CBD office rents continue slide

20160408-st-cbd-office-rent-continue-slide Office rents in the Central Business District (CBD) fell for the third straight quarter in the first three months of the year, amid concerns over sluggish growth and the impending supply of new space.

Average monthly rents declined 3.9 per cent to $9.90 psf in the three months to March 31, compared with the final quarter of last year, according to consultancy DTZ yesterday.

It said Marina Bay rents dropped the most by 5 per cent to $11.90 psf per month, while occupancy eased to 93.9 per cent from 94.3 per cent at the end of last year.

It attributed the sharper decline in rents to tenants moving out and the pending completion of 1.9 million sq ft of office space in Marina One, a nearby development, by the end of this year or early next year.

DTZ noted that monthly gross rents of Grade A offices in Raffles Place remained the most resilient, with only a 2.3 per cent decline to $10.50 psf, owing to occupancy rates rising 0.4 percentage point to 97.4 per cent. The lack of new office space supply there also helped.

Monthly rents of Grade B office space in areas near Raffles Place, such as Shenton Way, Robinson Road, Cecil Street, Anson Road and Tanjong Pagar slipped 4 per cent from the fourth quarter to $7.30 psf in the first quarter, as landlords gave discounts to retain tenants.

Lower office rents is partly due to the slowdown in China and the dimmer growth outlook, which crimped firms' expansion plans. DTZ also noted the cutback in demand from banks and financial services firms, some of which have downsized.

Office rents are expected to fall further in the coming quarters as demand for space continues to wane and a supply increase looms.

"While the global economy shows signs of recovering, most firms are still cautious as the recovery may be temporary. Additionally, many sectors are adopting disruptive technologies to expand without increasing their footprints," said Dr Lee Nai Jia, regional head of South-east Asia research at DTZ.

About 3.1 million sq ft of office space is expected to be completed in the CBD this year and next year. DTZ said "this will take about four years for the market to absorb", based on the 10-year annual average net absorption from 2006 to 2015.

It added that the shadow space of 158,000 sq ft in the CBD could potentially rise to 249,000 sq ft in the future, exerting additional pressure on office rents when the lease on this space expires. Shadow space refers to excess space that tenants have leased but are looking to assign or sublet to ease the rental burden.

DTZ expects firms in insurance, technology and social media, and serviced-office providers to make up the bulk of demand for office space for the rest of the year, particularly as the number of start-up firms in the tech sector grows.

Ms Cheng Siow Ying, DTZ's executive director of business space, said: "These start-up firms prefer to locate in the CBD or established business clusters to attract and retain talent as well as to be close to their clients."

Demand for co-working space is also likely to increase, spurring growth for serviced-office providers. DTZ cited local firm JustGroup, which launched JustCo, the largest co-working space in SINGAPORE, with 30,000 sq ft across four floors at 120 Robinson Road and a new location at 6 Raffles Quay.

Source: Straits Times, 8 Apr 2016