Office rents continue upward momentum in fourth quarter

Steady level of office space demand is seen should the economic recovery remain on track.

Rentals in the Singapore office market continued on the upswing and experienced strong growth during 4Q10 according to Jones Lang LaSalle. Preliminary estimates of the average CBD Prime Grade A gross effective rent, show an increase of 7.5% q-o-q to $9.35 per sq ft per month in 4Q10 up from $8.70 per sq ft per month in 3Q10.

This translates to a 19.9% y-o-y increase from $7.80 in 4Q09. Landlords capitalised on their increased bargaining power, on the back of a temporary shortage of office space in the current market. The majority of landlords in 4Q10 have enjoyed increases in achievable rents, with a number of them experiencing double digit growth.

However rental growth has slowed or remained stable in some buildings where vacancy is looming due to some tenants committed relocation to upcoming new developments, according to a Jones Lang LaSalle report.

In terms of demand in Singapore, Jones Lang LaSalle’s preliminary data suggests that the current vacancy rate in the CBD core area in 4Q10 stands at 5.4%. While this is a slight increase from the 5.3% previously recorded in 3Q10, it is mainly as a result of previously scheduled major tenant relocations.

At this stage, the outlook for upcoming buildings has shown a steady improvement. Increases in tenant commitment for OUE Bayfront (previously known as 50 Collyer Quay), Ocean Financial Centre and Asia Square Tower 1, have led the overall commitment rate for supply in 2011 to increase to approximately 50%. This is equivalent to about 1.4 million square feet committed in total.

Chris Archibold, Head of Markets at Jones Lang LaSalle commented, “Should the economic recovery remain on track, we are likely to see a steady level of demand. Although there is some supply pressure expected in 2011 with the likes of OUE Bayfront, Ocean Financial Centre, Asia Square Tower 1 and One Raffles Place Tower 2 completing, the reality is that much of this space has already been let. The market will also see numerous older office buildings being taken out for redevelopment”.

“While vacancy is likely to increase in 2011, we are currently seeing a healthy level of growth, which coupled with the ongoing redevelopment trend, will offset much of the supply pressure. Our view is that we expect a healthy rate of space absorption in both the new developments and the better quality buildings that have current or future pockets of vacancy,” he commented.

Dr. Chua Yang Liang, Head of Research for Singapore and Southeast Asia at Jones Lang LaSalle noted, “Singapore’s open economy lends itself to external stimuli that it has little control over. The pace and sustainability of global economic recovery (and how the demand for services eventually translates into occupier demand in Singapore) will reshape the office market going forward. Similarly, the US QE2 could further lift investment mood in the office market.”

“The return of growth sectors such as legal arbitration, personal wealth management and general business support services are likely to lend further occupier support to the local office market,” he added.