Office leasing activity subdued but sales robust

Straits Times: Thu, Apr 12

LEASING activity weakened in the office market over the first three months of the year but there was still plenty of sales action, said a Colliers International report yesterday. It said leasing demand was dampened by lingering debt woes in the euro zone and slowing growth in China and Japan. These issues have resulted in corporate restructuring and a hiring freeze in some firms while keeping many others - especially the large occupiers in the banking and finance industry - on the sidelines in the first quarter. 'Compared to the global financial crisis in 2009, the occurrences were contained,' the report added. 'As such, the amount of shadow space in Grade A office buildings in the Raffles Place and New Downtown micro-market stayed flat at 100,000 sq ft as of March.' The weakening outlook was also mirrored in rents, with levels falling in all micro-markets in the first three months compared with the quarter before. The steepest drop of 8.8 per cent was lodged in the Grade B segment of Beach Road, while Grade A office space in the Marina and City Hall area registered the smallest dip of 2.3 per cent. Average monthly gross rents for Grade A space in the Raffles Place and New Downtown market fell 5.3 per cent, following a 4.3 per cent correction in the fourth quarter of last year. This has brought average monthly gross rents for the area to $9.76 per sq ft (psf). 'The last time monthly gross rents for Grade A space in this micro-market were below $10 psf was in the first quarter of last year. Rents then were still on an uptrend,' the report noted. It was a different story for the office sales market, which was thriving in the first quarter with new launches enjoying quick take-up rates, Colliers noted. For instance, all 100 strata-titled office units at PS100 in Peck Seah Street were snapped up at an average price of $3,000 psf during its launch last month. Projects launched in the fourth quarter of last year continued to gather sales momentum. By the end of last month, 78 per cent of Robinson Square had been sold at prices ranging from $2,750 psf to $3,029 psf, while 85 per cent of the 442 units released in Paya Lebar Square found buyers at an average price of $1,750 psf. Colliers said that beyond the low interest rates and high inflation that kept investors active in the office sales market, the introduction of the extra buyer's stamp duty also increased interest in alternative asset options such as strata-titled office units. Colliers research and advisory director Chia Siew Chuin expects the overall rental decline to be capped at 15 per cent this year. 'On the back of continued investor interest in the light of the low interest rate and high inflation environment, office capital values, on the other hand, could hold relatively stable.' But she said that if the shaky environment continues, capital values may fall by up to 5 per cent for the whole year. Source: The Straits Times