Office property market sees rent correction by up to 8.8%

The average monthly gross rents for Grade A office space recorded a steeper fall of 5% in 1Q12.

According to Colliers International, the office leasing market in Singapore experienced a rent correction by up to 8.8 per cent quarter-on-quarter (QoQ) across all micro-markets in 1Q 2012.

In the Raffles Place/New Downtown micro-market, the average monthly gross rents for Grade A office space in 1Q 2012 recorded a steeper fall of 5.3 per cent QoQ, as compared to the 4.3 per cent QoQ correction in 4Q 2011.

Consequently, the average monthly gross rents for Grade A office space in this micro-market returned to the single-digit level of S$9.76 per sq ft as of end March 2012. The last time when the monthly gross rents for Grade A office space in this micro-market were below S$10 per sq ft was in 1Q 2011 – at S$9.72 per sq ft. Rents then were still on an uptrend.

Activity in the office leasing market was subdued in 1Q 2012, as demand was dampened by the lingering debt issues in the Euro zone and slowing growth in the Chinese and Japanese economies.

These macro issues have caused corporate restructuring and a hiring freeze in some firms, while keeping many others – especially the large occupiers in the banking and finance industry – on the sidelines in 1Q 2012.

Compared to the global financial crisis in Year 2009, the occurrences were contained and not widespread. As such, the amount of shadow space in Grade A office buildings in the Raffles Place/New Downtown micro-market stayed flat at 100,000 sq ft as of March 2012.

Mr Calvin Yeo, Executive Director of Office Services, Colliers International, says, “The market is seeing some major lease renewals, such as those by Sumitomo Mitsui Banking Corporation at Centennial Tower, Morgan Stanley at Capital Square and Bank of Tokyo-Mitsubishi at Republic Plaza, as well as healthy pre-commitment rates achieved at new completions – both of which have contributed to keeping the overall islandwide occupancy rates of Grade A offices relatively stable in 1Q 2012.”

In the Raffles Place/New Downtown micro-market, occupancy eased moderately by 0.8 percentage point to 87.2 per cent as of March 2012. With the exception of the Orchard Road micro-market, occupancy rates of Grade A office space in the remaining micro-markets hovered between 92.8 per cent and 97.1 per cent in 1Q 2012, which are close to the 92.2 per cent to 96.9 per cent recorded in the preceding quarter.