Prime office rents drop for the first time in three years as supply glut jitters strike

CBD rents slipped 5.1% in 2015.

The good times are over for prime office landlords in Singapore. A report by DTZ revealed that average monthly gross office rents in the Central Business District dropped by 5.1% in 2015, the first yearly drop since 2012.

Rents dropped by 2.7% quarter-on-quarter to $10.15 per sq ft in the fourth quarter. This was on back of slower global economic growth and heightened uncertainty, coupled with pressure from the estimated 2.4 million sq ft of expected office completions in the CBD in 2016. These contributed to the second consecutive quarter-on-quarter fall in rents.

Office rents in the CBD peaked at $10.85 per sq ft per month in the first quarter of the year, buoyed by strong demand from insurance and telecommunication, media and technology sectors, serviced offices and limited new office supply.

However, things went downhill in the second half, as a slowing Chinese economy and weaker business sentiments resulted in a contraction of net demand for office space.

“As the global economy becomes more uncertain, tenants continue to exercise prudence in space take-up thereby prolonging the decision making process and consequently the slower pace of market activities," said Cheng Siow Ying, DTZ Executive Director of Business Space.

Within the CBD, monthly gross rents in Marina Bay fell the most on a year-on-year basis by 5.7% to $12.50 per sq ft in Q4. Meanwhile, rents in Shenton Way/Robinson Road/ Cecil Street declined by 5% to $7.60 per sq ft per month, while rents at Raffles Place dropped by 4.8% to $10.30 per sq ft per month.

Likewise, rents of offices in decentralized areas, which comprised the Alexandra and Novena Belts, Tampines Finance Park, and Harbourfront, also saw a y-o-y decline of 6% to $7.00 per sq ft per month. 

"Moving forward, office rents in the CBD are expected to slide further in 2016, particularly in 2H 2016 when landmark developments such as Guoco Tower, Marina One and Duo Tower are scheduled to complete," added Dr Lee Nai Jia, Regional Head (SEA) of Research at DTZ