URA Q3 data confirms pick-up in office leasing market

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LATEST figures from Urban Redevelopment Authority confirm the views of some industry players that the office leasing market has emerged out of a downturn.

URA's office rental index in the central region rose 0.8 per cent in the third quarter over the preceding quarter. This marked a bigger increase compared with the 0.2 per cent gain registered in Q2.

However, the islandwide office vacancy rate climbed to 9.6 per cent at end-Q3 from 8.8 per cent three months earlier. For private-sector office space, the vacancy rate rose from 9.5 per cent to 10.4 per cent.

Savills Singapore research head Alan Cheong finds this still a "comfortable level" after taking into account frictional vacancies and when compared with other markets in the region. Savills' CBD Grade A office effective vacancy levels have tightened to 3.5 per cent, he added.

The higher islandwide vacancy was amid a net addition of about 1.3 million sq ft of available office space in the third quarter of this year - from the completion of major projects such as Asia Square Tower 2, The Metropolis Tower 1 and Nexus@ One-North.

On the demand side, the islandwide office market saw net increase in occupied space of about 495,000 sq ft in Q3, higher than 205,000 sq ft in Q2, notes Colliers International's director of research and advisory Chia Siew Chuin.

The property consulting group's research also showed that office rents have embarked on a firm recovery path. "In particular, the rate of increase for average monthly gross rents for Premium Grade office space in the Raffles Place/New Downtown micro-market accelerated to 3.3 per cent in Q3 2013 from the 2 per cent Q-on-Q rise in the preceding quarter.

"This brought the average gross monthly rent for premium grade office space in this micro-market to $9.92 per square foot by the end of September 2013," said Ms Chia.

CBRE Research associate director Desmond Sim said a recovery in Grade A office rents is likely in Q4.

"Rents have also stabilised and this could point to the sector being in healthy equilibrium," said Savills' Mr Cheong.

URA's All Industrial rental index rebounded 4.4 per cent in Q3 after dipping 0.1 per cent in Q2. Its multiple-user factory rental index increased 4.4 per cent in Q3 after inching up 0.1 per cent in the second quarter. Multiple-user warehouse rents recovered 4.6 per cent in the July-September period from the 2.4 per cent decline in Q2.

"The upside in rents was generally supported by lease renewals and higher rents sought by landlords who have paid high prices for their properties in recent years," said Ms Chia.

At the same time, vacancy rates eased slightly to 7.5 per cent at end-Q3 from 7.6 per cent at end-Q2 for factory space and to 6.7 per cent from 7.2 per cent for warehouse space, according to URA's data.

URA's shop rental index climbed 0.4 per cent in Q3, contrasting with a 0.8 per cent slide in Q2. The shop price index, however, appreciated at a slower clip of 0.4 per cent in the third quarter, compared with the 1.7 per cent increase in Q2. In similar fashion, the price index for office space rose one per cent in Q3, compared with Q2's 1.5 per cent gain.

Prices of multiple-user factory space continued to inch up 0.9 per cent after posting a 0.5 per cent gain in Q2. "The slower pace of price growth in this segment was likely due to supply pressures, buyers' resistance towards further price hikes and the overall slowdown in market activity arising from the total debt servicing ratio (TDSR) requirements," said Ms Chia.

Multiple-user warehouse space posted the most dramatic turnaround, rising 10.4 per cent in the third quarter, after slipping 5.9 per cent in the previous quarter.

Source: Business Times, 26 Oct 2013