http://www.businesstimes.com.sg/sub/...18455,00.html?
Published December 21, 2010
Office vacancies in CBD to rise on a short-term blip
But rentals will hold firm as medium-term prospects are strong
By KALPANA RASHIWALA
(SINGAPORE) Office vacancy rates in the Central Business District are expected to rise next year as space vacated in older office blocks returns to the market, with occupiers moving into new developments.
Any uncommitted space in the upcoming developments will also contribute to vacant office stock.
But at least two consultants expect the higher vacancy rates to be a passing phase.
Jones Lang LaSalle predicts that the vacancy rate for the Core CBD area - which includes Raffles Place, Marina Bay, Cecil Street, Shenton Way, Robinson Road and the Anson Road/Tanjong Pagar areas - will increase from an estimated 5.4 per cent at the end of this year to around 11-12 per cent by end-2011.
However, the firm's head of markets Chris Archibold argues this will not lead to a decline in rentals, which will instead rise moderately in the next few quarters as the rising vacancy will be a short-lived phenomenon. 'Assuming demand remains strong, this vacancy is likely to then fall especially given the more limited CBD supply in 2013 and 2014,' he said.
CB Richard Ellis executive director (office services) Moray Armstrong's modelling also points to an increase in Grade A office vacancy from 2.7 per cent at end-2010 to 8.8 per cent at end-2011 due to 'the sheer volume of new supply completing next year which will likely outweigh take-up'.
He terms this a 'statistical blip', with the vacancy rate expected to ease to 4.5 per cent by end-2012.
'None of this is likely to change the medium-term market direction which is expected to see tightening office space availability particularly post-2013,' he said.
However, there may be a slight easing in the pace of rental increase. CBRE predicts a 16 per cent hike in average monthly Grade A office rental to $11.50 psf at end-2011, from $9.90 psf at end-2010. This year's increase is 22 per cent.
JLL also forecasts a 3.5 per cent per quarter increase in CBD Prime Grade A rentals, totalling about 14 per cent for all of next year. This follows a nearly 20 per cent rise this year.
DTZ's regional head, occupier services, Angela Tan observes that in most relocations, occupiers lease more space in their new premises than they vacate at their existing locations. 'This will help mitigate the drop in overall office vacancy rates,' she said.
According to Mr Archibold, 'The take-up for new developments in 2010 and 2011 shows a very positive level of expansion at 29 per cent and 26 per cent respectively.'
JLL's analysis shows that all the 1.7 million sq ft of new CBD offices completed this year, mostly at Marina Bay Financial Centre (MBFC) Phase 1, has been leased.
Of this, about 500,000 sq ft involves expansion (by the incoming tenants) while about one million sq ft will be vacated in existing buildings and returned to the market, with the balance vacated space of 200,000 sq ft slated for removal from the market for redevelopment or conversion to other uses.
Next year, JLL envisages completion of about 2.8 million sq ft of new CBD offices, of which 1.35 million sq ft has already been leased - comprising 350,000 sq ft for expansion, 800,000 sq ft to be vacated and returned to the market with the balance 200,000 sq ft removed for redevelopment.
New CBD office completions in 2011 will include Asia Square Tower 1, Ocean Financial Centre, OUE Bayfront and One Raffles Place Tower 2.
'It's difficult to get an accurate gauge on exactly how much of the space coming back to the market has already been re-let,' says Mr Archibold.
At Capital Tower, where Australian mining giant BHP Billiton is not renewing its lease for about 40,000 sq ft expiring in mid-2011, landlord CapitaCommercial Trust (CCT) said other existing tenants in the building are seriously looking to take over the space. BHP is moving to MBFC.
Likewise, most of the 70,000 sq ft that Stanchart will vacate next year at another CCT property, Six Battery Road, to move to MBFC is under negotiation.
At One George Street, CCT has at least a year to market about 75,000 sq ft in total expected to be vacated by three tenants moving to Asia Square - Lloyd's, Clifford Chance and Julius Baer.
'Given a projected shortage of new office building completions in 2012 and 2013 and the international Grade A specifications of One George Street, we're optimistic that our space will be available in an opportune time,' said CCT.
DTZ's Ms Tan predicts a two-tier office rental market may develop next year in the CBD.
'While owners of new developments will have greater pricing power to command rental increases as their developments attain higher occupancy rates, landlords of older office buildings will need to focus on tenant retention by offering more competitive rents,' she added.
Savills Singapore director (commercial) Agnes Tay reckons rents of AAA grade offices - new generation, international class buildings mostly in Marina Bay and Raffles Place - will rise 5-10 per cent in 2011 while rents for older Grade A office blocks are likely to hold steady in the first half of 2011 before facing easing pressure in the second half when occupiers start moving to new projects completing next year.
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