http://www.straitstimes.com/archive/...-rate-20141231

Office rents higher despite lower occupancy rate

Landlords expect further rent hikes next year because of limited supply

Published on Dec 31, 2014 1:29 AM

By Rachael Boon


OFFICE rents have risen in the fourth quarter of this year despite a fall in occupancy rate, driven higher by expectations of even greater rent rises next year, a new report has found.

Property consultancy DTZ Research noted that net demand for office space this year was slightly lower at 1.36 million sq ft, down from 1.45 million sq ft last year.

The islandwide occupancy rate fell from 95.8 per cent in the third quarter to 93.6 per cent in the final three months of the year.

DTZ tracks a basket of office buildings. Only the space in the Marina Bay area posted a rise in the occupancy rate, from 91.2 per cent to 94.4 per cent, in the fourth quarter.

CapitaGreen and South Beach generated the most leasing activity in the fourth quarter.

CapitaGreen is a 700,000 sq ft office tower in the Central Business District (CBD). Mixed development South Beach near Raffles Hotel will offer 500,000 sq ft of office space.

The report, released yesterday, said both buildings offered rare opportunities for firms to be in a premium-grade office space in the CBD and on the CBD fringe, where supply is limited.

Ms Cheng Siow Ying, DTZ's executive director of business space, said the sudden divestment of Equity Plaza earlier this year also added to the demand for office space this quarter.

Average monthly gross rents in the CBD rose between 2.4 and 4 per cent in the fourth quarter, compared with the previous quarter. Office space in Marina Bay registered the highest rent increase, from $12.75 to $13.25 per sq ft.

For the whole of this year, average monthly gross rents for offices in the CBD rose between 4 per cent and 19 per cent.

DTZ noted that this is much higher than the increase last year, which ranged from 2.4 per cent to 6.1 per cent.

The firm said rising rent levels this year have encouraged more traditional office users, such as banks, to move back-end operations to high-tech industrial space and business parks.

However, landlords anticipating further rent increases next year were willing to wait rather than lock in lower rents in the fourth quarter.

Landlords are optimistic owing to a limited supply next year, and growing demand from the technology, media and telecommunications (TMT) sector, serviced office operators and insurers.

Firms in the TMT sector are willing to pay higher rents to be in prime office districts, which helps in attracting talent and boosting brand positioning, DTZ noted.

Google recently expanded its presence in Asia Square and

LinkedIn doubled their office footprint in Marina Bay Financial Centre Tower 2. Mrs Ong Choon Fah, DTZ's regional head of consulting and research, said: "Growth in the TMT firms is supported through growth in cloud technology, social media, Internet and big data.

"As these TMT firms expand, they are more inclined to seek out prime office buildings situated in Marina Bay or newly completed buildings such as CapitaGreen."

DTZ added that office rents are likely to continue rising next year, but at a slower rate.

Rental expectations will be partly mitigated by the 1.1 million sq ft of space to be released owing to leases expiring next year.

Mrs Ong said serviced offices are becoming a growing sector to consider in the office market. "Serviced offices have been expanding as swing space and co-working spaces are increasingly sought after due to their flexibility."

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