Tag Archives: Singapore Office Rental

Singapore’s prime office rents to bottom in 2018: Knight Frank

A FLIGHT-TO-QUALITY among office occupiers is weighing down on rents and occupancies at older Grade A office buildings, where more space will be freed up as these tenants move into new prime offices.

This is giving rise to a “two-tiered performance” in the prime office market, with Grade A offices seeing steeper declines in rents than the so-called “Grade A-plus” offices in the coming quarters. Average office rents will continue to fall before bottoming out in 2018, property consultancy Knight Frank projects.

These Grade A-plus offices refer to newer buildings with better specifications in the prime office market.

With the downside risk in office rents already well-documented ahead of looming completions of massive projects, market observers have started speculating when the bottom will be reached.

But some analysts are expecting the bottom to arrive sooner. DBS Group Research and Religare are tipping a bottom in the second half of 2017; Maybank Kim Eng has projected a bottoming-out of office rents over the next five to six quarters, which suggests Q4 2017 to be the earliest for that to happen.

Knight Frank head of office Calvin Yeo said: “Competition for tenants will be rife, particularly among buildings vying to backfill vacancies from tenants relocating to quality (spaces) over the upcoming quarters.

“Buildings with significant net lettable area (NLA) due for lease renewal from now till 2018 will continue to be under threat of losing tenants to quality buildings,” he added.

During the third quarter, Grade-A office space in the Raffles Place/Marina Bay district saw the largest quarterly decline of 2.9 per cent in monthly gross effective rents (which exclude fit-out period but include rent holidays and service charges) to S$8.20-8.70 per square foot (psf). This is followed by a 2.7 per cent fall for Grade A office spaces in the Marina Centre and Suntec City areas to S$8.10-8.60 psf.

The pursuit of tenants by upcoming office projects in recent quarters has been at the expense of older Grade A buildngs, which will see some tenants moving out soon when those swanky new buildings are completed.

The Business Times had earlier reported a slew of pre-lease commitments inked in new projects. ING, which now occupies 70,000 sq ft at Republic Plaza, is close to securing a similar amount of space at Guoco Tower in Tanjong Pagar Centre. Itochu Singapore, also currently at Republic Plaza, is also taking up 28,000 sq ft at Guoco Tower.

Communications agency Dentsu Aegis Network, which now operates from 77 Robinson Road and has member firms in several other locations, is said to be finalising a lease for about 90,000 sq ft at Guoco Tower.

Cybersecurity company Palo Alto Networks is moving out of its 20,000 sq ft of space at Millennia Towers to take up some 36,000 sq ft at Guoco Tower.

Amadeus, a global IT solutions provider for the travel industry, now occupies over 20,000 sq ft at Parkview Square in North Bridge Road and is said to be taking up a lease for 36,000 sq ft at Guoco Tower.

Swiss private bank Julius Baer, which has inked a lease at close to double-digit rent for a “high density floor” spanning 100,000 sq ft at Marina One, is slated to give up its 72,000 sq ft of space spread over two floors at Asia Square Tower 1.

“Upcoming vacancies in Grade A buildings will increase in the next two years as these tenants relocate, and put pressure on rents as a result,” Mr Yeo said.

A skyscraper index released by Knight Frank this month, which tracks rental performance of commercial buildings over 30 storeys high, showed that prime office rents on the upper floors of Singapore skyscrapers are the eighth most expensive globally.

Asia-Pacific cities saw the highest rental growth, with towers in Shanghai recording the strongest growth in the world of 7.6 per cent in the first half, followed by Sydney, Hong Kong and Taipei. Singapore bucked that trend with a 7 per cent drop.

Singapore high-rise office rents decline by 7% as demand slows

Singapore landlords are paying the penalty for a slowing economy. Alone among the world’s major cities, the cost of renting an office with panoramic views is falling as supply outstrips demand.

Annual rents on the upper floors of Singapore’s skyscrapers fell 7 per cent to about US$775 a square metre in the first six months, according to a 23-city index compiled by Knight Frank LLP.

The biggest increase was in Shanghai, where rents climbed 7.6 per cent to US$774. In Hong Kong, the most expensive market, rents rose by 5.9 per cent to US$2,996 a square metre, the broker said.

