The three new major malls coming up in Orchard Road have so far reported healthy leasing figures. Ion Orchard said recently that it is 94 per cent leased. And at the other end of Orchard Road, 80 per cent of the space at Orchard Central is committed. 313@Somerset, which is due to open at year-end, has said that it is 85 per cent leased so far and will be 100 per cent let by the time it opens.

Analysts have said that the fall in retail rents is expected to moderate in H2 2009 with seasonal activities such as the Great Singapore Sale, F1 Grand Prix and Christmas festive season.

No Easy Game Predicting Office Cycles

Source : The Business Times, July 9, 2009

THERE is a tendency in the office market to look to the extremes as representative of the market norm. Nowhere is this more apparent than in Singapore, which seems to 'enjoy' particularly volatile market cycles.

Landlords naturally focus on purported record-busting rents in the upswings while tenants conveniently latch on to rumours of extraordinary discounted deals when the tide shifts. It therefore becomes challenging for all involved in the sector to formulate a measured and objective opinion.



















The statistics often don't really help. As recently as November 2007, CBRE's semi-annual Global Market Rents Report recorded that Singapore was the fastest rising rental market year-on-year (+82.6 per cent). Last month, we reported that the Republic led the world with the largest year- on-year drop in office occupancy cost (-34.4 per cent). Neither ranking is particularly desirable.

The Singapore office market is undergoing a sharp correction brought on by the financial crisis and severe weakening of the local economy. With an economy expected to contract by 6-9 per cent this year, it's no surprise that demand for offices has wilted.

The most recent growth period of 2004-2007 (GDP 8.2 per cent average) saw office take-up at an average two million sq ft per annum. Impressive for sure, but still well below the mid-1990s' (GDP 9 per cent average) office take-up rates of just under 2.5 million sq ft per annum.

In contrast, during the 2001-2003 downturn (GDP 1.8 per cent average) we saw take-up of 0.18 million sq ft to minus 0.32 million sq ft per annum. This year looks pretty grim and negative take-up of 1.2-1.5 million sq ft is possible.

Core CBD vacancy has almost doubled since the start of the year to 8.5 per cent. The short-term outlook is worrying for landlords and we foresee that vacancy will grow through 2010 to exceed levels in past market downcycles.

Rents have already fallen 46 per cent from the market peak in mid- 2008 with average Grade A and prime rents now standing at $10.15 psf per month and $8.60 psf per month respectively as at Q2 2009. Further downward pressure on rents is a given, even as the pace of decrease shows clear signs of easing.

As if this was not challenging enough, we have a fairly sizeable pipeline of new supply over the next four years - 8.6 million sq ft in total or an average 2.15 million sq ft per annum. This is almost double the 10-year average of new supply and represents a 15 per cent increase in the existing private sector stock.

A feature of the new supply is that a high proportion (65 per cent) are Grade A offices. When the five new developments that fall into this basket are completed, the total size of the existing Grade A office stock will have grown by 81 per cent.

New supply will exceed demand through the next few years even before we take into account further availability arising from sub-leased space (currently about 400,000 sq ft).

So are we looking at an office market landscape that will take years and years to recover? We think this is far from a given. No one should underestimate the robustness of Singapore's office market, which has a habit of outperforming predictions (both in correction and recovery cycles). It is useful to look at previous stress points to illustrate the point.

In July 1992, The Business Times ran an article headlined Office properties face biggest glut ever. The report noted: 'A combination of a huge supply and falling demand has created the office market's biggest glut ever and led developers into a fierce price war to draw new tenants.'

Singapore's office market was enduring an uncomfortably high islandwide vacancy of 11.2 per cent. Of even greater concern was the prospect of a staggering 16 million sq ft of new office construction coming on stream over the following five to six years. This level of new office construction represented an increase of 53 per cent on the then total private office stock. Many market watchers were bearish. Some said there would not be a true recovery for four to five years. There was grave concern about prospects for the mega-office projects in the emerging Marina Centre area.

How did things pan out? The eight new office towers in the Marina Centre area achieved an average 60 per cent pre-let level upon completion. By 1996, vacancy had fallen to 8.5 per cent and prime rents had risen 32 per cent from the 1992 level.

At the depth of the Asian crisis in 1998, vacancy had risen to 14.6 per cent with around 5.1 million sq ft in the development pipeline (an increase of 10 per cent of the then total private office stock).

The conventional wisdom was again a prolonged period of over-supply and depressed rents. Yet, two years later vacancy had actually fallen to 11.3 per cent and prime rents had increased by 23 per cent from the 1998 level.

