Wednesday, December 3, 2008

Office space returns seen in year ahead

Business Times - 21 Nov 2008

Office space returns seen in year ahead
(SINGAPORE) Savills Singapore reckons that some 450,000 square feet of Grade
A office space - or 3.5 per cent of existing space in this sector - could be
returned by tenants in the next 12 months.
The financial upheaval in the US and Europe will inevitably lead to
consolidation in the financial services industry that could lead to
companies shedding excess space, the property consultancy firm said in a
report yesterday. This space could make its way into the market either as
tenants return it to landlords or try to sub-let it themselves.
Market watchers say that space released by existing tenants will exacerbate
the supply glut that is expected to emerge, as almost nine million sq ft of
Central Business District office space is completed over the next four
years. Of this, at least 80 per cent will be Grade A.
In its report, Savills said that the average Grade A asking monthly rent in
Singapore slipped 1.2 per cent quarter-on-quarter in Q3 2008 - the first
decline in four years.
The figure fell from a high of $15.10 per square foot (psf) in Q2 this year
to $14.92 psf in Q3.
The decline was on a 3.3 per cent drop in asking rent in Tanjong Pagar and a
0.91 per cent drop in the Orchard area. But asking rents held firm in Q3 for
Raffles Place, City Hall/Marina Bay and Beach Road/Middle Road. And in
Shenton Way, they actually rose 2.2 per cent.
'Many landlords have become more realistic in their asking rents, and are
more open to incentives (for example, longer rent-free periods, free
car-parking) to attract and retain quality tenants,' Savills said.
It predicts that Grade A office rents are likely to ease 5 to 10 per cent in
Q4 this year and a further 15-20 per cent in 2009 as demand weakens.
The average Grade A office capital value slid 4.3 per cent
quarter-on-quarter to $2,680 psf in Q3. This is the first drop in three
years.