http://www.businesstimes.com.sg/real...th-marina-bays

Raffles Place's office rents catching up with Marina Bay's

4% rental gap in Q3, smallest since 2011, due to higher occupancies, lack of new Grade A space in Raffles Place

By Lynette Khoo

[email protected]

@LynetteKhooBT

Dec 1, 2015


GRADE-A office rents in Singapore's traditional Raffles Place CBD nearly caught up with the newer business district in Marina Bay in the third quarter of this year.

The rental gap between the two areas was 4 per cent in the third quarter, the smallest differential since 2011, according to Cushman & Wakefield.

This significant narrowing of rental gap between Raffles Place and Marina Bay came as Grade-A office rents in Marina Bay dropped 19 per cent in the first three quarters of this year to S$10.70 per square foot per month (psf pm). During the same period, office rents in Raffles Place fell by only 0.7 per cent to S$10.31 psf pm.

Cushman & Wakefield attributed rental resilience of Raffles Place to higher occupancies amid tenant loyalty and positive net absorption of office space, as well as a lack of Grade-A office supply within Raffles Place.

Office occupancy rate in Raffles Place hit 97.1 per cent in the third quarter, up from 96.5 per cent in the second quarter, while net absorption for Grade-A offices in Raffles Place totalled 110,000 sq ft in the past 11 months.

As at end-November, office occupancy in Raffles Place rose further to 97.2 per cent, beating the overall CBD Grade-A office occupancy average of 95.9 per cent.

Also lending support has been the more diversified tenant profile in Raffles Place, where banking, insurance and financial services occupy some 44 per cent of floor area compared to 64 per cent in Marina Bay.

"Raffles Place will continue to attract and retain tenants ranging from 10,000 to 20,000 sq ft given the strong employee preference towards its transport connectivity and F&B retail," Cushman & Wakefield said. But it forecasts that this gap will gradually widen again and return to 20-30 per cent as office rents in Marina Bay stabilise and when overall CBD occupancy rate recovers from a foreseeable dip in the next two years.

Meanwhile, Knight Frank's third-quarter report on Asia-Pacific prime office rents showed a 2 per cent quarter-on-quarter rental drop for Singapore's prime offices (2,500-5,000 sq ft of net lettable area) in Raffles Place and Marina Bay - the biggest drop among 19 markets tracked by Knight Frank.

This also marked an accelerated decline from a 1.4 per cent slip in the second quarter, after a 3.2 per cent rise in the first quarter of this year.

Ten out of the 19 markets tracked saw rental growth in the third quarter, with Tokyo racking in the highest quarter-on-quarter rental growth at 6.8 per cent.

"There have been rising strains on the demand of office spaces in Singapore, as economic growth prospects weaken and business enterprises exercise greater caution in signing leases," said Alice Tan, head of consultancy and research at Knight Frank Singapore.

"In addition, the consolidation of office spaces particularly by large-space occupiers, coupled with an impending supply of close to four million sq ft of office space next year, is creating a tenants' market situation," she added.

Cushman & Wakefield Singapore managing director Toby Dodd noted that Singapore's office leasing market is approaching another "fundamental shift" with the upcoming supply of prime Grade-A office space next year.

"This will provide opportunities for larger occupiers to rationalise their portfolio and grow their businesses," he said.

Cushman & Wakefield estimates that at least 50 large tenants each occupying more than 25,000 sq ft of space - or over 4.2 million sq ft in total - have not moved since 2007. These firms may take the opportunity to relook and plan for business consolidation or expansion next year.