Office rents 'to soften' as firms switch premises

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COMPANIES seeking newer premises to lease in the Central Business District will affect rents this year and leave landlords with significant vacant space to fill.

While some in the market expected tighter office supply amid a dearth of fresh space from new buildings, the game of musical chairs downtown means excess capacity is being freed up.

"With the bulk of the supply in the pipeline coming on stream only in 2016 and 2017, we expect office rents to soften unless we see the entry of new firms," said DTZ research head Lee Nai Jia.

CapitaCommercial Trust's CapitaGreen in Market Street, with 702,000 sq ft in space, and City Development's South Beach in Beach Road, with 500,000 sq ft, were completed at the end of last year, but firms are already beating a path to their door.

Facebook, for instance, will vacate about 30,000 sq ft at its 158 Cecil Street office to take up 70,000 sq ft at South Beach.

Some firms are consolidating: Barclays Bank, which is leasing about 60,000 sq ft at One Raffles Quay, is expected to give up at least one floor.

Others are decentralising, with software developer Oracle vacating 70,000 sq ft at Suntec City Tower 4, to up 150,000 sq ft at Galaxis in one-north.

At the BlackRock-owned Asia Square, where Lloyd's Asia is reportedly vacating 65,000 sq ft in space, typical lease terms vary from three to five years.

"That means we will see a number of tenant reversions and some movement of tenants, including (those) relocating, in 2015," said Mr Hugh Andrew, managing director of BlackRock Real Estate in Asia-Pacific. He said the firm is negotiating with tenants renewing leases in the second half this year.

Raffles Quay Asset Management deputy chief executive Betty Lim said she was "confident" of office market performance.

Both firms said they continue to receive inquiries about office space.

But in a "flight to quality", buildings in "less prime" areas are more vulnerable as leases expire. "Buildings housing firms in the technology, media and telecommunications sector are also vulnerable... as they have the option to decentralise if rents are too high," said DTZ's Dr Lee.

Average rents in Shenton Way are about $7.90 per sq ft (psf), while those in the newer Raffles Place area are $10.80 psf. Rents were unchanged from the previous quarter in both segments.

Marina Bay, termed the new CBD, commands the highest rents at $13.25 psf, up 3.9 per cent from the previous quarter.

Source: Straits Times, 14 Mar 2015