March 24,
2009
Prime office rentals on fast slide down
18% drop in Q1 a precursor to further falls in the rest of the year,
says CBRE
(SINGAPORE)
The slide in prime office rents has continued into the first quarter
of this year. CB Richard Ellis estimates that average Grade A and prime
office rental values in Singapore both slipped about 18 per cent in
Q1 this year over the preceding quarter.
CBRE's estimate
of the Q1 2009 average gross monthly rental of Grade A office space
was $12.30 per square foot, down 34.6 per cent from the peak of $18.80
psf in Q2 and Q3 last year.
'We foresee
the average monthly rent for Grade A space to fall to single-digit level
during the course of second-half 2009,' CBRE executive director (office
services) Moray Armstrong said.
Vacancy
for Grade A offices also rose from 0.9 per cent in end-2008 to 2.9 per
cent by end-March 2009.
CBRE predicts
that more of the same can be expected for H1 2009 as demand stays weak.
'Vacancies can be expected to rise sharply and there will be no arrest
in the slide of rents,' Mr Armstrong reckons.
'About 38 per cent of prime office space in Singapore is occupied by
the financial services sector and this is the segment that's worst hit
this downturn.'
- Cushman and Wakefield Singapore managing director Donald Han
'I think there's likely to be higher leasing activity by year-end and
certainly going into 2010 - although the outlook for rents remains bearish,'
he added.
He also
forecasts that 'the Singapore office market could see negative take-up
for the whole of this year in excess of one million sq ft, around the
levels the market has experienced as recently as 2002/2003'.
Last year,
the market saw a net increase in office demand of slightly under 200,000
sq ft, not even 10 per cent of the figure for 2007.
Cushman
and Wakefield Singapore managing director Donald Han said that negative
net demand for office space for 2009 could be anywhere from 500,000
sq ft to one million sq ft, depending on how badly the economy fares.
He estimates
that average monthly Raffles Place rents will slip by about 30 per cent
for the whole of this year to slightly below $10 psf by end-2009. 'About
38 per cent of prime office space in Singapore is occupied by the financial
services sector and this is the segment that's worst hit this downturn,'
Mr Han pointed out.
CBRE's average
monthly rental estimate for Grade A space - which covers the best office
space within the firm's prime office basket - of $12.30 psf as at end-March
this year is 18 per cent lower than the $15 psf as at end-2008.
Its $10.50
psf estimate of monthly average prime rental value as at end-March 2009
represents an 18.6 per cent quarter-on-quarter decline from $12.90 psf
as at end-2008.
The end-Q1
2009 rental estimates for both categories of office space represent
drops of about 34 per cent from the same period last year.
CBRE reckons
that the Grade A vacancy rate rose from 0.9 per cent as at end-2008
to 2.9 per cent as at end-March 2009. In the broader Core CBD comprising
the micro-markets of Raffles Place, Marina Bay, Shenton Way and Marina
Centre, the vacancy rate increased from 4.6 per cent as at end-2008
to an estimated 6.9 per cent as at end-March 2009. These vacancy figures
do not take into account 'shadow space' or excess space that companies
try to sublet.
'Right now,
the shadow space is at a tolerable level, but we haven't seen the full
knock-on impact of attrition and realignment of businesses. In due course,
shadow space will grow as subletting activity rises, and this will serve
to further erode rentals,' Mr Armstrong said.
Pre-lease
momentum in new office developments has stalled in the past two quarters
as corporates grapple with more immediate challenges within their businesses
before even looking at long-term premises planning, CBRE said. But some
end users now have a bit more clarity on their requirements. 'Some of
the merging companies will necessarily need to co-locate and those are
the deals starting to emerge,' Mr Armstrong said.
Towards
the later half of 2009, CBRE expects a few selective office deals to
firm up, largely due to the expected premises consolidation requirements
arising from mergers and company restructuring.
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