Singapore office market remains lukewarm in Q4 2009

CB Richard Ellis study showed prime office rents in Singapore fell despite increased activity of tenants.

Singapore tenants that had delayed decision-making relating to renewal or relocation options earlier in 2009 became increasingly active during the fourth quarter, the study disclosed.

The study also revealed that the number of relocations in Singapore increased although the focus of this activity still centered on finding cheaper alternatives or moving because of the redevelopment of existing premises. Selected tenants were looking for space to expand, with a number of large financial institutions ready to move forward with such plans. However, prime office rents fell for the fifth consecutive quarter in spite of the more positive outlook.

As in Singapore, the Asian office market, in the fourth quarter of 2009, continued to approach the bottom of the present cycle as rental declines slowed further and absorption gradually increased. The quarter saw multinationals and financial institutions in selected Asian cities display a renewed willingness to expand.

The unemployment rate declined for three consecutive months in Taiwan and Hong Kong, while in Japan it fell from July 2009's record high of 5.7 percent to 5.1 percent in December, reflecting the overall improvement in the Asian labor market.

Yet despite the positive news on the employment front, the recovery of demand in the office sector in the region remained lukewarm as many companies continued to adopt consolidation and decentralisation strategies to reduce real estate related costs. The fourth quarter saw overall vacancy for Asian cities edge up 30bps quarter-on-quarter to 12.8 percent, although Beijing, Hong Kong, Taipei, Bangalore and several Southeast Asian cities all recorded a minor decline in the amount of vacant space.

As the market outlook began to look more positive, landlords of prime buildings in leading Asian cities started to take a firmer stance towards maintaining present rental levels. Notwithstanding this fact, oversupply challenges continued to exert significant downward pressure on rentals in a number of emerging markets. Overall office rents in Asia fell 1.8 percent in the fourth quarter, the decline decelerating from the 3.1 percent recorded in the previous quarter. The current downward cycle has now lasted for about 18 months and certain markets with stronger economic fundamentals have already seen the slide in rentals come to an end.

"The Asian office market displayed definite signs of recovery in the second half of 2009. With an increasing number of domestic and multinational companies planning to expand in the months ahead, office leasing activity is expected to increase in the first half of 2010, and this should move rentals up and away from the lowest point in the downward cycle," commented Andrew Ness, Executive Director of CBRE Research Asia.