Here's what pushed office rents to dip a tad lower

Average rents for Raffles Place Grade A office declined by just 1.1%.

According to Jones Lang LaSalle's data, office rents stabilised during the third quarter of 2012, bringing some optimism to the office market which has been hit by weak demand since the EU debt crisis returned fear to the global economy a year ago.

Here's more from Jones Lang LaSalle:

Average gross effective rents for Raffles Place (excluding Marina Bay) Grade A office declined by just 1.1% q-o-q to SGD 9.10 per sq ft per month in 3Q12. This rate of decline is similar to the rate observed in 2Q12.

Average rents in the Shenton Way and Marina Centre submarkets similarly showed moderate decline at 0.8% and 1.3% q-o-q respectively - almost half the 1.6% and 1.9% quarterly decline seen in 2Q12. These numbers point to relatively stable market conditions.

However, demand was fairly muted during the quarter, with leasing transactions in the core CBD area largely supported by smaller office tenants. Examples of this being Reed Smith, a US legal firm, which marked its first entry to Singapore by taking up 10,000 sq ft of space in Ocean Financial Centre whilst insurance firm Tokyo Marine consolidated its operations in 16,000 sq ft of space in DBS Centre Tower 2 from SGX Centre.

Some larger office tenants are currently focused on exploring their options to decentralise business operations in order to save costs, whilst quite a number are adopting a wait-and-see approach due to concerns over the economic situation in Europe.While the latest QE3 action by the Fed is likely to boost business confidence, business hiring and expansion are not expected to see a strong impact in the near term.

Companies are likely to maintain the status quo by keeping business costs low and stay selective on business hiring, as they await more positive economic data. Chris Archibold, Head of Markets at Jones Lang LaSalle commented, “More companies are now required to tighten their budgets, with many having to first show that they can either reduce or keep operational costs low before gaining the green light to spend on capital expenditure which would come with expansion or relocation. That said, there is still a good level of activity amongst smaller occupiers.”

As the financial year comes to a close, many major corporate decisions are likely to be put off until early next year with a view to having a better understanding of how the economic situation in Europe will evolve. As such, office demand is expected to remain fairly slow.

Nevertheless, Dr Chua Yang Liang, Head of Research at Jones Lang LaSalle, sees the recent market weakness as an opportunity for businesses to consolidate their operations and look towards regional markets for opportunities. He adds, “Despite the global slowdown, growth in major Asia economies are still well ahead of those in the US and EU. The wealth accumulated on the back of the strong Asian economic growth in the past two years provides policymakers sufficient resources to spur their domestic growth, in the event of a prolonged slowdown.”