Rents of prime office space set to rebound by end-2012

Renting prime office spaces in the Central Business District (CBD) has been getting cheaper since the third quarter of 2011. However, landlords need not fret any further. Experts said the Grade A office market will soon reach its bottom by the end of 2012.

Without new office space in the CBD being injected in the second quarter of 2012, landlords have much to cheer. Analysts said this will stem the decline in office rents and may even cause a rebound.

However, they added that any rebound would be mild and do not expect prices to return to levels seen in early 2011 just yet.

Grade A office rents in Marina Bay, Raffles Place and Shenton Way were going for an average of S$10.33 per square foot (psf) per month in the third quarter of 2011 before the decline started.

Nicholas Holt, Research Director (Asia Pacific) with Knight Frank, said: “From the top of the market, which was over S$18, it went down to maybe S$8 now it’s maybe stabilised at S$9 or S$10. We are probably not going to see more softening, or maybe some gentle softening.

“But as some of the new supply gets absorbed, the thing is landlords get nervous when they are sitting on empty space. So maybe they drop their rents. But we feel that it is not going to go down much further below the levels than they are now.”

Property consultancy firm Cushman and Wakefield said rents for prime grade-A space in Marina Bay slipped another seven per cent this quarter, to S$10.40 psf a month, while in Raffles Place, the dip was three per cent to S$9.20 psf per month.

But office rents in the suburbs remained unchanged at S$5.05 psf.

This is according to Cushman and Wakefield’s latest Q2 MarketBeat report released on Friday.

Sigrid Zialcita, managing director of Cushman & Wakefield Research Asia Pacific, said: “For CBD, it’s more like bottoming out. We expect rents to be growing faster for non-CBD markets.

“And next year, the CBD market will have the ability to push rates because conditions could be better. Rates could go back up to two to three per cent or even more.”

Experts said that the global economic uncertainty will deter businesses from expanding and taking up more office space. But some analysts predict any meaningful recovery in economic growth above their forecasts of 2.1 per cent growth this year should drive the take-up rate and rents across the island.

Unlike the CBD, supply in office space in the suburbs may not grow fast enough to meet demand. Analysts said this means rent increases in the city outskirts will likely be faster than in the CBD.

Source: Channel NewsAsia – 29 Jun 2012

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