CBD rents under pressure

Not all the cranes dottting Singapore’s Marina Bay skyline are building the the integrated resort. Many are, in fact, building ever more grade-A office space in the financial district and beyond. So much new supply is coming online in Singapore that analysts estimate the vacancy rate could hit an historic high of 25 % by 2011. That, coupled with the current downturn and a desire to shift to cheaper localtions like Changi, has seen CBD rents fall by as much as 25 %. Tay Huey Ying, Director of Research and Advisory of Colliers International said demand for office space contracted for the third consecutive quarter in 2Q 2009 by 248,000 sq ft. “Firms 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,” shes said. So what does this mean for CBD office rents and how should potential tenants assess the market?

According to a research note from Credit Suisse, CBD rents for a grade A building may fall a further 14 % to $9.20 by the end of this year and will keep falling until the bottom out at $7/sq ft in 2011.Then there is the ‘shadow space’, which is when the tenant sublets, and there is a lot of supply coming onto the market as companies downsize central business district operations.

Empty offices
According to research from CB Richard Ellis, the weakening of prime office demand during the last quarter could leave the new office space in the works empty for the short term at least. “Singapore is home to the Asian headquarters of a large number of MNCs and consequently saw the further weakening of prime office demand during the quarter. Prime rents have now fallen 46.6% from the peak recorded in the third quarter of 2008, and occupancy rates will continue to face pressure from substantial new supply. Singapore has some 7.98 million sf of new office space in the development pipeline between now and 2013 and it seems certain that for the short term at least, supply will continue to outstrip demand,” said a CB Richard Ellis spokesperson.