Office rents keep on rising despite influx of new space

Commercial property rents remain high despite the foreseen entry of as much as 3mln sq ft of new office space.

On the contrary, DTZ Research noted that asking rents in existing buildings continue to rise as landlords benchmark their rents against higher rents in the new or uncompleted developments.

The average gross rent of offices in Raffles Place rose 5.4% QOQ to $9.80 per sq ft per month in Q2 2011 while average rents in the Anson Road/Tanjong Pagar area have risen to be on par with those in the Harbourfront area, which recorded a 4.3% QOQ spike to $7.30 per sq ft. per month.

Space at Anson/Tanjong Pagar, meanwhile, saw a greater increase of 6.6% QOQ as the quality of the office stock in the vicinity has improved and there is more occupier demand due to the rejuvenation of the area.

DTZ Research estimates the potential supply between 2011 and 2015 to be about 10.46 million sq ft (net), comprising projects with planning approval and projects on government land sales sites that were awarded.

Asia Square Tower 1 and Ocean Financial Centre, which were completed in the first half of 2011, are expected to make up a significant portion of the 3 million sq. ft expected to hit the market this year.

According to the analyst, the average occupancy of purpose-built office buildings island-wide fell 1.55% QOQ points to 93.77% as a result of the new completions.

Discounting about 1.95 million sq ft of existing stock that could be demolished for redevelopment, the average net new supply per year is about 1.70 million sq ft, marginally lower than the average 6-year annual take-up of 1.76 million sq ft.

However, office space amounting to more than 3 million sq ft is expected to be added to the potential supply from unsold sites in the Government Land Sales programme and from the Malaysia-Singapore joint venture sites at Marina Bay and Ophir Road, most of which are likely to be completed in 2016 or thereafter.

Chua Chor Hoon, Head of DTZ South East Asia Research, said average rents in Raffles Place are likely to rise by 15% to 18% this year based on the projected GDP growth of 5-7% for 2011.

Chua, however, hinted at the moderation of office rents next year as a result of a foreseen dip in the 2012 GDP.

“The pace of increase is expected to be slower in the next few years due to a lower projected GDP growth rate of 4-5% and the sufficient pipeline supply which will avert a repeat of the high-demand short-supply situation in 2007/08,” she said.