Grade A office rents could moderate ahead of supply spike

Cloudy days are in store for the resilient Grade A office market in Singapore, with rents expected to come under pressure in the second half of next year as competition for tenants intensifies, the manager of Marina Bay Financial Centre (MBFC) and One Raffles Quay said yesterday.

An upcoming avalanche of supply from several mega projects from 2016 will be exacerbated by slowing demand from the financial sector — traditionally the key driver behind premium office rents — amid signs that some international firms are putting their expansion plans on hold as they re-evaluate business strategies, Mr Warren Bishop, chief executive of Raffles Quay Asset Management (RQAM), told reporters.

“Marina One is due to complete at the end of 2016 or in 2017 and Tanjong Pagar Centre in the middle of 2016, so that’s a large amount of space of about 2 million sq ft in the horizon. The question is, when will that begin to affect the market? My best guess is probably towards the end of next year,” he said.

Jones Lang LaSalle estimates close to 4 million sq ft of new office space is expected to be completed in Singapore in 2016, a historical high since 1997 that exceeds the 10-year average island-wide demand of 1.5 million sq ft per year.

“When most tenants consider renewing their leases, they look 12 months ahead … Given that the bigger chunk of space will not come online until 2016, 2017, that won’t affect the market until towards the end of next year, when a downward trend will begin,” Mr Bishop said.

Grade A office rents inched up between 0.4 and 2.9 per cent in the third quarter from the previous three months, a Colliers International report showed recently, with those in the central business district hitting S$8.83 to S$10.25 per square foot per month amid stronger demand than supply. This was despite a recent weaker appetite from the financial sector.

Occupancy rates have also remained tight, with most areas maintaining rates of above 95 per cent. The two properties under RQAM’s portfolio — Marina Bay Financial Centre and One Raffles Quay — are about 98 per cent leased, said Mr Bishop.

“The local financial institutions are still strong and the market is being picked up by other sectors: We have a lot of activity on the e-commerce side as many of them are expanding in Singapore. Commodities is still strong too and we’ve seen a lot of interest from Chinese petrochemical companies recently, which is good because mainland Chinese companies don’t usually aim for Grade A,” he added.

“The market is probably a little weaker and that’s due to the financial sector not being that active, but it is still relatively robust … we could also end up with a lot of pent-up demand towards the end of next year.”

Source : Today – 19 Nov 2014

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