“There’s a classic imbalance in the Singapore market,” said Will Beardmore-Gray, head of Knight Frank’s tenant representation and agency business.

“They had relatively high supply and this has been exacerbated by a poor-performing economy and over development.”

Vacancy rates in Singapore were 9 per cent in the second quarter, compared with 3.3 per cent in Shanghai, Knight Frank data show. The city-state’s economy will shrink 0.1 per cent in the third quarter, according to a survey of 26 economists conducted by Bloomberg News in the week through Sept 13.

Demand for Shanghai office space has been lifted by the technology and creative industries, Mr Beardmore-Gray said. The city has created 300,000 jobs in those sectors since 2009 and is expected to add 100,000 more by 2020, he said.

Manhattan skyscraper rents increased 1.9 per cent to US$1,701 per square metre during the first half, the second-highest in the index, while those in Tokyo and the City of London district were unchanged at US$1,610 and US$1,226 respectively.

Singapore CBD office rentals decline for third straight quarter

Office rents in Singapore’s CBD fell by 3.9 per cent in the first quarter of this year from the previous quarter – their third straight quarterly decline – as concerns over a global economic slowdown dampened demand for office space.

according to DTZ Southeast Asia, office rents fell to S$9.90 per square foot (psf) per month in Q1 2016, which is expecting them to continue dropping due to weak demand and substantial office space coming on stream.

The sluggish global economy has affected demand for the business services sector, a major office user, and also led to a contraction of the financial services sector, it observed.

Marina Bay office rents were the most affected, decreasing 5 per cent to S$11.90 psf per month, while Grade B offices in the Shenton Way and Tanjong Pagar area fell 4 per cent to S$7.30 psf per month.

Raffles Place rents proved the most resilient, slipping by a smaller 2.3 per cent to S$10.50 psf. The high occupancy rate of 97.4 per cent and the lack of new supply helped to mitigate the downward pressure there, said DTZ.

Office rents still falling across region, but at slower pace

The slide in office rental rates across the region has slowed, and analysts said this is a good sign the market has stabilised.

A year ago, office space rental in Singapore’s central business district could come up to as much as S$19 per square foot a month. Today, that rate has fallen by almost half.

Singapore, which is home to Asian headquarters of a number of foreign companies, has seen rents fall 46.6 per cent from its peak in the third quarter of 2008.

Market watchers said rents in Singapore have fallen the most in the region, due mainly to the sharp increases seen in 2008.

“I expect Singapore office rents to continue to trend downwards for the next one year or so, until we see a strong economic recovery to put a floor to this decline,” said Nicholas Mak, adjunct lecturer of Business & Environment at Ngee Ann Polytechnic.

But the rate of decline is expected to be slower than the sharp falls seen in the first quarter this year.

Other financial centres in the region are seeing similar patterns. Rents in Hong Kong fell 43 per cent on-year in the second quarter, while in Mumbai, the drop was 40 per cent.

Ang Choon Beng, director and head Research Services at Cushman & Wakefield: “Most of these cities that saw the largest declines were exposed to the financial industry. When the global financial industry started getting into trouble, we saw a loss of confidence, especially in the financial sector in those cities, and that’s why rents started falling.

“The fact that most of these cities are exposed to the financial sector is a double-edged sword. When times are bad, financial sector tend to go down very fast. But the financial sector obviously has a lot of operating leverage. So when times are good, they tend to make a lot of money and grow very fast.”

Ang expects demand to return to the markets after one or two quarters. But rents are unlikely to reach the highs seen in 2008. And this is especially true for Singapore, which will gain about 2.4 million square feet of office space annually, over the next three years.

“With the large amount of supply expected to enter the market in the next 3.5 years, we are going to see some firms playing musical chairs – they may be moving to other offices of newer and higher quality. But probably they will be bargaining hard for rents,” said Mak.

This means rents are likely to hover around the same levels.

Source : Channel NewsAsia – 12 Aug 2009

Singapore’s office rents see steepest Q2 drop in Asia Pacific

Office rents in Singapore fell 26.2 per cent in the second quarter, according to latest figures from real estate consultancy firm Colliers International. This was the steepest decline quarter-on-quarter among Asia-Pacific cities.

