Rents in CBD Display Signs of Weakening While Firmer Decentralized Rents Prevail

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Even through slowing economic conditions, Q1 2013 saw office space command a healthy demand. DTZ, a UGL company, notes that Q1 2013 saw quarter/quarter (Q/Q) net absorptions rise to 375,000 Sq ft from 272,000 Sq ft in the previous quarter (Q4 2012). The global property services research firm also points to strong Island-wide increase in occupancy rates, which rose Q/Q by 0.4% to 95.5% in Q1 2013.

Greater numbers of occupants taking up residency in the Asia Square Tower 1 and Marina Bay Financial Center Tower 3 has seen Marina Bay’s average occupancy rates increase to new highs since Q1 2011, overtaking occupancy rates in Raffles Place, and climbing 5.1% over the previous quarter to 93.6%. This allowed Q1 2013 gross rents in Marina Bay, on the average, to hold their own at $10.5/sq ft/month. However, with the planned completion of the Asia Square Tower 2 (offering 0.8M Sq ft of additional office space to the market) in Q3, Marina Bay’s average occupancy rates are expected to decline.

In other areas of the CBD, Raffles Place has seen continued softening of rental values on slowing demand, decreasing average occupancy rates by 0.4% to 93.3%. Raffles Place saw its average gross rents fall by 0.5% over the last quarter, reaching $9.28/sq ft/month, mirroring the Q/Q decline of Q4-2012. Comparatively, Shenton Way/Robinson Road/Cecil Street saw Q1 rents hold their ground at S$7.25/Sq ft/month, and recorded a 0.3% Q/Q improvement in average occupancy rates, which came in at 91.6%.

According to DTZ’s Executive Director, Business Space, Cheng Siow Ying, “Leasing activity increased in Marina Bay as rents are now more competitive after falling 12.5% in 2012. Interest for such premium-grade space in Marina Bay emanated from commodities trading, energy and legal sectors. In comparison, rents in Raffles Place continued to decline moderately as landlords of buildings with lower occupancies offer incentives such as longer rent holidays to retain or entice tenants to lease space in their buildings. Increased leasing activity was also seen in the CBD fringe and decentralised locations particularly for the newer and better specified buildings where rents held up well in response to demand from companies in the chemical, engineering, technology, energy, shipping and fast-moving consumer goods (FMCG) sectors and as financial institutions continue to de-couple and de-centralise their backroom operations.”

Approximately 2.5M Sq ft of additional office space is expected to come online during the remainder of 2013. Other than the Asia Square Tower 2 project, the 3 key projects slated for completion this year are Nexus@One-North (offering 85,000 sq ft), The Metropolis (with 1.1 million sq ft), and the 315,000 sq ft Jem project. Given that redevelopment initiatives this year will see approximately 330,000 Sq ft of current office space taken off market, 2013 will still see a net upsurge of roughly 2.1M sq ft of supply, which surpasses the 5-year average of 1.8M sq ft.

Commenting on this situation DTZ’s Head of Singapore Research, Lee Lay Keng said:  “The bulk, or 66%, of the higher-than-average pipeline supply this year is in the decentralised areas, but healthy pre-commitments have been noted for these office buildings. Jem is fully taken up, while The Metropolis and Nexus@One North are reportedly 60% and 80% pre-committed respectively, compared to a much lower rate in Asia Square Tower 2. Office rents are therefore expected to hold firm in the decentralised areas while rents in the CBD will continue to ease before recovering next year.”

 

Source: DTZ Singapore

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