Tag Archives: Office Rental

Rental growth for office space set to moderate in 2015: Analysts

Office rentals have been pushing higher in 2014, with tight supply pushing rentals up by more than 10 per cent.

Consultancy Jones Lang LaSalle (JLL) projects that rentals at office buildings in the Central Business District (CBD) – including Marina Bay, Shenton Way and Raffles Place – could grow by some 16 per cent, driven primarily by the tight supply of new office space in Singapore.

Looking into 2015, they said rental growth is expected to moderate in the first half of the year, in anticipation of new office projects. JLL said about 3 million square feet of office space will come on-stream in 2016 and 2017, including Marina One at Marina Bay, Duo in Bugis, V on Shenton, and Tanjong Pagar Centre. This new supply could put pressure on rentals, as it is twice the absorption rate of 1.2 to 1.5 million square feet.

On Dec 4, four sites with commercial components were placed on the Reserve List under the Government Land Sales programme for the first half of next year. They included plots in Holland Road, Beach Road, Woodlands Square and Marina View/Union Street. But some industry players said there is room for the Government to release more sites in the CBD.

Mr Warren Bishop, CEO of Raffles Quay Asset Management, said: “When you are talking about a site being released in 2015, it is unlikely to come to market until 2019-2020. We would probably see there is certainly room for the release of more land within the Marina Bay area. Looking at the longer term beyond 2018-2019, there will be consistent demand, what has been released is probably not going to be enough to meet that demand.”

Mr Bishop added that the demand for office space in the years to come will need to be met. Otherwise, “you end up with situations where perhaps you see office rentals rise”, he said. “We had a situation in 2007-2008 where there was an imbalance between demand and supply.”

Looking to future Government Land Sales programmes, analysts expect the urban planners to roll out more commercial sites in the suburban areas for sale under the Confirmed List. These include locations like Jurong East, Paya Lebar and Woodlands. Meanwhile, to meet demand for office space in the CBD, market watchers suggested that the Government could put some sites for sale on the Reserve List, which can be triggered for sale by developers.

Analysts said they have observed a new trend in the leasing market, with some deals going beyond the typical ‘three plus three years’ lease terms.

Dr Chua Yang Liang, head of research for Southeast Asia at JLL Singapore, said: “We are hearing some cases where landlords are chasing bigger occupiers and offering them slightly longer leases, such as ‘five plus five’ or ‘six plus six’. They are locking them in for a longer period. Likewise, from the tenants’ perspective, a longer lease in such instances helps them in terms of amortising their overhead cost – like their fit-out costs for example.”

Overall, analysts said sentiment in the industrial property market remains mixed as Singapore shifts towards higher value-added manufacturing and service-oriented sectors.

Mr Nicholas Mak, executive director of research and consultancy at SLP International Property Consultants, said: “One of the challenges facing Singapore going forward is the changing nature of our economy, as it becomes a more service-oriented one.

“I think the Government needs to re-define the type of uses and trades and businesses that are allowed to use industrial space. As e-commerce within our economy expands, there will be more demand for storage space. The authorities could also re-look how they could allow more e-commerce companies to use industrial space.”

Industrial rents are seen falling by 3 per cent this year and SLP International said they could continue to decline in 2015 – by about three to five per cent – if supply continues to outpace demand.

Source : Channel NewsAsia – 22 Dec 2014

Grade A office rents could moderate ahead of supply spike

Cloudy days are in store for the resilient Grade A office market in Singapore, with rents expected to come under pressure in the second half of next year as competition for tenants intensifies, the manager of Marina Bay Financial Centre (MBFC) and One Raffles Quay said yesterday.

An upcoming avalanche of supply from several mega projects from 2016 will be exacerbated by slowing demand from the financial sector — traditionally the key driver behind premium office rents — amid signs that some international firms are putting their expansion plans on hold as they re-evaluate business strategies, Mr Warren Bishop, chief executive of Raffles Quay Asset Management (RQAM), told reporters.

