Business Times: Tue, Mar 20
(SINGAPORE) Office leasing deals since the start of this year have been relatively small, generally at 25,000 sq ft or below each - a far cry from the leases of more than 200,000 sq ft inked by financial institutions during the heyday in 2010.
'Demand for space from large occupiers, particularly in the banking and finance industry, has so far been muted in 2012,' says Jones Lang LaSalle national director of markets Andrew Tangye.
CBRE executive director (office services) Moray Armstrong says: 'The principal demand challenge the market faces at present is that the key banking sector has cooled off. There are only a few banks with firm requirements for new space and a higher number contemplating downsizing. This tenant sector occupies a very high proportion of Grade A space and its absence from leasing activity is a natural drag on the market.'
Property consultants say office rents have been under pressure in Q1. The near term outlook remains weak. For the rest of this year, vacancy levels will probably trend upwards and rents continue to ease on the back of weak demand and unabsorbed supply in new office project completions in 2011 and 2012, says Savills Singapore director of commercial Agnes Tay.
But most players do not envisage a dramatic rent correction as seen in 2009 following the global financial crisis. 'The downcycle could prove to be fairly short. Tenants can look forward to a conducive environment to negotiate attractive terms, but the best deals may well have already been secured before we enter 2013,' says Mr Armstrong.
'At some point there will be market realisation that there is very little Grade A supply coming on line over the next three years - in fact limited to Asia Square Tower 2 in 2013 and CapitaGreen in 2014.'
While large bank tenants are on the sidelines, occupiers in other businesses have been more active - energy, resources, commodities, maritime, legal and other professional services.
JLL's Mr Tangye gives some examples: 'US law firm Squire Saunders has apparently leased about 4,000 sq ft at Ocean Financial Centre, Pearl Energy and LDH Energy have leased 10,000 sq ft and 9,000 sq ft respectively at the new One Raffles Place Tower 2, and British Gas and Sinochem have leased approximately 15,000 sq ft and 10,000 sq ft at Asia Square Tower One.'
Mr Armstrong also highlights plans for a number of MNCs to set up new regional headoffices in Singapore. 'The types of industries involved are quite diverse, which is positive. Headcount sizes range from 100-200 each, supporting office space requirements of 15,000-25,000 sq ft. While these represent relatively small to medium size office deals, in aggregate these set-ups will be important.'
Singapore's reputation and closeness to major markets in China, Vietnam and Indonesia are pushing firms to set up regional headoffices here. 'Perhaps (the) most persuasive (factor) is the advantageous tax position offered in Singapore at a time when many MNCs are worried about the spectre of punitive taxes in Europe and the US,' adds Mr Armstrong.
Preliminary estimates from both JLL and CBRE show that Grade A office rents have softened for the second consecutive quarter since peaking in Q3 last year. JLL says that the average gross effective monthly rental value for Raffles Place Grade A office space (excluding Marina Bay) has declined 4-5 per cent in Q1 2012 from $9.75 per square foot in Q4 2011 and is likely to post a 9-11 per cent full-year decline, easing to $8.70-8.80 psf by end-2012.
CBRE's provisional Q1 2012 Singapore office rental estimates are about 3-4 per cent below the 2011 year-end numbers. 'For full-year 2012, we expect to see rents fall by around 15 per cent generally including Grade A,' says Mr Armstrong. The group's Grade A basket covers the Marina Bay, Raffles Place and Marina Centre locations. A 15 per cent full-year decline in CBRE's average Grade A rental value would translate to the figure falling to $9.35 psf at end-2012 from $11 psf at end-2011. The figure peaked at $11.06 psf in Q3 last year.
In 2009, office rentals crashed 46 per cent.
JLL projects that the vacancy rate for Grade A Raffles Place (including Marina Bay) office space will rise from about 8.7 per cent in Q4 2011 to 12.5-13 per cent by year-end.
Net office take-up for the location will remain positive this year but weaken to 850,000 sq ft from about 1.75 million sq ft in 2011.
On the supply side, about 1.35 million sq ft net lettable area of office space islandwide is due for completion this year - lower than last year's 2.96 million sq ft. For 2013 and 2014, the projected supply completion is about 2.4 million sq ft and 1.5 million sq ft respectively, based on JLL's numbers.