Office rents continued trending upwards in the second quarter, despite a substantial amount of space to be completed this year.
Based on a basket of existing buildings tracked by DTZ Research, the average gross rent of offices in Raffles Place rose 5.4 per cent quarter-on-quarter to S$9.80 per square foot per month in Q2.
Rents in the Harbourfront and Anson/Tanjong Pagar area increased to S$7.30 per square foot, representing an increase of 4.3 per cent and 6.6 per cent on-quarter respectively.
According to DTZ Research, about 3 million square feet of new supply is expected to enter the market this year, including Asia Square Tower 1 and Ocean Financial Centre which were completed in the first half of 2011.
The average occupancy of purpose-built office buildings islandwide actually fell 1.55 percentage points quarter-on-quarter to 93.77 per cent as a result of the new completions.
Nevertheless, DTZ said that asking rents in existing buildings continued to rise as landlords benchmark their rents against the higher rents in the new or uncompleted developments.
The healthy occupancies enjoyed by most office buildings were another contributing factor.
DTZ’s executive director for business space, Cheng Siow Ying, said leasing activity moderated due to the market taking a breather from the intense flurry of activities experienced in 2010.
She noted that there was also some resistance from occupiers to the higher rents as companies continuously seek to maintain or lower their occupancy cost.
As a result, Ms Cheng said more tenants are opting to renew leases in their current premises as their landlords are also proactively offering competitive renewal rents to retain them.
Going forward, DTZ said average rents in Raffles Place are likely to rise by 15 to 18 per cent this year.
The pace of increase is expected to be slower in the next few years due to a lower projected GDP growth rate of 4 to 5 per cent and a sufficient pipeline of supply which will avert a repeat of the high-demand short-supply situation in 2007 and 2008.
Source : Channel NewsAsia – 4 Jul 2011