Singapore office market fundamentals top in Asia-Pac

20141128-bt-singapore-office-market-fundamentals-top-asiapac-pic SINGAPORE offers the strongest office market fundamentals for Grade A office space among core Asia-Pacific markets, in terms of rental growth as well as low vacancies for next year, according to Cushman & Wakefield.

This follows a strong showing by the Republic this year.

Cushman's 10.88 per cent estimated growth in its average Grade A office rental value this year is the highest among the 13 core markets in the region tracked by the property consulting group, ahead of gains of 7.69 per cent for Tokyo and 3.02 per cent for Hong Kong, among the major financial centres in Asia-Pacific.

Cushman includes prime space in its Grade A office basket.

The increases were ranked based on rents in local currencies. For Singapore, Cushman estimates the average Grade A monthly rental value as at end-2014 at S$10.45 per square foot (psf), up from S$9.43 psf at end-2013.

By end-2015, the figure is projected to rise 5.67 per cent to S$11.04 psf. This pace of growth is expected to be surpassed only by Tokyo, among the core regional markets, with 7.14 per cent projected increase next year to 843 yen (S$9.32) psf at the end of next year.

Although gains in Tokyo will likely pip Singapore's next year, Cushman's managing director of research for Asia-Pacific, Sigrid Zialcita, argues that "Singapore's economy, on the whole, is on a firmer footing and thus, the island's office market fundamentals will remain strongest in the region, as compared to the markets of Australia and South Korea, which continue to face excess supply. Vacancies in the Singapore market will fall to be the lowest as compared to the other core markets in the region".

Singapore's closest regional financial centre rival, Hong Kong, is expected to post 2.17 per cent growth in average Grade A monthly rental value to HK$110.98 (S$18.75) psf by end-2015 from HK$108.63 psf at end-2014.

Mr Zialcita suggested that the recent political tension in Hong Kong could result in a positive effect on Singapore - while acknowledging that the two cities served two distinct parts of Asia.

"We think Singapore's rapid rise as the region's largest centre for both commodity and foreign exchange trading, as well as its growth as a wealth management hub and regional headquarters hub, will continue to make it a choice destination for MNCs."

Cushman also highlighted a key difference in the profile of the office leasing markets between Hong Kong and Singapore. Hong Kong remains very reliant on the financial sector, "the implications of which could ring harder, especially with some of the more stringent regulation from Basel III due to kick in next year", said Ms Zialcita. "Still, we note that regional banks, which have not been affected as much in the financial crises, remain well placed to implement the requirements and have been expanding," she added,

In contrast, argues Toby Dodd, Cushman's managing director, Singapore, the office leasing market here has benefited from a more diverse economic base.

"This has allowed firms from sectors like energy, resources and consumer products, and increasingly, IT and media and communications, to take up some of the slack left by the financial sector."

An estimated 5.74 per cent vacancy rate for Cushman's Singapore Grade A basket as at the end of this year, though higher than 4.30 per cent at end-2013, was among the lowest in the 30 Asia-Pacific markets (both core and emerging) tracked by Cushman. By the end of next year, Singapore's vacancy rate is forecast to dip further to 3.28 per cent - on the back of tightening supply. This vacancy figure would be the the lowest of the 30 markets. Tokyo's vacancy is expected to inch down to 5.57 per cent by end-2015 from 5.64 per cent at end-2014, while that for Hong Kong is projected to ease to 5.41 per cent from 6.06 per cent.

The improving fundamentals for Singapore's office rents could spur a pick-up in big-ticket transactions of office space, especially among big foreign buyers.

"While some private equity, investment funds and Chinese investors have remained partial to the Japanese and Australian office investment markets . . . with Singapore office rents expected to rise at a faster clip as compared to prices due to impending interest rate pressures, office yields in Singapore should increase in 2015," said Shaun Poh, executive director of capital markets at Cushman.

"Some investors could be enticed to lock in these higher yields and the office market here should prove attractive to core and sovereign funds looking for stable returns and a safe secure place to park their monies."

Agreeing, Mr Dodd said: "From an investment perspective many of the overseas property funds have been waiting for positive signs of office rental growth, and now these have materialised we see their return to the market in 2015."

Source: Business Times, 28 Nov 2014