Published March 3, 2009

S'pore office rents fall sharpest in Asia

Landlords here more defensive, tenant retention given priority: CBRE report


(SINGAPORE) Office rents for Grade A/Prime space in Singapore fell a steep 14 per cent in Q408 on a year-on-year (yoy) basis, the sharpest fall in Asia.

In Tokyo, office rents fell 13.4 per cent yoy while in Hong Kong (citywide), rents fell 13.2 per cent yoy.

In Hanoi, rents rose the fastest at 25.6 per cent yoy while in Kuala Lumpur, rents increased by 19.3 per cent yoy. In Seoul (Yeouido), rents rose by 9.5 per cent yoy.

In its report Asia Marketview (Q4 2008), CBRE Research said that Singapore landlords adopted a more 'defensive position' and 'tenant retention was given greater priority'.

'Cost-cutting measures by occupiers and the first signs of sub-letting initiatives on excess space taken up during the expansion fervour in the past year were evidenced,' it added.

According to CBRE, the fourth quarter saw prime office rents suffer the most severe quarterly correction since records began. At the end of the review period, Grade A rents fell to an average of $15.00 per square foot (psf) per month, down from $17.15 psf per month a year ago.

Grade A vacancy in the fourth quarter was 0.9 per cent compared to 0.2 per cent a year ago.

CBRE believed that tenants here will decide to stay put rather than relocate as landlords look to retain tenants, and corporates come under pressure to further consolidate and reduce costs over the next 12 to 18 months.

But it also reckoned that there are still many tenants with renewals and rent reviews falling in 2009 under leases committed three to four years ago who could still be faced with rents that could potentially increase by some 75-150 per cent.

Generally, however, rents will continue to fall throughout 2009 with the biggest threat to the office market likely to be job attrition, not only within the key financial services sector, said CBRE, but also from supporting business services.

In Tokyo and Hong Kong, falling rents was partially attributed to new office space supply.

The fourth quarter saw Grade A vacancy increase to 3.5 per cent quarter-on-quarter (qoq) in Tokyo. CBRE said that a major factor was the completion of a Grade A building in Marunouchi, which added 533,700 sq ft of net lettable area to the market.

Similarly, CBRE included two more sub-markets - Kowloon East and Island East - in its fourth quarter data for Hong Kong (citywide) Grade A office rents with Grade A office vacancy rising 65 basis points (bps) qoq to 8.03 per cent. In Kowloon East alone, vacancy rate was more than 30 per cent, putting pressure on landlords to offer flexible terms to potential tenants.

Across Asia during the fourth quarter, vacancy increased in 14 of the 17 markets tracked by CBRE. Overall vacancy across the region rose by 334 bps between January and December 2008.