Singapore is the fourth most expensive office location after Tokyo, Hong Kong and Ho Chi Minh City for Grade A offices – one spot down from the first quarter this year.

Colliers expect office rents here to continue to fall over the next 12 months due to excess supply and subdued demand for office space amid the gloomy economy.

However, market watchers are seeing some positive signs from the widening gap between Singapore’s office rents and the more expensive cities in the region.

Tan Huey Ying, director of Research and Advisory of Colliers International, said: “With the outlook for all the other Asia-Pacific cities looking comparatively brighter than Singapore’s, Singapore is likely to continue to slip in the rankings of most expensive office rents in the Asia-Pacific region.

“The rental gap with the more expensive cities is expected to widen further, while the gap with the less costly cities is largely expected to narrow in the next 12 months, thereby improving Singapore’s competitive edge.”

The report, which records quarterly office performance across 26 cities in the Asia-Pacific region, sees Tokyo and Hong Kong remaining as the top two cities with the highest rental costs.

With office rents remaining weak in the region, only Guangzhou and Seoul saw rents increase by 1.1 per cent and 1.5 per cent respectively in the second quarter.

Source : Channel NewsAsia – 3 Aug 2009

Singapore property market records region’s worst contraction in Q1

Singapore’s property market is among the worst-performing in Asia for the first quarter of this year.

A report by property consultant CB Richard Ellis (CBRE) found that Singapore’s prime office rents recorded the region’s worst contraction.

Compared with the first quarter of 2008, prime office rents in Singapore fell by 34 per cent, followed by Hong Kong which was down by 32 per cent.

In terms of retail rents, Singapore – along with Shanghai, Guangzhou, Tokyo and Beijing – saw declines, despite retail rents in other Asian cities holding up relatively well over the same period.

Shrinking global demand also put downward pressure on rents at industrial properties in Singapore and elsewhere.

In addition, Singapore, Hong Kong and Japan suffered the biggest fall in property investment sales volume.

The CBRE report, examining the impact of the global downturn on real estate, also found that Asian property investment sales fell 83 per cent to US$3.1 billion.

CBRE added that the commercial real estate market worldwide will continue to remain challenging for the rest of the year.

Source : Channel NewsAsia – 19 May 2009

Grade A office space rents to half by end 2009, hitting five-year low

The cost of prime office space in Singapore is expected to halve by the end of the year, to hit almost five-year lows.

It fell sharply by 25 per cent to about S$9.20 per square foot per month in the first quarter this year, compared to the previous quarter.

Analysts expect a similar fall in the second quarter, before a moderation in the second half of the year.

2.4 million square feet of office space will come on-stream in Singapore’s central business district annually over the next three years. This comes at a time when demand is flagging due to the global economic downturn.

“38 per cent of tenants in prime office areas are financial institutions. This is the first sector of market impacted by global financial crisis. In Raffles Place for example, at least about 60 per cent of composition of prime office in Raffles Place is financial institutions,” said Donald Han, managing director of Cushman & Wakefield Singapore.

“Unless the economy picks up and office demand picks up to absorb all this office space, we’re going to see office occupancy rates fall to around 85-88 per cent by end 2009,” said Nicholas Mak, director at Knight Frank.

This means rents could fall to around S$6 per square foot a month – down from the S$19 per square foot per month seen during the peak in 2008. Occupancy rates at the time hovered close to 100 per cent.

With a recovery in the office market pegged to the global economy, the earliest possible recovery may come only in 2010.

“We do expect the Singapore economy to show signs of recovery somewhere next year and this will result in some stability in the office leasing market. And we can see office occupancy rates touch somewhere around the lower half of 80-over per cent, and probably stabilise in that region before staging some kind of recovery,” said Mak.

So for the next few years, Cushman and Wakefield expects tenant retention programmes to become a top priority for landlords.

Tenants are likely to renegotiate rents, or opt for package deals. And retaining tenants is expected to become a top priority for landlords.

Outside the prime region, occupancy rates remain relatively well-supported. Rents there have fallen by at most 50 cents from a S$6.50 per square foot per month rate. Analysts also noted that these rents have less room to fall as they did not see the kind of increases the prime area did.

