Office space capital values crumble due to rent easing

Even the Raffles Place/New Downtown micro-market's values will slip by 5% end-2012.

Colliers International said that capital values of office space finally succumbed to the pressure from the continued easing in office rents to record their first correction in two-and-a half years in 2Q 2012.

Here's more from Colliers International:

The average capital value of Grade A office space in the Raffles Place/New Downtown micro-market softened by a marginal 0.5% to $2,447 per sq ft by the end of June 2012 from the $2,459 per sq ft recorded in 1Q 2012.

The overall demand for office space is foreseen to stay suppressed given that the escalation of the Eurozone crisis will continue to constrict expansionary demand among financial institutions – traditionally the key demand driver for office space.

Hence, notwithstanding the lack of major new completions for the rest of 2012, the threat of an impending supply overhang remains. This stems from the substantial amount of space that could be returned to the market upon lease expiration as existing tenants move to their newer premises. As well, the quantum of shadow space available for sublease or assignment by tenants would also build up if economic activities stay low.

Thus, the office rent decline in the Raffles Place/New Downtown micro-market is expected to continue into the next six monthsof 2012, although the pace of decline could slightly decelerate from the 8.1% fall registered in the first six months of the year to keep within a drop of 15% for the full year. With weakening rents, capital values are also foreseen to continue on their moderate downward path, potentially eroding by 5% for the whole year.