Drop seen in office space leasing, majority looking for smaller units

20130124-bt-drop-office-space-leasing-pic OFFICE leasing activity should slow in the coming six months, with demand to be dominated by tenants with smaller space requirements.

Knight Frank said this in a research note dated Tuesday that also summed up the sector's performance for 2012.

"Gone are the days where you have major space takers that look at 15,000, 20,000 square feet (sq ft) and above in terms of their take-up," Png Poh Soon, head of research and consultancy at Knight Frank Singapore, said yesterday in a phone call.

He said the company has received fewer enquiries to lease these big spaces, which tended to draw demand from financial sector players.

This can be attributed to two key trends in finance over recent quarters: some of the banks moving their back office operations to suburban regions, and caution about bottom lines given the slowdown in the economy.

Knight Frank expects prime rents in Central Business District (CBD) areas to fall 0.5 per cent in the first quarter of this year compared with the previous quarter amid this continued softness. This follows a 0.4 per cent decline in the fourth quarter of 2012.

That said, Mr Png noted that "it's not all gloom and doom", and that the market has likely bottomed out after a rough 2012 which saw prime rents in the CBD drop 11 per cent from the year before.

Demand for serviced offices will stay strong as tenants try to lock in rents at current rates, Mr Png believes. Serviced offices come fully fitted out and offer flexibility in the form of monthly renewals instead of a usual minimum tenure of two years.

Louise Toovey, senior manager for business space (office) at Knight Frank Singapore, said: "Tenants are keen to explore options with fitted out space which will provide significant cost savings."

Furthermore, Mr Png believes the opening up of the legal sector means more foreign law firms will be looking to set up shop here.

Both these groups of potential users are expected to be in for smaller offices of between 1,000 and 5,000 sq ft.

To cater to their needs, Knight Frank said it is possible that landlords of buildings with a large leasable space per floor could subdivide the floor into smaller units and rent them out.

Source: Business Times, 24 Jan 2013