http://www.businesstimes.com.sg/sub/...23940,00.html?
Published March 31, 2012
Supply mismatch between city and suburban office space
By MICHELLE TAN
THERE is a demand and supply mismatch in Singapore's prime central business district (CBD) and suburban office space, said Toby Dodd, country manager at Cushman & Wakefield Singapore.
'It's all about affordability,' said Mr Dodd, who pointed out that a growing number of businesses are looking for cheaper suburban spaces to house operations that do not require a presence in Singapore's exorbitant CBD.
Not surprisingly, rents of suburban office spaces have also been holding up better than their prime-located counterparts due to their limited supply across the island.
In contrast, prime Grade A office rents have been on a steeper decline over the past few months due to a supply overhang.
Prime Grade A rents took a beating for the second consecutive quarter, falling 5 per cent month on month in the first three months of the year, with the steepest decline recorded in the brand-new, super Grade A space in Marina Bay segment, where rents slid more than 10 per cent from end-2011.
'We are not in the same situation as 2009, the correction in rents (in Grade A offices) this time round is all supply-led,' said Mr Dodd.
Vacancy rates in the Grade A office realm continued to rise in the first quarter of 2012 as new supply flooded the market, with developments such as Tower 3 of Marina Bay Financial Centre adding over 500,000 square feet of vacant space to the CBD.
But the situation isn't as dire as the numbers seem to suggest, said Sigrid Zialcita, managing director of research (Asia Pacific) at Cushman & Wakefield.
'A 10 per cent vacancy rate is considered healthy and in this market, we are seeing 7 to 8 per cent. Even if we hit 14 per cent, it is not really that bad. I would only be worried if we reach the 20 per cent mark, but I don't think we will get there in this market,' she said.
Agreeing, Mr Dodd said he preferred to describe the situation as one of 'ample supply' as opposed to 'oversupply', noting that the recent rent correction of prime space is 'not a bad thing' as Singapore's fundamentals remain strong and businesses are still growing.
Moreover, softer prime Grade A rents may also work to Singapore's advantage by packaging it as a price-competitive destination for businesses due to its availability of quality space, at a third of rental rates in Hong Kong - and without the pollution.
In terms of outlook, supply of new office space will ease this year with a conservative 286,000 sq ft expected for the rest of the year. However, more shadow space could be freed up in the coming quarters - primarily from financial institutions - potentially driving down rents by 10 to 15 per cent.
All said, Mr Dodd remains optimistic: 'Q1 is the barometer for the rest of the year. How we will perform in Q1 will dictate what we do for the rest of the year. . . And so far it has been pretty positive.'