Two-tier office rental market likely: Colliers

20150409-bt-two-tier-office-rental-market-pic A TWO-tier office rental market may be ahead, said Colliers International in a report issued on Wednesday, as landlords of older buildings turn to better incentives or more competitive rents upon renewal in an attempt to retain tenants.

"As occupiers move into newly-completed office buildings, demand for office space in existing developments in the CBD is likely to be supported by a flight to quality effect where office occupiers take the opportunity to upgrade from older buildings," said Calvin Yeo, deputy managing director of Colliers International.

Already, a series of relocations has happened, as the completion of CapitaGreen in Q4 2014 and South Beach in Q1 2015 has injected a sizable combined net floor area of more than 1.2 million square feet in the CBD office market.

Tenants secured at CapitaGreen during the quarter included ACE Insurance, Apple and Twitter.

Average occupancy rates of premium grade office space in the Raffles Place/New Downtown micro-market increased by 3.6 percentage points quarter-on-quarter to 91.8 per cent even as average occupancy rates of Grade A micro-markets registered slight downward adjustments. In Raffles Place/New Downtown for instance, average occupancy rate for Grade A office space eased by 0.2 percentage point to 98 per cent.

Meanwhile, average monthly gross rents for premium grade office space in the Raffles Place/New Downtown micro-market remained unchanged quarter-on-quarter in Q1 2015 at S$11.93 per square foot (psf).

Rents of Grade A and B office space in the same micro-market rose during the quarter by 1.6 per cent to S$10.41 and one per cent at S$8.74, respectively. Looking ahead, a lack of significant new office completions during the year could result in occupancy levels peaking this year, said Colliers. Nevertheless, the consultancy said that it expects rents to still be reined in due to pre-leasing activities from sizeable projects expected to be completed in 2016. It expects the average monthly gross rents for premium grade office space in the Raffles Place/New Downtown micro-market to increase by about 5-10 per cent, while those of Grade A and B office space in the CBD could rise by up to 5 per cent for the entire year.

Cushman and Wakefield, in a separate report, said that they expect Grade A rents to continue their steady rise, with leasing momentum expected to increase further in the second quarter with tenants from the finance and insurance, technology, and legal sectors continuing to source for quality space in the core CBD.

According to Cushman and Wakefield's basket of offices, overall Grade A rents rose 1.3 per cent quarter-on-quarter to S$10.43 psf. Rents in Raffles Place saw the largest increase of 5.2 per cent to S$10.92 psf due to CapitaGreen commanding premium rentals. City Hall/Marina Centre rents rose to S$9.73 psf, a 2.4 per cent increase from a quarter ago. Average rents in Marina Bay and Shenton Way remained stable at S$13.22 psf and S$8.51 psf respectively. Rents in Orchard Road, however, saw a slight decline of 1.4 per cent to S$9.78 psf.

On the strata-titled office sales front, only 31 caveats were recorded for strata-titled office units in the first 11 weeks of the quarter, said Colliers. This was 62.2 per cent lower than the 82 caveats lodged in Q4 2014 and 71 per cent lower than 107 caveats recorded in Q1 2014.

The average capital value of premium grade office space in the Raffles Place/New Downtown micro-market rose by 1.5 per cent from S$2,779 per sq ft in Q4 2014 to S$2,821 per sq ft in Q1 2015. Grade A office space in the same micro-market moderately increased by 1.7 per cent to S$2,532 psf by March 2015.

Colliers said that transactional activities are likely to increase in the next nine months, with the recent launches of strata-titled office units from Crown at Robinson (the former Chow House) and GSH Plaza (the former Equity Plaza), as well as the expected launch of Woods Square. Due to supply-led demand, capital values for Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market could increase by up to 5 per cent.

Source: Business Times, 9 Apr