Office vacancy rates up, rentals down in Q4

Vacancy rates of Grade A offices in the central business district (CBD) rose to 6.9 percent in the fourth quarter last year, according to property consultancy Savills Research in its latest report on the office sector on Wednesday.

It said vacancy rates for such premium office space have remained below 5 percent over the last five quarters.

The report also pointed out that the Shenton Way area recorded the largest vacancy increase of 8.8 percentage points to 14.7 percent by the end of the fourth quarter. This arose mainly from unlet space in newly completed buildings.

Grade A office rentals also slipped 1.5 percent to S$8.71 per square foot per month (psf/mth) in Q4 from S$8.86 psf/mth in Q3.

Savills said “this confirms that Grade A office rents have now softened and are now in the early stages of a downswing.”

However, average rents last year are still higher than 2010 by 7.8 percent year-on-year.

The report added that investment activity has picked up in the fourth quarter of last year. It pointed out that six office buildings were sold for a total of S$2.7 billion.

Meanwhile, capital values of Grade A offices fell by 3.8 percent on-quarter to S$2,550 per square foot in Q4. However, they were up by 8.5 percent from a year ago.

Looking ahead, Savills said the worsening economic outlook is likely to place more companies on a cautious mode and they may hold off expansion plans or reconfigure their offices to sublet excess space.

Leasing activity may hence remain subdued and put downward pressure on rents as tenants factor-in expectations of a softening market.

Savills expects overall Grade A rents to trend downwards by 15 percent in 2012, with capital values softening by 10 percent.

Source : Channel NewsAsia – 25 Jan 2012

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