Colliers International , Singapore

Colliers International’s latest issue of the Asia Pacific Office Market Overview – which tracked quarterly office performance across 26 cities in Asia Pacific – revealed that Singapore has moved down the rankings from the third to the fourth position in office occupancy costs in 2Q 2009.  Tokyo and Hong Kong retained the top two positions, respectively.

In comparison to all the cities surveyed, Singapore has registered the steepest decline – at 26.2% on a quarter-on-quarter basis – in monthly gross rents for Grade A offices in Central Business District (CBD).  Following behind Singapore was Hong Kong, with a much milder rental decline of 10.3%.  The remaining cities with weakened rentals in 2Q 2009 witnessed only single-digit slides in rents.

Guangzhou and Seoul were the only two cities which bucked the trend of rental declines.  In Guangzhou, demand generated from domestic enterprises – amid limited completion of office space – saw rents increase by 1.1%.  Meanwhile, landlords in Seoul offered incentives such as rent-free periods and free renovations, instead of lowering rents.  This has enabled rents to edge up by a marginal 1.5% in the quarter.

Office rents in the region remained weak in 2Q 2009, as most companies in the private sector were still cautious about costs and headcount reduction continue to be the most widely-adopted cost-cutting initiative.  This leads to a contraction in demand for office space.  On the supply front, an excess of sub-lease space among existing occupiers remained the key constraint to rental growth. 

Due to the scarcity of new office demand and the threat of rising vacancy rates, average office rentals in the region remained weak,  edging down further by 3.6% quarter-on-quarter in 2Q 2009.  

Ms Tay Huey Ying, Director of Research and Advisory of Colliers International, says, “According to newly-released official statistics from the Urban Redevelopment Authority, demand for office space in Singapore contracted for the third consecutive quarter in 2Q 2009 by 248,000 sq ft on an island-wide basis.

Firms that are battered by the financial crisis continued to downsize and give up their office space.  Coupled with the large impending supply, rents continued to free-fall in 2Q 2009 to average at S$6.73 per sq ft per month for Grade A offices in the CBD.  For the first half of 2009, average rents of Grade A office space in the CBD have fallen some 41.5%, bringing rents back to mid-2006’s level.

Nonetheless, the steep plunge in rents is favourable for firms with a strong balance sheet.  These firms could leverage the situation now to expand their office space requirements or move to better quality space – which has helped to decelerate the pace of demand contraction in the last two quarters.  Given that Grade A offices are the prime beneficiary of such trends, the average occupancy rates of such offices have shown some stabilisation in 2Q 2009, declining nominally from 94.3% in 1Q 2009 to 93.9% in 2Q 2009.” 

As the extents of rental declines in all other Asia Pacific cities surveyed are significantly milder compared to that experienced by Singapore, coupled with the exchange rate factor, the gap between Singapore’s office rents and those of more expensive cities have widened significantly. 

For example, Tokyo’s average Grade A CBD office rents are now 2.2 times that of Singapore’s, up from the preceding quarter’s 1.6 times.  The gap between Singapore and Hong Kong has widened from 1.2 times in the preceding quarter to the current 1.4 times.

By the same token, the gap between Singapore’s Grade A office premises in the CBD and those in the cheaper cities have narrowed considerably; thereby, eroding some of these cities competitive edge and improving Singapore’s. 

Outlook
Amid the trend of increasing vacant office stock for lease in the secondary market, office rentals in the region will suffer from further downward pressure, as most occupiers continue to re-align their business strategies for 2H 2009 and 2010.

For Singapore in particular, given that the economy is expected to remain in a contraction mode, albeit at a reduced pace, growth in demand for office space will likely continue to stay subdued, while the large supply in the pipeline will be compounded by the increasing amount of shadow space coming on stream.  Hence, the race to woo tenants will result in office rents remaining depressed over the next 12 months.

Ms Tay forecasts, “However, as flight to quality and opportunistic expansion can be expected to intensify on the back of continued rental weakness, the pace of rental declines is likely to moderate from the 41.5% seen in the first half of 2009 to around 20% in the second half of the year, and 10% for 1H 2010.

With the outlook for all the other Asia Pacific cities looking comparatively brighter than Singapore’s, Singapore is likely to continue to slip in the rankings of most expensive office rents in the Asia Pacific region.  The rental gap with the more expensive cities is expected to widen further, while the gap with the less costly cities is largely expected to narrow in the next 12 months; thereby, improving Singapore’s competitive edge.”

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 12,700 employees span the world in 294 offices in 61 countries. On a worldwide basis, Colliers manages 1.1 billion square feet, and has revenue of $US 1.6 billion.

Contact Information

Ms Seah Li Ching
Assistant Manager, Marketing & Communications
Tel:  65 6223 2323
Direct: 65 6531 8545

Ms Tay Huey Ying
Director, Research and Advisory
Tel: 65 6223 2323
Direct: 65 6531 8658

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