Office landlords sweeten deals as market weakens
Business Times: Thu, Dec 22
(SINGAPORE) As the office leasing market starts to weaken, some landlords have begun to offer bigger incentives to clinch tenants.
They have increased agent commissions from one month's rental to between 1.2 months and two months' rent on a typical two or three-year lease.
The landlord of a brand new Grade A office development keen to maintain high headline rental levels in the building is said to be prepared to offer a 5-6 month rent-free period for a 2,500 square foot space - from 1-2 months half a year ago, BT understands.
Knight Frank director (office) Robert MacDonald says: 'The first half of 2012 will almost certainly see landlords increasing incentives (rent-free periods), and additional benefits to attract tenants, such as fit-out capital contributions, will become more common.'
CBRE executive director Moray Armstrong says: 'Landlords will have differing reactions in a more competitive leasing environment. Some may wish to increase incentives or inducements while preserving face or signing rents, while others may just allow signing rents to adjust to the prevailing market level.'
Savills Singapore director (commercial space) Agnes Tay observes that besides enticing tenants with financial incentives, landlords are more receptive these days to offering flexible lease terms to a bigger pool of tenants. 'Tenants may want longer leases and more options for renewal as they seek greater security of space - and yet due to uncertain business conditions, they would also like some flexibility in the lease agreement that the landlord will consider taking back some of their space should they no longer need it, with an agreed compensation formula.'
There's no denying among leasing consultants that Singapore office rents will fall next year, due to substantial office supply and a weaker demand outlook in the face of the global economic slowdown. Forecasts vary, reflecting the difficulty in predicting demand.
Mr MacDonald says that headline office rents could contract by up to 15 per cent by end-2012. 'All eyes are focused on the European debt crisis and the resulting economic reaction, which will have a direct impact on market sentiment in Singapore. The extent of decline will be more transparent towards the end of Q1 2012.'
CBRE figures show that the average monthly rental value for Grade A offices - covering the Marina Bay, Raffles Place and Marina Centre locations - has been flat in Q4 from the Q3 figure of $11.06 per square foot, translating to a full-year rise of 11.7 per cent. This follows a 22.2 per cent appreciation in 2010.
Mr Armstrong foresees Singapore office rents easing next year but does not expect any dramatic rental correction as was seen post-global financial crisis, when the average monthly Grade A rental slumped nearly 60 per cent over six quarters, from $18.80 psf at the peak in Q2 and Q3 2008 to $8 psf in Q1 2010.
'Rentals going into GFC were at artificially high levels, driven by extraordinarily low vacancy rates of sub-one per cent for over two years. This accentuated the rent correction. These conditions don't exist today; rentals are manageable and relatively competitive compared with other regional centres.'
Mr MacDonald notes that new-build Grade A rents in Singapore are 45 per cent lower than comparable developments in Hong Kong.
Jones Lang LaSalle predicts that the average monthly rental value for Grade A Raffles Place (excluding Marina Bay) will ease about 5.1-14.4 per cent over the next 12 months, from about $9.75 psf to $8.35-9.25 psf in Q4 2012. It also projects that the Grade A Raffles Place (including Marina Bay) office vacancy rate will rise from about 10 per cent this quarter to 12.5-13 per cent by end-2012, given a more bearish outlook on demand. Net office take-up for the same location will remain in positive territory in 2012 but weaken to 830,000 sq ft from about 1.75 million sq ft this year, according to JLL.
On the supply side, JLL notes that islandwide, between 2012 and 2015, some 5.5 million sq ft of new office space for lease (excluding strata-titled developments such as Paya Lebar Square) will be completed. Of this, some 1.3 million sq ft is already leased, leaving 4.2 million sq ft available. Adding the remaining 800,000 sq ft of the 2011 supply that has yet to be let gives a total of five million sq ft available over the next four years. This works out to 1.25 million sq ft per annum.
The historical average 20-year (1991-2010) islandwide take-up was about 1.5 million sq ft per annum.
Chris Archibold, head of markets at JLL, says: 'Given Singapore's enhanced international value proposition, one would logically expect average annual take-up numbers over the next 10 years to be higher.
'The demand numbers are hard to predict and are very much dependent on the global economy. Impact on rents is hard to gauge as it's very much dependent on demand and market sentiment. In the near term, the global outlook is likely to have a negative impact on office space take-up; however, in the medium term, Singapore is well positioned.'
Mr Armstrong expects office demand to remain positive in 2012. 'While there are precious few leasing requirements in the key banking sector - where the growth spurt appears to be over - we're encouraged by a number of new entrants coming into Singapore from a few sectors (such as) in the energy, commodities and consumer industries, and law firms.
'We've seen some initial signs that certain global industries are viewing Singapore favourably for expansion, partly due to uncertainty in the West arising from prospects of increasing taxes and an uncertain political landscape. Singapore could emerge a net beneficiary.'
Prime retail rents to hold steady
Straits Times: Thu, Dec 22
RENTS of prime Orchard Road retail space are expected to hold steady into the first quarter of next year, going by retailers' cautious sentiment, say consultants.
A new report by property consultancy CBRE said rents in Orchard Road are unchanged at $31.60 per sq ft per month in the current fourth quarter of this year. The $31.60 rent rate is a marginal 4.6 per cent increase year-on-year.
Although this rate is expected to remain stable into next year, Ms Letty Lee, CBRE's director of retail services, anticipates there will be some downward pressure later in the year.
'This downward rental adjustment will be moderated by a combination of factors including healthy retail sales projections, increased tourism, continued demand from various retail trades and limited stock,' said Ms Lee.
Retail projections by analysts point to a rosier retail scene next year. According to economic forecasting consultancy Oxford Economics, Singapore's retail sales are expected to grow by 13.9 per cent in the final three months of this year.
Despite the economic uncertainty, this growth momentum in retail sales is expected to continue, albeit at a markedly slower rate, rising 2.4 per cent next year driven largely by local consumers and big-spending tourists.
Increased tourism is also expected to play a part in sustaining the stable retail rents. Singapore saw a record of $18.9 billion in tourism receipts last year and received some 11.6 million tourists.
But the Singapore Tourism Board hopes to beat that record this year, targeting a record 12 million to 13 million visitors and $22 billion to $24 billion in tourism receipts.
The report also highlighted that limited stock will mean retail space in Orchard Road will be in demand next year.
About 794,200 sq ft of retail space is poised to hit the market next year, 13.9 per cent of which will be in the Orchard Road area. But this amount makes up a paltry 2.2 per cent of the total stock in this prime area.
The only new supply in the Orchard Road area this year was the 75,000 sq ft of space contributed by Scotts Square, the only new mall to have opened. But CBRE said vacancies at The Heeren and Wheelock Place have helped relieve the squeeze on Orchard Road's stock.
Since 2006, prime retail stock has grown an average of 250,000 sq ft annually with 2009 being the exception when 1.25 million sq ft of retail space was injected into the market.
This was from the completion of several malls including Ion Orchard, Orchard Central and 313@Somerset, and the refurbishment of Mandarin Gallery.
Prime retail rents hit their peak in 2008, before declining strongly in 2009 due to the twin factors of a structural change in shopping mall space and the global financial crisis.