http://www.straitstimes.com/Money/St...ry_816815.html

CBD vacancy rates dip with demand from smaller firms

But better numbers in certain areas don't indicate a turnaround: Report

Published on Jun 30, 2012

By AMANDA TAN


DEMAND for central city office space from mainly smaller enterprises drove down vacancy rates in the second quarter although tenants are still cautious, according to consultancy Cushman & Wakefield yesterday.

Vacancy rates in the Central Business District (CBD) fell from 11.5 per cent in the first three months of the year to 10 per cent in the three months to June 30.

But the rebound has still left rates below the levels recorded in the first half of last year when vacancies were at 4.4 per cent.

The biggest squeeze on space was in the City Hall/Marina Centre, Orchard Road and suburban markets where Grade A vacancies dropped to ultra-low levels of below 2 per cent in the quarter.

The report noted a dearth of project completions after Marina Bay Financial Centre Tower 3 was finished earlier this year.

It also found that there is more shadow space - the excess room tenants lease to sub-tenants to reduce rental costs - but at least the rate of growth is slowing.

Such space is expected to increase by over 60 per cent by the end of the year and 'potentially add a full percentage point to Grade A vacancies', it noted.

In the past three months, shadow space expanded to 474,000 sq ft from 439,000 sq ft in the previous quarter.

Cushman & Wakefield cautioned that the better numbers in certain areas do not indicate a turnaround for the sector as some financial tenants continued to give up excess space during the quarter, a trend that is likely to continue this year.

Prime rents in Marina Bay and Raffles Place slipped, partly due to landlords offering rent holidays in leases.

Marina Bay rents fell 7 per cent to a monthly average of $10.40 per sq ft (psf) while those in Raffles Place dipped 3 per cent to $9.20 psf.

Prime office rents in Orchard average $9 psf a month and are now right on the heels of those in Raffles Place.

Cushman & Wakefield noted that it is the 'first time since 2004 that Grade A rates will be comparable for both (of these) markets'.

On the sales front, investment transactions rebounded 54.1 per cent to US$769 million (S$974 million) in the second quarter from the previous three months.

Strata-titled commercial units continued to stand out with a total of US$191.5 million of space sold.

Investment office sales are expected to pick up the pace for the rest of the year with domestic investors taking centre stage.

A potential 10 million sq ft of space was released via the Government Land Sales (GLS) confirmed and reserve lists for the second half of this year.

Ms Sigrid Zialcita, managing director for Cushman & Wakefield's regional research team, said: 'Any rental rebound for the CBD in the near term is likely to be slower than the non-CBD markets.

'More new supply is coming onstream in the CBD in 2013, hence some of this availability will need to be taken up before rents can start to rise meaningfully.'

Rents in the City Hall/Marina Centre, Orchard Road and suburban markets could stay steady or rise slightly because of the lack of supply and low vacancy rates.

Mr Toby Dodd, the firm's country manager in Singapore. said: 'The demand we see today, which is moderate but progressive, is a positive reflection of underlying business growth.'

The economy is expected to keep pace in the second quarter with quarter-on-quarter growth of 1.8 per cent, the report said.

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