With no new major buildings yet completed, supply of office space continues to be tight in the Central Business District (CBD).
In the wake of unceasing uncertainties in the wider economy and high office rentals, more companies are adopting a cautious business approach, gravitating towards cheaper premises like decentralised office buildings, industrial properties, business parks and disused State buildings.
Hence, average occupancy of office space across most areas had dipped slightly in the second quarter of this year. Islandwide average occupancy eased by0.2 percentage points from the previous quarter, to 96.9 per cent. Average occupancy ofoffice buildings in Raffles Place and Marina Centre dropped slightly due mainly to tenants moving out to cheaper locations after lease expiration.
At the same time, supported by comparatively lower rentals, decentralised areas like Novena and HarbourFront have enjoyed modest increases in occupancy.
Growth in office rentals have started to taper off after the meteoric rise last year,reflecting the increased resistance to higher rents.
Apart from Raffles Place, Shenton Way, Robinson Road, Cecil Street and decentralised areas, growth in office rentals in other areas like Marina Centre, Orchard Road, Anson Road and Tanjong Pagar were flat.
The Government’s efforts to create more immediate office space has also eased the supply crunch and pressure on rentals.
Apart from an estimated 1.9 million square feet of office space from transitional offices and disused State properties that were awarded between last year and the first six months of this year, occupiers can find more relief in the coming months.
Two disused State properties – the former Phoenix Park Complex and former Singapore Badminton Hall – were released for tender in thesecond quarter of this year. In addition, two more transitional office sites at Mohamed Sultan Road and Mountbatten Road will be released for tender under the Government Land SalesProgramme for the second half of this year.
Following an earlier announcement to relocate several Government agencies out of the CBD, other Government agencies in the city centre were tasked to streamline their office space utilisation and free up more office space to the private sector in the process.
The supply crunch in the CBD will be eased from 2010 with new office buildings being completed. Potential supply of office space from the second half of the year to 2013 is estimated to be 12.1 million sq ft.
With sufficient office space supply in the pipeline, the number of sites under the Government Land Sales Programme for the second half of the year has been reduced.
Only three commercial sites were added to the confirmed list while the reserve list includes three commercial sites and two white sites.
With the Urban Redevelopment Authority’s ban on the conversion of office buildings in the central area to be lifted at the end of next year, some projects in the pipeline may be delayed or aborted as developers review their plans in light of the huge potential supply and slowing economy.
Going forward, as companies and Government agencies start to move out of the CBD and more new supply comes on stream, office occupancy is likely to ease and limit rental growth in the city centre for the rest of the year.
The writer is senior director of research at DTZ. The opinions expressed are her own.
Source : Today – 14 Aug 2008