Supply mismatch between city and suburban office space

[reporter2]

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.'

[reporter2]

http://www.straitstimes.com/Money/St...ry_783727.html

Office vacancy 'may double in 2012'

But no cause for alarm as leasing demand still healthy: Consultancy firm

Published on Mar 31, 2012

By Esther Teo, Property Reporter


OFFICE vacancy rates could be twice the level this year than in 2010 but there is no cause for alarm as leasing demand is still healthy, according to a property consultancy firm.

Vacancies for Grade A offices have hit 9.4 per cent in the three months to end-March, up from about 6 per cent in the previous quarter, according to Cushman & Wakefield. The vacancy rate for Grade A office space in Singapore was 4.7 per cent in 2010.

They are the highest in the Marina Bay area at 15 per cent, and the lowest around the City Hall and Marina Centre area at 3.7 per cent.

Vacancy rates are rising because of the large supply of new office space entering the market from recently completed developments like the Marina Bay Financial Centre.

This is unlike the situation during the market glut in 2009 when the global financial crisis curtailed office demand and sent rents into freefall.

Cushman & Wakefield told a briefing yesterday that more than seven million sq ft of office space has been completed since 2009, including Mapletree Anson and Tokio Marine Centre in the Central Business District and suburban Tampines Grande.

The firm predicts rental declines of about 10 to 15 per cent this year for Grade A space. Rents have already dipped 5 per cent in the first quarter.

The Marina Bay area recorded the steepest drop with rents dipping to $11.20 per sq ft (psf) a month this quarter from $12.50 psf a month for the whole of last year.

Throw in the phenomenon of shadow office space - where, essentially, tenants with excess space look for sub-tenants to ease the rental burden - and the supply balloons further.

Cushman & Wakefield expects the volume of shadow space to rise to one million sq ft by the end of this year from about 540,000 sq ft now.

Overall vacancies are expected to gradually rise to about 14 per cent in 2014 - similar to that during the Sars crisis in 2003 - as buildings like Asia Square Tower 2 and CapitaGreen on the former Market Street carpark are completed.

But despite these seemingly alarming figures, Cushman & Wakefield's country manager for Singapore, Mr Toby Dodd, maintained that there is no oversupply but 'ample supply'.

'We see positive growth; businesses here are growing... Rents coming off a little bit is not a bad thing because it helps Singapore maintain its competitive edge,' he noted.

'Depending on which building you pick, rents could be up to a third the price of Hong Kong, which is a good thing.'

A vacancy rate of about 10 per cent for Grade A office space is healthy as it allows businesses a good range of choices, said Cushman & Wakefield's managing director of Asia Pacific research, Ms Sigrid Zialcita. She said it would be time to worry if this figure rises to 20 per cent.

Medium-sized deals of between 10,000 to 30,000 sq ft are expected to power the market this year as larger leases for 100,000 sq ft or more by financial institutions have already been inked in the past few years, Mr Dodd noted.

Suburban office space is also in high demand as businesses look for more affordable locations as they expand. Office rents are expected to hold up better this year in such locations.

[email protected]