Office rents hold steady despite new space

CBD rents record slight dips; those in CBD fringe, suburban areas stay flat

Published on Oct 23, 2012

By Esther Teo, Property Reporter

OFFICE rents stagnated, overall, in the third quarter, as the effects of recent new space rippled across the market, but some clusters held up better than others.

Rents in the Central Business District (CBD) tended to record small falls, while CBD fringe and suburban areas mostly held firm.

A report by property consultancy Knight Frank said areas such as Raffles Place, Suntec/Marina Centre and Orchard Road saw a marginal dip in rents of less than 1 per cent from those of the quarter before, owing to the surge in space as existing tenants relocated to newer buildings.

For instance, rents in the Suntec/Marina cluster fell 0.6 per cent as, for instance, Citibank moved out of Centennial Tower to Asia Square, the report noted.

But the 129,000 sq ft of vacated space is gradually being leased, as existing tenants take on more space and new tenants arrive from the legal, engineering and energy sectors.

"Grade A office buildings in Raffles Place (where rents slid 0.9 per cent) are also still recovering from their loss of major tenants who moved to the newer buildings at Marina Bay," it added.

"Depending on landlords, some incoming tenants have higher room for negotiation in terms of rent-free concessions such as fitting-out periods," it noted.

But it was Singapore's newest business district, Marina Bay, that performed the worst.

A separate office report by DTZ said gross face rents in Marina Bay lodged the largest fall in the three months up to Sept 30, slipping 4.4 per cent to $10.75 per sq ft per month - 10 per cent lower than at the start of the year.

Rents for suburban offices, and the Shenton Way and Tanjong Pagar clusters, however, remained flat. These areas offer smaller units of 1,000 sq ft to 5,000 sq ft with lower rentals, which are currently in demand by businesses in the IT, recruitment and insurance sectors, Knight Frank said.

Experts say that while demand from banks and financial services companies has softened, the slack has been picked up by other sectors, such as the legal, social media, pharmaceutical and energy sectors.

For example, Facebook recently expanded its office at 158, Cecil Street, while CGCG, which deals in oil and gas, recently set up its office here. LinkedIn is also expanding its office.

But CBD rents are expected to face more pressure than CBD-fringe rents, thanks to supply in the pipeline, DTZ said.

New space was already added at major projects such as Asia Square Tower 1, Ocean Financial Centre and OUE Bayfront last year.

Another 2.2 million sq ft will be added to the total stock with the completion of Marina Bay Financial Centre Tower 3 and One Raffles Place Tower 2 this year, and Asia Square Tower 2 next year.

Further adding to this supply is an estimated 170,000 sq ft of "shadow space" - where, essentially, tenants with excess space look for subtenants to ease the rental burden - from occupiers in Marina Bay and Raffles Place.

Shadow space from this cluster made up about 70 per cent of the total shadow space available in the third quarter.

In contrast, there has been no new supply in the CBD fringe since 2010, and only about 50,000 sq ft will be coming onstream next year in Orchard Road, said Ms Chua Chor Hoon, DTZ's head of Asia-Pacific research.

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