Raffles Place reeling from exodus of occupants to Marina Bay

The office space occupancy rate at the prime grade building fell 7.6% YoY to 89% in Q411 as major occupants transfer to other locations.

DTZ said in a statement that Raffles Place’s Q4 figures slipped as a result of a “double whammy” of an exodus and completion of new supply.

Ocean Financial Centre, OUE Bayfront and One Raffles Place Tower 2 were completed in the year while major occupiers such as Standard Chartered Bank relocated to Marina Bay Financial Centre Tower 1 and Bank Julius Baer and Lloyd’s of London moved to Asia Square Tower 1.

Despite office rents at the building remaining steady at $9.80 per sq ft per month in Q411, the average prime rent in the area rose at a slower pace of 8.9% for the entire year compared to the 13.9% increase in 2010.

Prime rents increased by 3.3% QOQ in Q1 2011 and 5.4% QOQ in Q2 2011 respectively but remained stagnant in the second half of 2011 due to occupier concerns over the worsening Eurozone debt crisis.

The average occupancy rate in Marina Centre also fell in the year as some of its occupiers such as Citibank moved to Marina Bay. The average occupancy rate fell 0.9 percentage-point QOQ and 2.4 percentage-points YOY to 96.3% in Q4 2011.

The fall in occupancy rate in Marina Centre was smaller compared to Raffles Place as the decline in demand was mitigated by a lack of new supply in the area.

Rents in Marina Centre saw a fall of 1.6% QOQ to $9.25 per sq ft per month in Q4 2011 despite the smaller decline in office occupancy rate as there were more strata-titled offices held by individual investors. For 2011, rents in Marina Centre rose 15.6% YOY with the increase taking place in the first half of the year.

Cheng Siow Ying, DTZ’s Executive Director, Business Space said that the slowdown in office space leasing in 2011 was caused by various pre-commitment deals made by multinationals in 2010.

“Many corporates chose to renew their leases or expand within the building to minimize fit-out and moving cost. Forward-looking expansion plans have been put on hold as occupiers adopt a wait-and-see stance in view of the uncertain economic environment,” she said.

In the light of corporate belt-tightening among firms, Cheng noted that landlords have become “more flexible” in packaging competitive lease terms to meet the occupiers’ requirements.

“Some landlords in buildings with higher occupancies are holding onto the current rental rates while those with lower take-up rates are aggressively offering more attractive leasing incentives such as longer rent-free periods and tenant improvement contributions,” she said.