‘Opportunity deals’ to be had as office rents continue to slide

20160713-today-opportunity-deals-be-had-ffice-rents-continue-slide-pic SINGAPORE — Overall Grade A office rents in the Republic’s central business district (CBD) slipped for the fifth straight quarter in the April-to-June period, with the downtrend likely to continue as more projects get completed in the second half this year.

Rents fell by 1.1 per cent to S$8.86 per sqft per month (psf/month) in the second quarter, according to a report released yesterday by Cushman & Wakefield.

Within the CBD, rents in the Marina Bay area declined by 1.4 per cent to S$9.56 psf/month, while that in Raffles Place slid 2 per cent to S$9.13 psf/month.

The declines come at a time when the outlook for the office segment remains grim, with global economic concerns dampening business prospects and leading companies to hold back expansion plans.

However, there was an uptick in office leasing activity during the second quarter, with a slew of deals sealed for projects that are slated to be completed over the next six months, noted Cushman & Wakefield.

“Marina One reportedly achieved 550,000sqft in leasing pre-commitments, translating into a pre-commitment rate of 30 per cent. Guoco Tower also saw substantial take-up of space during the quarter. Tech firm SAS leased a sizeable 20,000sqft of floor space in Guoco Tower and will be relocating from Twenty Anson,” said the real estate consultancy firm.

In a separate report, CBRE Research said such deals are examples of “opportunistic deals” that seek to capitalise on falling rents.

“A marked increase in leasing activity was observed (to be) bolstered by a ‘flight to quality’ movement and occupiers taking advantage of attractive terms on offer. These opportunistic deals were primarily focused on new projects and a few large lease negotiations have been reported,” the firm said in its report.

“However, it should be noted that the tenants involved are likely to relocate from older generation buildings resulting in some secondary vacancies,” it added.

This means vacancy levels, which stood steady at 5.9 per cent in the second quarter, are expected to rise over the next six to nine months as these new developments get completed, said CBRE.

The projects due for completion this year include Marina One, Guoco Tower and DUO Tower, which will add around 3.3 million sqft of office space.

“Given these imminent completions, developers have been very proactive in structuring new pre-lease deals as competition to secure tenants has intensified … Existing buildings will likely face further adjustments,” it added. LEE YEN NEE

Source: TODAY, 13 Jul 2016