THE office leasing market recorded another quarter of strong take-up during Q1 this year, with average gross rental rates in the central business district (CBD) rising between 3.9 to 4.5 per cent quarter-on-quarter from higher occupancy rates, according to research by DTZ.
Average monthly per square foot rents ranged between $8 in Shenton Way, Robinsons Road and Cecil Street, to around $11.50 in Marina Bay. Occupancy rates at these areas, at 97.9 per cent and 88.1 per cent respectively, were higher than the previous quarter.
DTZ said it expects rents in the CBD to grow between 10 and 15 per cent this year - higher than its previous forecasts - with the momentum expected to continue until 2015 from limited supply.
"Robust demand amid an environment of high occupancy rates will reinforce landlords' bargaining power," the company said in a statement yesterday.
However, it added that strong rental growth may not be sustainable in the longer term due to an onslaught of supply.
Lee Lay Keng, DTZ's regional head (SEA), research, said: "The three heavyweight developments, Guoco Tower by GuocoLand, and the two M+S sites MarinaOne and DUO are all scheduled to be completed in 2016."
These developments, together with other smaller ones, will yield an estimated new office supply of almost four million sq ft in 2016, a record high.
"While MarinaOne and Guoco Tower are likely to compete for the same tenants, there will also be increased competition for tenants from strata-titled developments such as Eon Shenton and Oxley Tower. This is likely to exert downward pressure on office rents until the market can effectively absorb the large supply," Ms Lee added.
For Q1 2014, net absorption was around 572,0000 sq ft, showing consistent quarter-on-quarter improvement since the second quarter of last year.
Most of the demand in the quarter came from companies expanding within existing buildings, or taking up larger space in new premises.
DTZ's executive director for business space, Cheng Siow Ying, said: "The first quarter of 2014 was characterised by waves of location shuffling, as movements into recently completed buildings like The Metropolis, Nexus @ one-north and Asia Square Tower 2 took place."
Shadow space - excess space made available for subletting or reassignment by existing tenants - was estimated at around 270,000 sq ft for the the quarter, the highest since Q2 2012. The space, however, is expected to be absorbed quickly, as there has been significant interest, said DTZ.
The company added that while demand from non-financial sectors continued to hold up, sentiment in the banking and finance sector for office space was mixed, as many banks sought to optimise resources and reduce costs.
Across the island, office occupancy rates rose 0.4 percentage points quarter on quarter to 95.1 per cent. Around half of the new office supply between now and 2015 will be in decentralised areas, DTZ said.
Source: Business Times, 4 Apr 2014