CBD office rents fall for third straight quarter

OFFICE rents in Singapore's central business district (CBD) declined 3.9 per cent in the first quarter of the year from the previous quarter - their third straight quarterly drop - as concerns over a global economic slowdown dampened demand for office space. Office rents fell to S$9.90 per square foot (psf) per month in Q1, according to DTZ Southeast Asia, which expects them to continue falling due to weak demand and substantial office space coming onstream.

The sluggish global economy has affected companies' expansion plans, leading to lower demand for the business services sector (a major office user) and also a contraction of the financial services sector, DTZ observed.

The financial services sector is also straining under the pressure of low oil prices due to their loan-book exposure to the energy and offshore marine industries, further reducing the demand of financial institutions for office space.

Marina Bay office rents were the most affected, decreasing 5 per cent from the previous quarter to S$11.90 psf per month. Office occupancy in the area dipped 0.4 percentage point to 93.9 per cent.

DTZ attributed the increased vacancy level to the movement of tenants out of Marina Bay, and the 1.9 million square feet of office space at Marina One that is due to be completed by end-2016 or early 2017.

Meanwhile, rents for Grade B offices in the Shenton Way and Tanjong Pagar area fell 4 per cent to S$7.30 psf per month.

"Landlords were more flexible in stemming the outflow of occupiers to better alternatives in a softened market," said DTZ.

Raffles Place rents proved the most resilient, slipping a smaller 2.3 per cent to S$10.50 psf. The high occupancy rate of 97.4 per cent and the lack of new supply helped to mitigate the downward pressure there, according to DTZ.

The real-estate consultancy noted that an additional 3.1 million sq ft of space will be completed this year and next - which, based on the absorption rate over the past 10 years, will take about four years to be absorbed.

The situation is further exacerbated by the lease expiry of shadow spaces - excess space that tenants have leased but wish to sublet - of which there is 158,000 sq ft currently and an expected 248,000 sq ft in the future, said DTZ.

Bright spots in office demand lie with firms in the insurance, technology and social media sectors.

Said DTZ executive director of business space Cheng Siow Ying: "More startup companies will be formed as they leverage on the mobile and Internet platform, and take advantage of government schemes and initiatives. These startup companies prefer to locate in the CBD or established business clusters to attract and retain talent as well as to be close to their clients."

Accompanying the rise of startups is an increase in demand for co-working space, which has fuelled the expansion of serviced office providers.

For instance, JustGroup last year launched JustCo, the largest co-working space in the CBD with 20,000 sq ft across four floors at 120 Robinson Road.

"Such co-working space becomes a viable option as it provides (startups) flexibility in structuring service agreements attuned to their business needs," said Ms Cheng.

Source: Business Times, 8 Apr 2016