[SINGAPORE] With the expansion of the MRT network here improving accessibility across the island, the rental differences between prime office and decentralised office space are expected to continue narrowing.
As at the fourth quarter last year, gross average office rents in Tampines were 46 per cent lower than those in Raffles Place; those with office space in Jurong East enjoyed 25-35 per cent discount off Raffles Place rents.
Office spaces closer to town had smaller differences: Novena rents were 15 per cent less than Raffles Place ones, based on DTZ's figures; Buona Vista and HarbourFront were 18 per cent and 21 per cent lower respectively.
While the discount is still significant, it is worth noting that the premium that Raffles Place commands has been shrinking over time. Occupiers in Tampines, for instance, used to enjoy up to a 60 per cent discount in their monthly rents compared with average Raffles Place rents; those in Novena used to enjoy more than 40 per cent off Raffles Place rents, noted Lee Lay Keng, head of Singapore research at DTZ.
She was speaking at DTZ's Property Seminar 2014, which provides an outlook for Singapore and the region.
Improving transport networks aside, the government's plan to decentralise commercial areas is expected to further narrow rental differences as well. This year, for instance, most of the office space due to come onstream - such as those in Jem, Paya Lebar Square and Westgate - are in areas outside the Central Business District (CBD).
Ms Lee added that concerns that the CBD could have an oversupply of office space might be unfounded, at least in the next two years.
"Although the bulk of pipeline supply is within the CBD, in this year and the next, there's very limited supply. Only CapitaGreen is expected to be completed in Raffles Place (in 2014). So in the near term, we do expect landlords to have some bargaining power, especially since most buildings are enjoying relatively high occupancy."
She said that DTZ expects CBD rents to rise by up to 10 per cent over the next two years, barring unforeseen economic shocks.
On a wider scale, annual average supply over the next five years - at about 1.6 million square feet - is on a par with the past five years' annual average demand of 1.7 million sq ft, she said. The average annual net supply for the whole office market takes into account expected terminations, which DTZ estimates to be about 0.9 million sq ft over the next five years.
Elsewhere, average occupancy costs in the Asia-Pacific are expected to go up by 7 per cent over the next two years, said DTZ.
"In light of the improving economic outlook, the window of opportunity for occupiers to secure preferential deals appears to be closing, with the majority of markets forecast to experience an increase in occupancy costs in the near term," it noted.
This will be led by Tokyo, where rents will be buoyed by Japan's economic recovery and a limited development supply pipeline.
Beijing is also expected to show strong growth in occupancy costs, underpinned by limited new and existing supply.
Net absorption is forecast to bounce back by 25 per cent this year.
In the region's emerging markets, new supply will raise the availability of quality space; mature markets will continue to receive support, given limited new supply.
Source: Business Times, 16 Jan 2014