Lower rents keep office demand healthy in Q1

20130328-bt-lower-rent-keep-office-demandhealthy-pic-jpg OFFICE demand remained healthy in the first quarter of the year as rents stayed competitive, data from property consultancies showed yesterday.

CBRE said vacancy rates for Singapore offices fell 0.7 percentage points to 5.1 per cent, from 5.8 per cent in the previous quarter. This corresponds with DTZ's research that saw average occupancy rates gaining 0.4 percentage points to 95.4 per cent.

CBRE said vacancy rates are the lowest since the fourth quarter of 2008, when it was 4.8 per cent.

Net absorption was 375,000 square feet versus 272,000 sq ft the previous quarter, DTZ said.

The main driver of demand for Singapore offices was their lower costs relative to other cities, CBRE said, and expects the positive demand to continue for the rest of the year.

"Most of the rental declines occurred in the first two quarters of 2012, and rental corrections were kept to a minimum in Q1 2013," it said.

Rents for Grade A offices lost 0.3 percentage points to $9.55 per square foot (psf) per month in Q1 compared with the previous quarter. Vacancy rates, however, corrected to 7.1 per cent from 8.8 per cent.

For Grade B offices, CBRE said rents eased 0.3 percentage points to $7.09 psf per month from the previous quarter. Vacancy rates improved to 5.4 per cent from 5.9 per cent.

DTZ's research showed that in Q1 2013, average occupancies in the Marina Bay area surpassed Raffles Place for the first time since Q1 2011.

Cheng Siow Ying, executive director for business space at DTZ, said Marina Bay saw more activity after rents there fell 12.5 per cent last year.

"In comparison, rents in Raffles Place continued to decline moderately as landlords with lower occupancies offer incentives such as longer rent holidays to retain or entice tenants to lease space in their buildings."

For the year ahead, the consultancies expect around 2.5 million sq ft of office space supply, with some notable projects being the Metropolis and Nexus@ one-north, JEM in Jurong East and Asia Square Tower 2 in the CBD.

CBRE said the space is "manageable" as the Metropolis and JEM, with about 1.5 million sq ft of space combined, have high pre-commitment levels of 100 per cent and 70 per cent respectively. This compares with about 12 per cent for Asia Square Tower 2.

Lee Lay Keng, head of Singapore research at DTZ, drew a similar comparison for decentralised office developments and Asia Square Tower 2.

"Office rents are therefore expected to hold firm in the decentralised areas while rents in the CBD will continue to ease before recovering next year."

Source: Business Times, 28 Mar 2013