“Marina One is due to complete at the end of 2016 or in 2017 and Tanjong Pagar Centre in the middle of 2016, so that’s a large amount of space of about 2 million sq ft in the horizon. The question is, when will that begin to affect the market? My best guess is probably towards the end of next year,” he said.

Jones Lang LaSalle estimates close to 4 million sq ft of new office space is expected to be completed in Singapore in 2016, a historical high since 1997 that exceeds the 10-year average island-wide demand of 1.5 million sq ft per year.

“When most tenants consider renewing their leases, they look 12 months ahead … Given that the bigger chunk of space will not come online until 2016, 2017, that won’t affect the market until towards the end of next year, when a downward trend will begin,” Mr Bishop said.

Grade A office rents inched up between 0.4 and 2.9 per cent in the third quarter from the previous three months, a Colliers International report showed recently, with those in the central business district hitting S$8.83 to S$10.25 per square foot per month amid stronger demand than supply. This was despite a recent weaker appetite from the financial sector.

Occupancy rates have also remained tight, with most areas maintaining rates of above 95 per cent. The two properties under RQAM’s portfolio — Marina Bay Financial Centre and One Raffles Quay — are about 98 per cent leased, said Mr Bishop.

“The local financial institutions are still strong and the market is being picked up by other sectors: We have a lot of activity on the e-commerce side as many of them are expanding in Singapore. Commodities is still strong too and we’ve seen a lot of interest from Chinese petrochemical companies recently, which is good because mainland Chinese companies don’t usually aim for Grade A,” he added.

“The market is probably a little weaker and that’s due to the financial sector not being that active, but it is still relatively robust … we could also end up with a lot of pent-up demand towards the end of next year.”

Source : Today – 19 Nov 2014

Singapore tops office rental growth in Asia: Jones Lang LaSalle

Office rental rates in Singapore grew 3.5 per cent from the previous quarter in the third quarter of the year, the fastest growth in Asia, Jones Lang LaSalle said.

The strong rental growth comes on the back of low vacancy levels in the city-state, the real estate consultancy said in a report released on Wednesday (Nov 19).

Office rents in Tokyo, Beijing and most emerging South-east Asia markets grew by 1 to 2 per cent quarter-on-quarter, while Hong Kong saw marginal growth of 0.4 per cent driven by the top end of the market, the report said.

In the Asia-Pacific region, New Zealand saw strong rental growth in the third quarter as well, with rents in Auckland and Wellington growing between 3.8 per cent and 4.6 per cent from the previous quarter.

Over the next 12 months, the strongest rental growth in Asia Pacific is likely to be seen in Tokyo, Beijing and Auckland, Jones Lang LaSalle said, adding that the growth rate in Singapore will likely slow sharply due to upcoming supply.

Source : Channel NewsAsia – 19 Nov 2014

Hike in S’pore office rents expected to be highest in Asia Pacific: report

The Republic is expected to top the rental forecast for Asia Pacific cities, with a 25 per cent increase in office rents from 2014-2019. This is according to a report from property consultancy Knight Frank, released on Wednesday (Sep 24). The increase will push Singapore to fourth place on the Knight Frank Global Cities index, behind San Francisco, Madrid and New York in terms of rental forecast.

The increase in urban living in the world’s top cities will see prime office rents reach record highs by the end of the decade, according to the index, which stated that prime office rents in 15 global cities – of which six are in Asia Pacific – are expected to grow 19.9 per cent over the next five years.

In the report, Knight Frank noted that the restricted supply of new office stock and rising demand for commercial space will see vacancy rates fall in all top 10 cities by 2019. For Singapore, vacant office space is likely to moderate from 10.3 per cent in 2014 to 7.7 per cent in 2019.

Prospects for the Singapore office market are positive in view of anticipated healthy demand from companies looking to set up business and expand in the city state, said Knight Frank. “The fairly modest supply of new prime grade office space over the next few years would sustain prime office rental growth,” said Knight Frank Head of Consultancy and Research Alice Tan.