More recently in 2003 with the perfect storm (global finance and IT downturn, consolidation of local banks, local recession, declining foreign investment, Sars, etc) Singapore's office vacancy stood at 17.9 per cent (representing 12.6 million sq ft of vacant space) and prime rents were at a record low of $4 psf per month. Some market observers said it would take five to seven years before the excess space was absorbed, notwithstanding the limited supply of future confirmed new developments (estimated at only 2.8 million sq ft or a mere 5 per cent increase on total private office stock).

Not quite. Three years later in 2007, islandwide vacancy had shrunk by half from the 2003 level and Singapore was facing a critical shortage of office space. Prime rents had by then risen a staggering 275 per cent from the 2003 market low.

Today, one cannot see on the horizon 1) a new Asia-Pacific boom or 2) a dotcom boom or 3) a tremendous economic growth surge in Singapore. These were the three events that unfolded immediately following previous market crashes and which confounded the predictions of long-term office market malaise. The sheer scale of the economic and financial challenges today could point to a longer road to office market recovery.

Nonetheless, do not underestimate the swiftness with which supply could be absorbed when business growth returns. Landlords and developers look set to have to tough it out for at least the next couple of years.

But it could well be that the best leasing transactions from a tenant's standpoint will need to be concluded within the next six to 12 months before the market recovery is at hand.

The writer is executive director, office services, CB Richard Ellis

CDL unveils Tampines Concourse

Source : The Business Times, July 9, 2009

It is developer's first CarbonNeutral® project in region

CITY Developments Ltd (CDL) yesterday unveiled 11 Tampines Concourse - the first CarbonNeutral® development in Singapore and the Asia-Pacific.

The three-storey office building - with a gross floor area of 124,001 square feet and lettable space of 108,000 sq ft - has an energy-efficient design and eco-friendly fittings that will yield energy savings of 620,000 kWh, or at least $120,000, a year.

The building has been awarded the CarbonNeutral® mark, which certifies that all carbon dioxide gas from construction and energy consumption has been measured and offset either through savings arising from more environmentally friendly processes, systems and behaviour, or by paying for an equivalent amount of carbon dioxide to be saved by an accredited project elsewhere.

Aside from natural lighting in the atrium and lift lobbies, the building has an indoor non-compressor cooling system that uses water instead of ozone-depleting chemical refrigerants to cool incoming air through a natural heat exchange process.

The building itself is constructed from recycled materials and 'green concrete' comprising sustainable materials.

No dollar figures were given, but all in all, the eco-friendly features added about 2 to 5 per cent more to building costs. These costs have been budgeted for.

CDL is looking for 'green' tenants. Rents for office space in the Tampines area is between $3.50 and $4 psf.

CDL managing director Kwek Leng Joo said: 'Championing the environmental cause is no walk in the park. In earlier years, there were not many who believed in sustainable development.

'But fast-forward to today, with greater awareness of climate change issues, 'green' and 'sustainability' have become the buzz words.'

Esther An, head of corporate social responsibility at CDL, said: 'We have just started marketing 11 Tampines Concourse and have been doing so quite selectively, looking for tenants who share our commitment to environmental conservation.

'The response has been very positive. We have leased over 50 per cent to date.'

Office Rents Decline

Source : The Straits Times, July 7, 2009

Fall accompanied by rise in vacancies and unlikely to recover anytime soon

LANDLORDS took a one-two punch in the second quarter, with rents continuing to decline for offices and industrial space as vacancies kept rising. Rents were under the most pressure in the city-fringe and high-tech sites while more space was vacated, particularly in the core Central Business District (CBD) area.

Rents were under the most pressure in the city-fringe and high-tech sites while more space was vacated, particularly in the core Central Business District (CBD) area. -- ST PHOTO: LAU FOOK KONG

Consultants DTZ said office rents in Beach Road and North Bridge Road fell 20 per cent to $6.20 per sq ft (psf) per month in the second quarter. This followed a 13 per cent fall in the first quarter.

Rents along the Alexandra Road belt fell 23 per cent to $5 psf a month in the April to June period, compounding a 13 per cent drop in the first quarter.

The decline was driven mainly by competition from a converted state property and high-tech industrial sites in the area.

Generally, rents in the office market have been falling as demand weakens in the face of rising supply. The amount of grade A space, in particular, will double in the next five years.

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. Grade A office rents are down 17.5 per cent to $10.15 psf a month. They also fell 18 per cent in the first quarter.

