Singapore office market gross effective rent up 29% year-on-year in 1Q 2011

The average CBD Prime Grade A gross effective rent showed an increase of 7.0% q-o-q to $10 per sq ft per month.

According to Jones Lang LaSalle, this is up from $9.35 per sq ft per month in 4Q10.

Singapore landlords continue to be bullish on office rents and the willingness of tenants to pay for quality office space has meant that the majority of landlords in 1Q11 have enjoyed increases in achieved rents, with the newer developments leading the growth. However, growth rate has slowed or remained stable in some buildings where vacancy is looming due to tenant relocation to these newer developments.

In terms of demand in Singapore, Jones Lang LaSalle’s preliminary data suggests that the current vacancy rate in the CBD core area in 1Q11 stands at 6.3%. While this is a slight increase from the 5.4% previously recorded in 4Q10, it is primarily due to previously scheduled major tenant relocations as well as new supply coming into the market.

At this stage, the market continues to show strong interest in upcoming quality buildings. Increases in tenant commitment for OUE Bayfront, One Raffles Place Tower 2, Ocean Financial Centre and Asia Square Tower 1, have led the increase in rents with double digit growth Q-o-Q. Rents for these buildings are now hovering around the $11-$13 range.

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 the next few quarters 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 and we continue to see high levels of interest in these spaces, despite the increased asking rents.”

“While vacancy is likely to increase for the rest of 2011, we are currently seeing a healthy level of absorption, which coupled with the ongoing redevelopment trend, will offset much of the supply pressure. Our view is that we expect the take-up for the new developments and the better quality buildings that have current or future pockets of vacancy to pick up pace as they become available,” he commented.

Dr. Chua Yang Liang, Head of Research for Singapore and Southeast Asia at Jones Lang LaSalle noted, “The recent turmoil in the Middle East, the continued weakness in the Eurozone, as well as the potential economic disruptions caused by the disaster in Japan pose significant risks to the global economy. This in turn will impact demand in the office market in Singapore as firms may hold back their expansion or relocation plans in view of the uncertainties. However, recent US economic data point to increasing evidence of a sustainable US economic recovery and that should offset some of the negative sentiments embroiling the market in the past two weeks.”

“The Singapore government’s continued emphasis on growth sectors such as legal, personal wealth management and general business support services, as announced in the 2011 Budget, are also likely to lend further occupier support to the local office market.” He added.