COSTLY CITIES FOR GEN Y

The consultancy also released its Generation Y Cost of Living Index, which assesses the affordability of global cities for young professionals. Hong Kong was the least affordable city, while Frankfurt topped the list, it said.

Knight Frank added that young graduates in Frankfurt have the most disposable income, with about 60 per cent of their net salaries left at the end of each month, compared to a 4.61 per cent deficit for those in Hong Kong.

Singapore was four places below Hong Kong, with young professionals having 9.91 per cent of disposable income at the end of every month, said the consultancy.

Mr James Roberts, Head of Commercial Research at Knight Frank, explained why new districts around the traditional Central Business District are often a struggle for young graduates who are just starting out on their career. He said: “These districts have developed as vibrant and edgy places to live, which often appeal to the young graduates. However, as the areas gain popularity, there is an increase in the prices too.”

Source : Channel NewsAsia – 24 Sep 2014

Office rents up in Q2: URA

The office rental market continues to grow ahead of the retail and industrial property segments. Latest data from the Urban Redevelopment Authority (URA) on Friday (July 25) shows that rentals of office space rose 2.8 per cent in the second quarter of 2014, compared with a 2.4 per cent increase in the first quarter. Analysts say they could climb by another 5 per cent in the second half of this year.

Office leasing activity remained steady through the second quarter. In particular, analysts say Grade A office buildings in the central business district have helped to spur rental growth. Islandwide vacancy rate of office space fell to 9.6%, from 10 per cent in Q1.

“Singapore is home to about 7000 MNCs, about one-third of them are using Singapore as a hub for the Asia Pacific,” said Donald Han, Managing Director of Chesterson. “A lot of the companies are using the first half of this year to ramp up operations – and that contributed to the growth of just over two per cent. Looking at where we are right now (in terms of office rents), we are probably about 10 per cent from the bottom of the market defined probably as middle of last year. And if you are looking at the peak rental, we are probably about 15 per cent before hitting the peak of early 2011.”

Chesterton expects office rentals to climb by a further 10 per cent in the next 12 months, before starting to moderate in 2016 when more than 4 million sq ft of new supply is expected to hit the market. Over in the retail space, rentals rose by 0.6 per cent in Q2, reversing a 0.3 per cent decline in the January-March period.

“It could be seasonal at this point in time with renewals, and some new leases came in with new products in the market, so it is inflationary increase,” said Desmond Sim, Head of CBRE Research Singapore. “If the gross turnover sales turn to a direction that is very negative, then they (landlords) may be under a bit more pressure to tune down rent a bit.

Analysts say retail rents should stay relatively flat for the rest of the year as landlords would not want to risk pricing themselves out of the market. In addition, they expect landlords to continue to upgrade older malls in order to stay competitive.

The URA data also showed that islandwide retail space vacancy rate rose marginally to 5.9 per cent at the end of Q2 (up from 5.8 per cent in Q1) as a result of an increase in retail space.

Nut analysts noted that several factors could pose a challenge for the retail sector. These include weaker retail sales, a stronger Singapore dollar and the tight labour market.

But industry watchers say it is the industrial segment that could face more challenges. The latest data released by JTC showed that industrial rentals fell 0.1 per cent on-quarter in Q2 2014. Analysts warn that demand for industrial space (from SMEs) may not keep pace with an anticipated growth in supply.

“There will be a lot of supply coming up in the next two to three years,” said Chesterton’s Han. “We have got an imbalance in supply and demand, primarily because in the last two to three years, developers have been focused on building new high-grade specification projects targeted at the strata-tiled market. In view of the large supply coming on, we could see industrial rentals move downwards going forward.”

CBRE’s Sim echoed the sentiment. “Indicators like NODX are already not faring too well. At the same time, SMEs are also facing a foreign labour crunch,” he said. “The strength of the Singapore dollar could also deter export-driven manufacturing.”

