Prime rents in CBD area down 4.9% in Q4

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Published December 17, 2009

Prime rents in CBD area down 4.9% in Q4

Rental gap between newly completed and existing Prime Grade A blocks expected to widen

By KALPANA RASHIWALA


(SINGAPORE) The average monthly rent for Prime Grade A office in the CBD core has fallen at a slower pace in the current fourth quarter, slipping 4.9 per cent from Q3, according to data from Jones Lang LaSalle (JLL).

This is a smaller quarter-on quarter decline than the drops of 13.7 per cent in Q3, 11.6 per cent in Q2 and 28.1 per cent in Q1 this year.

The $7.80 per sq ft average rental value in Q4 reflects a 47.8 per cent full-year slide. Against the high of $18.40 psf set in Q3 last year, the figure is now off 57.6 per cent.

JLL says the gap between newly completed Prime Grade A and other existing Grade A buildings is likely to widen over the next few years as new developments are completed. The gap is now 85 cents or 11 per cent. But it has been much wider - at $2 or more in Q3 2006, most of 2007 and even as recently as Q4 last year. In percentage terms, the difference was widest in Q3 2006, when rent for newly completed space was about 28 per cent higher than for existing offices.

Over the next three years, the average annual supply of new office space will be almost 2 million sq ft in the CBD core, and this is likely to dampen rental growth, says JLL's head of SE Asia research Chua Yang Liang.

For new Prime Grade A properties that have been well received by the market so far, rents may bottom out as early as H2 2010. However, rents in existing office blocks may continue to slide until the end of next year, as vacancies are expected to rise on the back of a 'flight to quality' by tenants.

JLL also says shadow office space - surplus stock put up for subletting by occupiers - has shrunk to about 600,000 sq ft this quarter from some 800,000 sq ft at its peak in Q2 2009.

If global and regional economies remain on the recovery track, JLL believes leasing activity is expected to become increasingly stronger during 2010, as companies become more confident about business prospects.

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Dec 17, 2009

Rental gap to widen for new and old prime offices

By Joyce Teo


THE end is in sight when it comes to the supply glut in office space here, at least in terms of falling rental levels.

A leading property consultancy says new prime Grade A office properties - premium office space in prized locations - hold a clear advantage. In a new report, Jones Lang LaSalle has identified a growing rental gap between these new properties and existing prime Grade A office space. In other words, given a wide choice, tenants will tend to opt for the glitzy new building, even if it costs somewhat more.

The consultancy believes rental levels of the new premium space will bottom out in the second half of next year - as early as July. However, rentals of existing office buildings may touch their low point around December.

It said the growing rental price gap between newly completed prime Grade A buildings and existing prime Grade A buildings is similar to a trend in 2006. Back then, the new space commanded a premium of about 28 per cent, or $2 per sq ft per month.

Jones Lang LaSalle's preliminary estimates show average gross effective rents of Grade A office properties in the heart of the CBD hit $7.80 per sq ft a month in the fourth quarter, down 4.9 per cent from the third.

Office rents here have been falling as demand slows and supply grows. Experts anticipate that rents will continue to fall into next year, though at a slower pace.

The good news for landlords: Activity has picked up lately, with many financial institutions planning for moderate growth - and more space.

Landlords competing for tenants are lowering rents and rolling out incentives at a moderate pace.

Islandwide 'shadow space' - surplus space that companies carve out to sub-let to others - shrank to 600,000 sq ft in the fourth quarter, from 800,000 sq ft at its peak in the second quarter of this year.

This was because companies withdrew some of the shadow space they were previously marketing, said Jones Lang LaSalle.

Apart from Raffles Place, office rents in Tanjong Pagar, Suntec City area and Harbourfront are likely to touch bottom by the second half of next year, and stay flat in 2011, said Colliers International's executive director (commercial), Mr Calvin Yeo.

The rate at which the market is able to absorb available space is crucial when more new supply comes onstream from next year, said Jones Lang LaSalle. Over the next three years, new supply in the core central business district will amount to almost

2 million sq ft a year, and 'is likely to put a dampener on rental growth', said its head of research of South-east Asia, Dr Chua Yang Liang.

The firm's regional director and head of markets, Mr Chris Archibold, expects leasing activity to rise further next year if the global recovery keeps up.

'Many large MNCs see business opportunity ahead and are planning for moderate growth, but are having difficulty establishing headcount due to the uncertainty ahead,' he said.