Office rents still falling across region, but at slower pace

The slide in office rental rates across the region has slowed, and analysts said this is a good sign the market has stabilised.

A year ago, office space rental in Singapore’s central business district could come up to as much as S$19 per square foot a month. Today, that rate has fallen by almost half.

Singapore, which is home to Asian headquarters of a number of foreign companies, has seen rents fall 46.6 per cent from its peak in the third quarter of 2008.

Market watchers said rents in Singapore have fallen the most in the region, due mainly to the sharp increases seen in 2008.

“I expect Singapore office rents to continue to trend downwards for the next one year or so, until we see a strong economic recovery to put a floor to this decline,” said Nicholas Mak, adjunct lecturer of Business & Environment at Ngee Ann Polytechnic.

But the rate of decline is expected to be slower than the sharp falls seen in the first quarter this year.

Other financial centres in the region are seeing similar patterns. Rents in Hong Kong fell 43 per cent on-year in the second quarter, while in Mumbai, the drop was 40 per cent.

Ang Choon Beng, director and head Research Services at Cushman & Wakefield: “Most of these cities that saw the largest declines were exposed to the financial industry. When the global financial industry started getting into trouble, we saw a loss of confidence, especially in the financial sector in those cities, and that’s why rents started falling.

“The fact that most of these cities are exposed to the financial sector is a double-edged sword. When times are bad, financial sector tend to go down very fast. But the financial sector obviously has a lot of operating leverage. So when times are good, they tend to make a lot of money and grow very fast.”

Ang expects demand to return to the markets after one or two quarters. But rents are unlikely to reach the highs seen in 2008. And this is especially true for Singapore, which will gain about 2.4 million square feet of office space annually, over the next three years.

“With the large amount of supply expected to enter the market in the next 3.5 years, we are going to see some firms playing musical chairs – they may be moving to other offices of newer and higher quality. But probably they will be bargaining hard for rents,” said Mak.

This means rents are likely to hover around the same levels.

Source : Channel NewsAsia – 12 Aug 2009

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