The rebound in economic activity has lifted demand for office space in the fourth quarter, slowing down the rate of rental decline.
Jones Lang LaSalle said on Wednesday preliminary estimates showed that in the last three months of the year, the average gross effective rent of Prime Grade A properties in the CBD core area has fallen 4.9 per cent on-quarter to S$7.80 per square foot a month.
Around 1.2 million square feet of good quality office space came on-stream in the CBD core area this year, and about 46 per cent of these new spaces have been taken up.
However, the rentals of existing office buildings may continue to fall till the end of 2010 as vacancies are expected to rise on the back of a ‘flight-to-quality’.
Jones Lang added that the new supply, amounting to almost 2 million square feet per year in the CBD core area over the next three years, is likely to put a dampener on rental growth.
Nonetheless, landlords have turned more positive with the return of market activity and the recovery of the office market seemingly in sight. Most landlords who have secured their buildings’ occupancy are maintaining their rentals.
However, those that are competing for tenants to fill up their buildings continue to lower rentals and roll out incentives, including rent-free periods and capital expenditure subsidies, albeit at a more moderated pace.
Jones Lang said if the global and regional economies remain on their recovery track, leasing activity is expected to become increasingly stronger next year as firms become more confident about the business outlook.
It added that given the recent developments in the office market, the end of the down cycle may be near.
Source : Channel NewsAsia – 16 Dec 2009