The rental gap between office space in the CBD and that elsewhere has narrowed. Offices in Marina Centre are now 12 per cent cheaper to rent than those of prime space in Raffles Place, compared with a rental gap of 18 per cent at the peak of the market. The gap has closed even more in the Harbourfront area - from 47 per cent at the peak to 35 per cent in the second quarter.

Some firms, particularly those driven to relocate outside the CBD during the 2006-2007 boom, are now likely to return, said DTZ.

Office leasing activity continues to be driven mainly by lease renewals as firms downsize. Take-up has been negative for the past two quarters and is likely to remain so for the rest of the year, said CBRE's executive director (office services), Mr Moray Armstrong. 'We are seeing greater incentives including, for instance, capital expenditure contributions to attract or retain quality tenants,' he said.

The good news is that the rate of rental decline will ease from the dramatic falls seen since last September but demand will still be 'severely constrained'.

Please read the full story in Tuesday's edition of The Straits Times

Mall Rents Down? Not For Lease Renewals

Source : The Straits Times, July 6, 2009

Existing complexes still ask for higher renewal rates, says retail giant

THE new malls taking shape in Singapore are offering lower rents to lure tenants in trying times but existing complexes are demanding higher renewal rates, said a senior executive of retail giant RSH Group.

Chief operating officer Kesri Kapur pointed to a paradox in the local market: Most retailers are grappling with falling profits, yet most lease renewals are done at higher levels.

One suburban mall is even asking RSH for 20per cent more to renew the lease of a shop of less than 3,000 sq ft.

'We are moving out of that particular location. Obviously, business is not what we would have expected when we signed the lease,' said Mr Kapur.

'This is one example where we have taken a decision... There are a couple of other locations that we are reviewing.'

Mr Kapur conceded that landlords may have lowered their expectations of how much more they might get in rent renewals, but they are still renewing leases at a higher level.

'Whenever we renew rents in Orchard Road, the rents have not declined,' he said. 'For the newer malls, for those who have not signed before December, their offers would probably be better.'

A typical retail lease lasts three years so a higher rent now means one above the level committed three years ago.

Retail rents have indeed fallen from the peak rates of last year, but they may not all have dropped to levels done three years ago.

According to consultancy DTZ, rents of prime retail space in Orchard Road, Scotts Road and other city areas have fallen by more than 6per cent from last year's peak and are close to 2006 levels.

But suburban rents have fallen by only 2.1per cent and are at 2007 levels.

Property experts said the rental declines would be more evident in malls that still have space to lease.

These include new complexes, such as those in the Orchard strip, as well as nearby existing malls that may have lost some tenants to the recent arrivals.

DTZ's associate director of retail, Ms Anna Lee, said in a report on Friday that many retailers and food and beverage (F&B) operators have delayed expansion plans or changed their business strategies under the pressure of the economic downturn.

'Some F&B operators have or are considering moving to business parks, where rents are much lower and the worker catchment is considerable,' she said.

More retailers are also feeling the pressure of having to move out of unprofitable locations, said an industry source.

The Singapore Retailers Association had earlier called for landlords to lower rents, saying many firms will go under if something is not done.

Executive director Lau Chuen Wei said the association started its 'crusade' to highlight to landlords that their high rents may cause the closure of some retail stores - and cost retail jobs.

They have since seen indications that some landlords are more open to exploring creative ways of collaboration, though most would not reduce rents.

'However, we also hear that new sign-ups have seen more success in achieving rents that are lower than initially offered,' she said.

Mr Kapur said he anticipates consumer demand to be challenging in the next 12 to 18 months.

'Everybody is facing challenges now. What is important is whether you can hold hands and work together.'

Prime Office Rents Fall 19% In Q2

Source : The Business Times, July 7, 2009

DTZ notes decline rate eased slightly after Q1's plunge

OFFICE rents in Raffles Place fell 19 per cent in the second quarter of this year, after sinking 25 per cent in Q1, according to a new report from DTZ.

Still falling: The average monthly gross rent for prime office space in Raffles Place slipped to $9.70 per sq ft per month in Q2 - 49per cent below the Q32008 peak

The average monthly gross rent for prime office space in Raffles Place slipped to $9.70 per sq ft per month (psf pm) in Q2. The figure has now fallen close to the level at end-2006 - and is 49 per cent below the Q3 2008 peak.

However, DTZ notes that the rate of decline eased slightly in Q2 2009, after a deep plunge in Q1.

