http://www.businesstimes.com.sg/sub/...95940,00.html?

Published July 5, 2011

Office rents rise in Q2: consultants

But pace of increase is likely to slow as stock of office space comes onstream

By EMILYN YAP


OFFICE rents continued to climb in the second quarter but the future pace of increase is likely to slow as a robust stock of office space comes onstream, consultants said.

In a report yesterday, DTZ said that the average gross rent of offices in Raffles Place rose 5.4 per cent over the quarter to $9.80 per sq ft (psf) per month in Q2. Office rents in the HarbourFront area rose 4.3 per cent in the same period to $7.30 psf per month.

DTZ noted that asking rents in existing buildings continued to rise as landlords benchmarked their rents against higher rents in new or uncompleted developments. Most office buildings are also enjoying healthy occupancy levels.

But there has been a moderation in leasing activity, said DTZ business space executive director Cheng Siow Ying.

'There is also some resistance from occupiers to the higher rents as corporates continuously seek to maintain or lower their occupancy cost. As a result, we observe more tenants opting to renew leases in their current premises as their landlords are also proactively offering competitive renewal rents to retain them,' she said.

In a separate report, CB Richard Ellis (CBRE) said that Grade A office rents averaged $10.60 psf per month in Q2, up 2.9 per cent over the quarter. Prime office rents increased by 2.3 per cent to $8.80 psf per month.

Both DTZ and CBRE see slower office rental growth ahead. CBRE is optimistic about demand for office space with Singapore's economy expected to grow this year and next.

But it also estimates that around 8.4 million sq ft of office space could be completed from the second half of this year to 2015, looking at the confirmed office supply pipeline.

'The overall quantum of supply - from public, private, and second-hand - however, has increased markedly through the past year and this is likely to moderate the pace of rental growth,' it said.

Also, 'cost considerations are increasingly important in driving decisions on premises as corporate occupiers display more caution'.

DTZ South-east Asia research head Chua Chor Hoon foresees the average office rent in Raffles Place rising by 15-18 per cent this year, based on a projected GDP growth rate of 5-7 per cent.

The pace of increase is expected to be slower in the next few years due to a lower projected GDP growth rate and the 'sufficient pipeline supply which will avert a repeat of the high-demand short-supply situation in 2007/08', she said.