http://www.businesstimes.com.sg/spec...-mend-20130709

Published July 09, 2013

Premium grade office rents on the mend

Rents of highest grade space in new buildings rise for first time in 2 years

By ong chor hao


PREMIUM-GRADE office rents rose for the first time in nearly two years in the second quarter, on the back of tenants moving to newer, better-quality buildings.

This reverses the waning of premium-office rents that started in the fourth quarter of 2011; rents in the central business district on the whole had been falling for several quarters, amid worries of an oversupply and competition from new premises in the area.

Colliers International said in a report yesterday that the average gross monthly rent for this micro market in Q2 was $9.60 per square foot (psf), 2 per cent higher than the previous quarter's $9.41 psf.

The global commercial real estate company classifies premium-grade office space as that in new buildings with the highest specifications in Raffles Place and the New Downtown; examples are Asia Square and Marina Bay Financial Centre.

Marcus Loo, the executive director of office services at Colliers, said yesterday that with the rents for premium-grade offices having been soft since late 2011, tenants took the opportunity to upgrade to newer, better premises.

This seems to have borne itself out in the second quarter. For example, IHS Global moved its operations to Asia Square Tower 1, and National Australia Bank and Swiss Reinsurance Company set up at Asia Square Tower 2.

Meanwhile, the New Downtown area in Marina Bay continued to attract tenants in Q2, as it shapes up as the country's new financial centre.

This demand nudged landlords to maintain or increase asking rents, leading to a broad stabilisation of rents, Mr Loo said.

Average occupancy rates also rose in nearly all the micro-markets in Q2 over the previous quarter, except for the Beach Road and City Fringe segments.

Colliers said rents may continue to rise in the second half of the year.

Its director of research and advisory Chia Siew Chuin was especially upbeat on premium-grade offices; she said she expects rents to grow 5 per cent as market sentiments improve and as more tenants demand modern and efficient floor layouts.

Other segments could stay "relatively flat with some marginal upsides".

On the sales front, strata-titled offices remained popular in the second quarter. Record prices were set for units at Samsung Hub and Springleaf Tower.

But average prices stayed at $2,640 psf premium office space, and $2,390 psf for Grade A space in Raffles Place and the New Downtown from the previous quarter, with subdued activity.

Ms Chia said: "Strengthened by the bottoming-out of office rents, overall office capital values have the potential to climb by another 2 to 3 per cent in the next six months."

She believes office properties remain attractive to end-users and investors with a long investment horizon, helped by the low interest rate and high liquidity environment.