Research from CB Richard Ellis (CBRE) shows the same trend. Prime office rents averaged $8.60 psf pm in Q2 - an 18.2 per cent quarter-on-quarter fall. This was a slight moderation from the 18.6 per cent drop in Q1.

'While office rents fell for the third consecutive quarter, the rate of decline showed signs of easing as sentiment improved and the economy stabilised,' CBRE said.

But DTZ says that office rents on the CBD fringe and in decentralised areas fell faster in Q2 than in Q1. The firm's data shows rents in Beach Road/North Bridge Road slid 20 per cent to $6.20 psf pm in Q2, after a 13 per cent fall in Q1.

Along the Alexandra belt, competition from converted state property and hi-tech industrial property also led to a bigger decline in office rents in Q2 than in Q1. Rents there fell 23 per cent to $5 psf pm, after dropping 13 per cent in Q1.

With CBD office rents falling, the rental gap between office space in the CBD and outside it has narrowed.

In Q2, office rents in Marina Centre were 12 per cent lower than those for prime offices in Raffles Place, compared with an 18 per cent gap during the peak in Q3 2008.

In the Harbourfront area, the gap closed even more - from 47 per cent in Q3 2008 to 35 per cent in Q2 2009. As the gap in rents between CBD and CBD fringe narrows, some companies driven to relocate outside the CBD during the boom years are likely to return, DTZ reckons.

Occupancies were hit further in Q2, although at a slower rate than in Q1. DTZ says the island-wide average office occupancy rate eased 0.9 of a percentage point to 92.8 per cent, lower than the 1.9 percentage point contraction in Q1. Average occupancy in Raffles Place fell 1.1 percentage points to 91.8 per cent in Q2, lower than the 2.7 per cent drop in Q1. Among the micro markets, offices in Orchard Road saw the biggest drop in occupancy. The rate slid 2.8 percentage points to 91.5 per cent as more shadow space became available there.

But CBRE and DTZ say leasing enquiries are starting to pick up. 'It is likely to be a busy H2 for the office leasing market,' said CBRE's executive director for office services Moray Armstrong.

'New lease transaction volumes will be higher, but the focus is likely to remain on lower-cost and better-value options. The best occupier deals may well emerge in the next six to 12 months before market recovery is at hand.'

But take-up is likely to remain in negative territory for the rest of 2009 and occupancies are expected to dip further, according to CBRE and DTZ. The office market is expected to stay soft until 2011, says Chua Chor Hoon, head of DTZ's Southeast Asia research.

'A large supply of space overhangs the office market over the next few years, which will delay the recovery of the sector even though the economy is expected to recover by 2010,' she said.

Industrial Sector Weakens Further

Source : The Business Times, July 7, 2009

DEMAND for private industrial space continued to shrink in the second quarter of this year, says property firm DTZ.

And private industrial rents - in decline since Q4 2008 - registered steeper falls in Q2 2009 than in the two preceding quarters.

Average monthly gross rent fell 6.8 per cent for first-storey private industrial space and 8.1 per cent for upper-storey space in Q2 this year. This was the sharpest contraction since Q3 2003, when rents tumbled 8.3 per cent and 11.1 per cent respectively for first and upper-storey space.

Compared with the peak in Q3 2008, average rents for first-storey and upper-storey private conventional industrial space have fallen 12.8 per cent and 17.1 per cent.

Hi-tech industrial properties were again hit harder than other types of industrial properties space in Q2.

Amid lower demand in the industrial and office markets, hi-tech industrial rents posted their biggest contraction since Q2 2003, falling 12.8 per cent in Q2 2009 to 24.4 per cent below the peak in Q3 2008. Hi-tech industrial properties include business park and science park space.

New private industrial space of 30.6 million sq ft is expected to be completed between Q2 2009 and 2013. According to Urban Redevelopment Authority statistics, 24.6 million sq ft - or 80 per cent of the 30.6 million sq ft of private industrial space in the pipeline - is already under construction, with most scheduled for completion by 2011.

'2009 will see substantial new supply of 16.9 million sq ft private industrial space, which is 46 per cent above average annual demand of 11.6 million sq ft per annum during the past five years,' said Chua Chor Hoon, DTZ's head of South-east Asia research. 'The outlook for the industrial market remains weak through 2009 to 2011 due to demand-supply imbalances and weakness in the office sector.'

The hi-tech segment is likely to be most affected, with 5.1 million sq ft of private business park space in the pipeline, on top of 8.6 million sq ft of existing stock, Ms Chua said.