Office landlords can't bank on finance sector

20130703-st-office-landlord-can't-bank-on-financial-sector-pic SINGAPORE'S office landlords, long dependent on banks, are broadening their tenant base to soak up empty space as the commercial property market inches towards recovery after a three-year slump in rents.

Rents in the best buildings may start to rise this year, according to brokers CBRE Group and Cushman & Wakefield.

Vacancies fell to 5.1 per cent in the first quarter, the lowest since September 2008, from the previous three months, CBRE said. Annual new supply will be 38 per cent lower than in the past 20 years, CapitaCommercial Trust forecasts.

Property owners such as CapitaCommercial and Suntec Real Estate Investment Trust are using the cheapest rents in three years to lure commodity traders, law firms and software companies. The new tenants are moving in as financial service firms scale back expansion plans in the wake of the European debt crisis.

"Singapore's office market is getting a lot more diversified," said Ms Elysia Tse, senior vice- president of strategy and research at Aviva Investors Asia, which has US$2.5 billion (S$3.2 billion) in property assets in the Asia-Pacific region. "We are at the turning point where we see supply stopping, demand slightly turning positive, vacancy declining, and rents have stopped falling."

Prime office lease rates declined to S$9.55 per sq ft per month in the first quarter, the lowest since the same period in 2010, said CBRE, which ranks Singapore's overall office rents the 19th highest globally. Rents for prime space peaked at S$18.80 in August 2008, CBRE data shows.

The office market is benefiting from Singapore's emergence as Asia's wealth management centre. The city has the fifth-largest proportion of millionaire households in the world, at 8.2 per cent, according to a Boston Consulting Group report last month.

Singapore also has become a commodities hub, with Asia's biggest oil trading market for companies such as BHP Billiton, Exxon Mobil Corp and Chevron Corp, and the largest foreign exchange centre in the region after Tokyo.

"We are becoming more optimistic about the prospects and outlook for the office sector," said Mr Moray Armstrong, executive director of office services at CBRE in Singapore.

Companies are being attracted by some of the lowest occupancy costs in Asia.

Rents, local taxes and service charges average US$99.65 per sq ft on an annual basis, according to a CBRE survey published last Friday. That compares with US$235.23 in Hong Kong, the world's most expensive office market, and US$161.16 in Tokyo.

British law firm Clifford Chance, French oil-and-gas company Lynx Energy Trading, US publisher McGraw Hill Financial, German software maker Software AG and Zurich-based bakery Aryzta are among companies that have moved into Marina Bay Financial Centre's Tower 3, completed in March last year.

Clifford Chance, based in London, moved last year from One George Street as it expanded, said Mr Justin Young, its Singapore and Bangkok general manager.

The firm has taken 35 per cent more office space than before and occupies 31,000 sq ft at the Marina Bay location. "The rents were very favourable because we signed the lease before the building was completed," Mr Young said. "It made very good financial sense for us to move as we could lock in these rents for a long period of time."

The downside of diversification is that the new tenants typically cannot afford the same rents as banks and brokers, which are willing to pay top dollar for large, contiguous spaces where they can consolidate their operations.

The average monthly rent for grade-A offices at Marina Bay fell 1.1 per cent to S$10.18 per sq ft in the final quarter of last year from the previous three months, Cushman said. The broker defines grade-A offices as those built in the past three years and located in sought-after areas.

Still, some of the recent Marina Bay transactions have set rents of more than S$12 per sq ft, said Mr Toby Dodd, managing director for Singapore at Cushman. The broker expects average rents to climb 5.8 per cent to S$10.77 per sq ft by this month as vacancies shrink.

Source: Straits Times, 26 Jun 2013