Office rents continue to move up in 2011Q1

Published 31 March 2011
The Business Times
By Uma Shankari

However, pace of increase has slowed; prime rents up 3.6% q-o-q: CBRE

OFFICE rents in Singapore continued to trend upwards in the first quarter of 2011 but the pace of growth has moderated in line with the less frantic pace of leasing, said a new report.

Catching up: Rental growth for offices on the fringe of the CBD outpaced the rental growth in Raffles Place (above) in Q1, according to DTZ Research

Catching up: Rental growth for offices on the fringe of the CBD outpaced the rental growth in Raffles Place (above) in Q1, according to DTZ Research

Prime rents averaged $8.60 per square foot per month (psf pm) in the first three months of this year, reflecting a smaller increase of 3.6 per cent quarter-on-quarter compared with the 7.2 per cent climb in Q3 2010 and 12.2 per cent growth in Q4.

Prime rents averaged $8.30 psf pm in Q4 2010, said CB Richard Ellis (CBRE) in the report.

Grade A rents averaged $10.30 psf pm, which is an increase of 4 per cent quarter-on-quarter from the $9.90 psf pm in Q4 2010. On a quarterly basis, Grade A rents rose by 10 per cent in Q4 2010.

In a separate report, DTZ Research noted that rental growth for offices in secondary office areas at the fringe of the central business district (CBD) and outskirts outpaced that in Raffles Place in Q1 2011.

DTZ’s analysis found that average rents in the Anson Road and Tanjong Pagar area are catching up with those at Shenton Way, Robinson Road and Cecil Street. The rental gap between the two micro-markets has fallen from $2.80 psf pm at the peak in Q3 2008 to just $0.25 psf pm in Q1 2011.

‘The Anson Road and Tanjong Pagar area has been undergoing a make- over with the addition of new and well specified good quality buildings such as Mapletree Anson and Twenty Anson,’ said Cheng Siow Ying, DTZ’s executive director for business space.

Looking ahead, office rents are likely to trend upwards over the next three to four years – with a low likelihood of excessive rental spikes or sharp corrections – said CBRE. The firm expects ‘moderate’ rental growth of between 10 and 12 per cent for 2011.

But it is likely that older buildings will underperform compared to Grade A space given the sheer volume of this supply, CBRE added.

According to the firm’s estimates, around eight million sq ft of office space is targeted for completion from Q2 2011 to 2015, of which 75 per cent is classified as Grade A space.

In just the rest of 2011, a further 1.7 million sq ft of new space will be completed. And another 1.4 million could be added in 2012.

CBRE estimates that 40 per cent and 61 per cent of the future 2011 and 2012 supply have been pre-let so far.

‘Vacancy levels in late-2011 are likely to rise. These will likely moderate rental growth in the short to medium term,’ CBRE said.

‘We expect a higher volume of secondary space coming onto the market in late-2011 into 2012 when major occupiers relocate to new premises, principally at Marina Bay.

‘It remains to be seen if the market will adequately absorb this sizeable source of second-hand office supply which we calculate totals 1.29 million sq ft.’


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