DTZ

29 June, 2010

Office rents bottomed in Q2 2010 after having fallen 50%-60% from the peak in Q3 2008. Prime offices in Raffles Place led the turnaround in rents with a 1.3% increase quarter-on-quarter (QOQ) to S$7.90 per sq ft per month. Average office rental values held firm in other parts of the island in the quarter.

The islandwide office occupancy rose by 0.8 percentage point QOQ to 93.2% in Q2 2010 as a result of growth in demand.

Ms Cheng Siow Ying, DTZ’s Executive Director (Business Space) noted: “Due to the strong economic recovery, a large number of new leases signed in the first half of the year involved companies taking up expansion space. Previous concerns on older existing buildings hollowing out when tenants relocate to new buildings have eased as some of these tenants have since decided to retain existing space for expansion. We see broad based recovery in demand from all business sectors led by banks and financial institutions. We also witnessed an increasing number of new set-ups as companies take advantage of business opportunities in Asia where growth prospects are the strongest.”

Newer and better quality office buildings in the Central Business District are expected to lead the recovery in rents as occupiers take the opportunity to lock in attractive rents for prime office space. Rents are already trending up for some of the good quality buildings with high occupancies. The recovery in rents for older buildings or those from secondary locations would lag by 1-2 quarters as occupiers relocate to better quality buildings.

Ms Chua Chor Hoon, Head of DTZ South-east Asia Research said, “A quick rebound in office rents is not expected as there will be ample supply of about 6.85 million sq ft between H2 2010 to 2012, notwithstanding that some 1.2 million sq ft or more of old buildings may be removed from the current stock for redevelopment. A stronger rate of increase in rents is likely to be seen in 2013 and 2014 as there will be significantly less new supply. The supply is unlikely to be topped up quickly as it usually takes about 4-5 years for sites on Government Land Sales programme to be sold and developed due to the large size of each development.”

Download the Property Times Singapore Q2 2010 report for further details.