Nomura and Barclays save Singapore office market

The arrival of big banks at the new Marina Bay Financial Centre may signal a turning point for grade A office space as rents bottom out and leasing picks up.

Market demand picks up speed as corporate expansions gain traction on the back of an improved business outlook this quarter.

Major relocation deals such as Nomura Singapore and Barclays taking up approximately 100,000 sq ft each in Marina Bay Financial Centre (MBFC) Tower 2 suggest an increase in leasing activity over the past few months.

Grade A rents are near to bottoming out with a marginal decline of 0.6% q-o-q to an average of S$7.75 per sq ft per month in the first quarter this year, based on statistics released by Jones Lang LaSalle regional director and head of markets Chris Archibold on March 24. Preliminary data suggest that the overall vacancy rate in the CBD core area has remained flat in 1Q10 at about 9.5% in spite of an infusion of new supply, thereby demonstrating a positive take up.

Similarly, positive news of global MNCs setting up shop in Singapore contribute to a healthy appetite for office space. Russia’s Gazprom, a natural-gas firm with plans to increase headcount from 35 personnel to 100 by year-end, is a recent example.

Office rents aside, institutional investors are still on the lookout for core office assets as seen in the first quarter sales of Robinson Point and 1 Finlayson Green, but a lack of supply and sellers raising prices have let to a dearth in office investment deals.

According to Adam Tan, Corporate Communications & Marketing Manager for P & N Holdings Pte Ltd, “This inadvertently pushes up the sale price despite a softening rental environment, thus suppressing yields to the current sub-5 per cent level.”

He further elaborated, “It is estimated there are no less than 20 foreign investors in Singapore looking for prime office investments (anything in the range of $20 million to $500 million). However, they could not engage in serious negotiations over the past six months as sellers raised prices.”

This sentiment was echoed by Eric Cheng, Group Managing Director, ECG Group of Companies who felt “there is still unlocked potential compared to the residential market as current prices are under bookkeeping value.”

Notable commercial deals in the last two weeks include Parkway Novena which sold all 100 medical suites by March 27, with units ranging from 452-1,431 sq ft, and priced between $3,588-$3,828 per sq ft.

Hong Leong Group inked a pact to sell Marina House at Shenton Way for $148 million on March 26. The buyer is believed to be a group led by niche property developer and investor Melvin Poh. Members of his consortium reportedly include Victor Soh of Fortune Development, with talks of redeveloping them into residential use.

Hong Leong Group had previously secured an approval to redevelop the former Ong Building into residential apartments, which also entailed a lease upgrade. The 39-storey project- 76 Shenton, with a total of 202 residential units, was sold out within one day of its launch on March 25, with prices ranging from $1,600 psf to $2,300 psf.

Desmond Sim, Associate Director, Research & Consultancy for Jones Lang LaSalle reckoned that “niche individual investors with smaller appetites will continue to drive investment sales going forward.”

“Developers are also redeveloping ageing office buildings in the Singapore CBD area into residential projects. This reflects the growing appetite to capture potential demand for housing in the CBD from professionals and expatriates, and to embrace the concept of city living.”