JTC’s data also showed that all industrial property segments saw an increase in vacancy rates on a quarter-on-quarter basis with the exception of business parks in Q2.

Source : Channel NewsAsia – 26 Jul 2014

Prime office rents in CBD expected to rise by 10%

Property analysts are expecting prime office rents in the central business district (CBD) to rise by 10 per cent over the next 12 to 18 months.

The increase will be driven largely by demand for Grade A office buildings in the CBD.

But if rents there spike significantly, analysts warn that some tenants could move to the suburban areas.

Market watchers have said that rent at Grade A office buildings in the CBD area has gone up by about 7 per cent in the past year.

But if it continues to rise further, cost-conscious tenants may start thinking about moving out.

Donald Han, managing director of Chestertons, said: “The increase in suburban rentals would probably be much less than that of A Grade rentals in the CBD, so we would expect there would potentially be an attractive proposition for tenants to relocate some of the operations.

“The other push out of the CBD is the lack of car parking in the area, plus higher cost of entry if you are driving.”

CBRE Research said that currently, suburban areas account for about a quarter (24 per cent) of the 54.6 million square feet of total office space stock in Singapore.

Between 2014 and 2017, some 5.4 million square feet of new office space is expected be added in the CBD, and just under 1 million square feet outside the city.

Desmond Sim, head of CBRE Research Singapore, said: “The key projects would be Westgate which will be completed end of this year, another key project in Jurong would be Vision Exchange, that will likely come in at 2017.

“Apart from that, there will be pockets of office components that would come in, not forgetting Paya Lebar Square, the fully strata titled development that is also expected to come in this year.”

CBRE said that in the second quarter of this year, the average monthly rental rate for Grade A office buildings in the CBD is S$10.60 per square foot (psf), compared to S$6.55 psf for offices in the suburban areas.

Analysts said new grade A office space in suburban areas like Jurong and Buona Vista has been well-received by companies.

But convincing staff to move away from the CBD will take some work.

In the financial services sector for example, recruitment firm Robert Walters said that it has seen more companies seeking advice relating to relocation in the past 12 to 18 months.

Orelia Chan, manager for financial services at Robert Walters, said: “We do see more relocations coming from CBD to outskirts areas, such as Changi or Jurong as well. What they usually do is they would already have a plan, they may come to us and see what they could do extra to retain the staff.”

Robert Walters said that to encourage staff to relocate, firms can provide shuttle services, transport allowance and flexi-work arrangements.

Companies may also improve the work environment and range of amenities at the new location, for example, by providing a better canteen, a gym and resting areas for staff.

Source : Channel NewsAsia – 9 Jul 2014

Limited upside to Singapore office rents expected: Chestertons

Singapore’s office market is recovering but central business district rents are unlikely to rise dramatically as much of the new demand is from tenants who are more price-sensitive, real estate services firm Chestertons said on Tuesday (July 8).

According to Chestertons, firms in sectors such as energy, commodities and technology do not necessarily require prime CBD locations and will be among the first to move out when rents spike.

“Companies which have relocated out of the CBD in times of escalating rents included ExxonMobil from OUB Centre, Shell from Singapore Land Tower and recently Cisco Systems from Capital Towers,” it said.

OUB Centre is the old name for One Raffles Place, which is one of Singapore’s tallest office buildings.

“We expect CBD office rental increase to be checked by resistance from cost-conscious tenants, lack of expansion plans by traditional major CBD office occupiers like the banks and financial institutions, and prevailing high vacancies in upcoming new completions,” Chestertons said.

It added that potential rental spikes will likely be confined to upcoming suburban areas such as Jurong West, due to the completion of new Grade A offices such as the Metropolis, Jem and the soon-to-be completed Westgate Tower.

Chestertons estimates that Grade A office rents in the CBD grew by 0.5 per cent quarter-on-quarter to average S$9.64 per square foot per month in the April-June period.

In contrast, suburban Grade A office rents grew by 4.9 per cent to average S$5.70 psf per month.

