Rising demand for prime office space will push rents up in 2011: experts

Demand for Grade A office space in Singapore will grow next year, pushing rents up by between 15 and 20 percent.

Some analysts believe the office segment might do better than the residential property sector next year.

Rising employment and the growing financial and services sectors are some of the factors prompting companies to continue expanding their operations next year.

Donald Han, Vice Chairman, Cushman and Wakefield, said: “From what we understand, about nine or 10 companies that we are servicing, requirements in office relocation or renewal process are all looking into expanding footprint.

So if you look at 2010, for the first time, in two years, we’ve managed to achieve net absorption of about two million (square feet).

So that, versus a potential supply in 2010 of about 2.6 million speaks volumes of the achievement. Our vacant rates have gone down as much as about 3.5 percent.”

With that, some analysts also believe that the current rental rates still have room to head up north.

Brandon Lee, Investment Analyst, DMG & Partners Research, said: “On a prime and Grade A side, we’re doing about $8 (per square foot) for the prime side, as well as about $10 for the grade A side. That is still a good 50 percent off the peak that we saw in the last up cycle in second quarter 2008. So I think on that front, we’re still relatively cheap.

So because of all these, I’m going to be expecting about 2.5 million square feet of demand for this year and another 2.1 million square feet for the next year. I think I’m looking at about $12 by the end of next year for Grade A, that’s the brand new ones with much bigger floor plates.

But for the prime side, I think growth in rentals are going to be quite moderate I think we’re just going to be looking at $8.50 for next year, to $9 thereabouts. Because I think there’s going to be quite an amount of vacant, old offices that going to come on stream for next year.”

Since the second quarter of 2010, Singapore’s office market has been performing well.

The Marina Bay Financial Centre, offering centrally located new office spaces, has already seen strong uptake in 2010, even before obtaining its Temporary Occupation Permit.

Even with potential headwinds to economic growth in 2011, some analysts are cautiously optimistic.

Dr Chua Yang Liang, Head of Research – Southeast Asia, Jones Lang LaSalle, said: “Nonetheless, the very strong demand from the personal wealth management side of things is likely to continue and that will help to support some of the demand going forward.

The surprise side right now would be really on the real economy, in terms of what’s happening on the manufacturing front.

The upside revision in our currencies across the region may pose two challenges – demand from manufacturing may be affected and that may have some consequential effect on industrial and subsequently on the office demand as well.

Because of the strong performance in the real economy in Asia, there could be an upside in there as well. So the effect is that the risk of downside is quite low at the moment.”

As the Singapore economy continues to do well, analysts do not expect any major surprises to shock the office segment in 2011.

Although some are concerned that the vacant, old offices will remain empty, others are not too worried.

Some observers say such old offices may be redeveloped or converted to residences and that’s positive because it will help to regenerate the neighbourhood.

Source : Channel NewsAsia – 17 Dec 2010

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