Source : Channel NewsAsia – 9 Apr 2009

Singapore’s office occupancies, rentals sharply lower in Q1

Office occupancies and rentals in Singapore fell sharply in the first quarter of 2009, according to latest figures from property consultancy DTZ.

DTZ said the data showed that companies continued to consolidate space and put expansion plans on hold in the wake of the global financial crisis.

According to DTZ, office rents slid 18 per cent on average island-wide. This was the steepest decline since the third quarter of 1998, when rents fell by 12 per cent during the Asian Financial Crisis.

DTZ said monthly rental for prime office space in the Central Business District dropped 25 per cent to an average of S$12 per square foot (psf).

The report also indicated that average office rents fell most sharply at the Tampines Finance Park, dropping by 32 per cent to S$5 psf, as new supply of space becomes available.

Office occupancy also registered the largest quarterly decline since the third quarter of 1997, with a 2.1 percentage point fall to 93.6 per cent.

DTZ said the office market faces an impending supply glut, with some 2 million square feet of office space due to be completed later this year. This will further put pressure on rentals and landlords are expected to step up efforts to fill these new developments.

The industrial property market also saw further weakening in the first quarter, with a seven per cent drop in average rent as a result of shrinking demand. This compared with the three per cent fall in rentals in the last three months of 2008.

DTZ said the outlook for the industrial market seems bleak, with the economy showing no signs of bottoming out.

In addition, industrial REITs players are also staying away from acquisitions, as they focus on sustaining and improving occupancy levels in their current portfolio.

Source : Channel NewsAsia – 1 Apr 2009

Offices empty

Demand for high-end units eases, agents say rents likely to fall

WITH banks around the world falling like nine pins, it’s not surprising that demand for top-quality Singapore office space is easing off.

The estate agents are agreed: Rents have already peaked, and occupancy levels are falling – with rents likely to follow.

According to a report by property firm CB Richard Ellis yesterday, Grade A rents stagnated in the third quarter at $18.80 per square foot per month, while prime rents were at about $16.10. Grade A refers to premium office space in top-quality buildings in places such as Orchard Road, Raffles Place, Tanjong Pagar and Marina Centre.

And there are now offices standing empty. Vacancies for Grade A offices rose to 1.2 per cent, up from 0.6 per cent in the first two quarters – the first time in two years that it has crossed the 1.0 per cent mark. “Landlords are adopting more reasonable asking rents, although in the immediate term occupiers will still face rentals that are at all-time highs,” the report added.

Chesterton International associate director Colin Tan told Today that while larger landlords have the option of maintaining current rents at the expense of occupancy rates, smaller landlords could be forced to lower their demands.

“Putting aside the financial meltdown, the supply is already more than enough,” said Mr Tan, who had previously argued that Singapore could face an oversupply of office space, with the authorities set to introduce more than 10 million square feet of space over the next five years.

While the pipeline of supply would bring rents down to more realistic levels, “the tendency is to overdo it”, he added.

Noting that no office development sites were awarded in the third quarter, CBRE added that it foresees “limited appetite for further speculative office development” amid the current environment where developers would also face difficulties in securing development financing.

CBRE expects rentals to fall early next year -bringing forward its earlier prediction that rents would soften only after 2010. But at the property firm Cushman & Wakefield managing director Donald Han felt that the high office rents would last until the second half of next year, given the tight market and the fact that multinational corporations have pre-committed to 25 per cent of the supply coming onstream.

Mr Han said that, generally, a vacancy rate of less than 5 per cent is considered “healthy”, while noting that the deepening financial crisis has resulted in banks “looking at cost-containment strategies”.

Analysts at Merrill Lynch – itself a bank which has been sold off in the crisis – said in a report that they expect Grade A office rents to drop to about$14 per square foot a month next year, and fall further to $10 in 2010. And that report was written in August.

Mr Han said: “The biggest question is how much demand will drop. We have to wait until the dust settles and smoke clears. But a reduction in rents can be seen in a brighter light. Companies might see Singapore as a more affordable location.”

Source : Today – 3 Oct 2008