Rents in Singapore’s CBD have risen over the past year, thanks to the influx of energy and commodity firms as well as the expansion of premises by social media giants such as Google and Facebook.

“In spite of the stronger-than-expected office rental recovery in the past 12 months, the fundamentals guarding the office market today differs from that in 2010/2011 or even prior to the global financial crisis,” Chestertons said.

Source : Channel NewsAsia – 8 Jul 2014

Singapore office rents up 3.2% on-quarter in Q1: Colliers

Office rents in Singapore’s central business district rose 3.2 per cent in the first three months of 2014 from the fourth quarter of last year, helped by an improvement in global business sentiments.

Property consultants Colliers International said on Wednesday that the average monthly gross rents for Premium and Grade A office space in Singapore’s CBD increased to S$8.99 per square foot in the first quarter — the highest level since the fourth quarter of 2011.

The improvement in business sentiment was brought about by the faster-than-expected recovery in the United States and Eurozone economies, it added.

Colliers estimated the overall average occupancy rate for Premium and Grade A office space in the CBD stood at 95.9 per cent in the first quarter, an increase from 93.9 per cent in the fourth quarter of 2013.

Source : Channel NewsAsia – 19 Mar 2014

S’pore office rents likely to rise 5-10% this year: Savills

Singapore office rents are likely to rise by 5 to 10 per cent this year, due to lack of new supply coming into the market, real estate firm Savills said on Thursday.

“The overall vacancy rate of CBD (Central Business District) Grade A offices tracked by Savills declined for the fourth consecutive quarter, from 7.8 per cent at the end of 2012 to 3.4 per cent by the end of Q4 2013,” Savills said in a statement.

It added that there was little new supply coming into the office market this year, with CapitaLand’s CapitaGreen, the former Market Street Carpark, and City Development’s South Beach Tower being the only large developments scheduled for completion by the end of the year.

“2013 saw a turnaround in overall CBD Grade A office rents, with a 3.9 percent growth after a contraction of 4.7 percent in 2012,” the property services firm added.

Grade A space refers to more sought-after office addresses in the central region that come with the wide floor plates and high ceilings favoured by financial institutions.

“With limited supply, 2014 could well be the year of galloping rents.” said Savills senior research director Alan Cheong.

Source : Channel NewsAsia – 6 Feb 2014

Office rents inched up 0.6% in Q2

Office rental rates in Singapore are showing signs of recovery after continued declines in the past year, as companies move to secure additional space because of improving local and global economic outlook.

Tier 1 office rents inched up 0.6 per cent quarter-on-quarter in the three months ended June 30, the first increase since the third quarter of 2011, property consultancy Jones Lang LaSalle said in its Asia-Pacific Office Index report released yesterday. The average Grade A rent at Raffles Place for the quarter was US$720 (S$921) per square metre per year on a net effective basis, it said.

“The increase signals greater confidence in the market. A full recovery is not quite there yet, but it has picked up a little,” said Mr Chris Archibold, Head of Markets for Singapore at Jones Lang LaSalle.

He noted that vacancy rates had dropped to an average of 6 per cent last quarter, compared with 8 per cent previously, driven by more demand from non-financial companies.

IHS, a company specialising in data provision and consulting, took up more than 30,000 square feet of space at Asia Square Tower 1 last quarter, according to property firm Cushman & Wakefield. Increased leasing activity resulted in reduced vacancy rates across the Central Business District sub-markets, such as Marina Bay, Raffles Place and Shenton Way, it noted.

With a limited supply coming on-stream in the remainder of the year and the improving economic environment, the modest uptrend in office rents is expected to persist. “There are positive signs that the rents could improve in the second half … This is underpinned by the continuous initiatives by the Government to grow Singapore as a hub,” said Ms Chia Siew Chuin, Director of Research and Advisory at Colliers International. She expects demand to come from financial institutions, legal and private equity firms.

Source : Today – 27 Aug 2013