PRESS CLIPPINGS

Chevron House could be the next big office deal on the cards, say market watchers. This follows the sale of about $1.9 billion worth of office blocks so far this year. Chevron House was bought by Goldman Sachs funds in late 2007 for $730 million or about $2,780 per sq ft of net lettable area and the purchase was mostly funded by a consortium of lenders led by Standard Chartered. That financing facility is understood to be expiring in October and the bankers and Goldman Sachs are said to be weighing their options.

CHEVRON HOUSE Bought by Goldman Sachs funds in 2007 for $730m or about $2,780 per sqft of net lettable area

BT understands that potential buyers have been knocking on the doors of Goldman Sachs and the lenders and that property agents could soon be appointed to conduct a sale process such as a tender or expression of interest. 'The way I look at it, Goldman could have about three options - seek refinancing, bring in a joint venture partner or sell the asset completely,' suggests an industry observer.

Analysts say that the consortium of banks could have loaned the Goldman funds about 65 per cent of the 2007 purchase price, which would work out to about $1,800 psf of net lettable area. The loan-to-value covenant on the financing facility would have been breached sometime ago following the steep slide in office capital values last year. Interest coverage ratio for Chevron House would also have fallen on lease renewals in the building; average Grade A office rents in Singapore today are about $9 psf a month, or 40 per cent lower than the $15 psf three years ago.

Analysts polled by BT estimate the property could fetch anything from about $1,900 psf to $2,200 psf (or about $500 million to $577 million). The most recent benchmark would be the $2,125 psf that Ho Bee achieved when it sold four office floors at Samsung Hub at Church Street. While Samsung Hub is a much newer asset and stands on a site with superior leasehold tenure (999 years) than Chevron House (which is on a site with 78 years' remaining lease), the latter boasts a more choice location next to Raffles Place MRT Station.

Goldman Sachs funds also bought Hitachi Tower, behind Chevron House, in early 2008 for $811 million or about $2,900 psf of NLA. Stanchart also heads the consortium of lenders for that purchase; the financing facility is said to end early next year. So a sale of Hitachi Tower could also be on the cards a little later down the road.

Hitachi Tower would be worth more than Chevron House, say analysts, citing its superior land tenure (999 years) and facing (along Collyer Quay). However, one drawback about the asset is the impending departure of American Express - which is said to occupy about 70,000 sq ft - to Marina Bay Financial Centre Tower 2.

Last week, Goldman Sachs funds sold DBS Towers One and Two along Shenton Way for $870.5 million or around $970 psf of NLA, marking the biggest commercial property deal in Singapore since mid-2008. Goldman Sachs reaped a profit from that deal, having paid $690 million for the property in 2005.

Some of the blocks sold this year were 'pure office' deals, that is the buyers bought the assets on their existing office use - such as 1 Finlayson Green and Robinson Point - while others such as Chow House and StarHub Centre were probably acquired for their potential for redevelopment into other uses.

Interest from both local and foreign investors in the Singapore office market has been warming on the back of recovering office rentals and the easier climate for fund-raising.   -  2010 August 21    BUSINESS TIMES

Marina House Sold

The $148 million purchase price reflects about $1,130 per square foot based on the building's existing net lettable area of about 130,000 sq ft. The building has a few tenants (the most prominent being Indian Airlines) but is substantially vacant - probably a deliberate strategy on the part of Hong Leong Group as it weighed various options, including the possibility of redeveloping the site into residential use.     - 2010 March 26     STRAITS TIMES

1 Finlayson Green Sold
Headline price is said to be $145 million ($1,630 per sq ft)

The office block that is 1 Finlayson Green has been sold, BT understands.

The price is said to be about $145 million, or 37 per cent below the $230.88 million the seller had paid for the property in June 2007.

A unit of UK-based property fund group Develica is believed to have signed an agreement recently to sell the 19-storey freehold office tower to a foreign-domiciled fund initiated by low-profile Indonesian investor Norman Winata.

BT understands the sale is being effected through a sale of shares in the company that owns the asset.

Develica is understood to have borrowed from National Australia Bank, Hypo Real Estate and Citibank. Market watchers say the three banks would have consented for the sale to take place.

1 Finlayson's current net lettable area (NLA) is said to be about 89,000 square feet. Based on this, the latest transacted price of $145 million reflects about $1,630 per square foot.

A market watcher described the pricing as 'about right'. In January, CapitaCommercial Trust sold Robinson Point - a freehold, 21-storey office building - for $203.3 million or $1,527 psf, based on its NLA of 133,139 sq ft. 1 Finalyson Green's location is considered to be superior, being closer to Raffles Place MRT Station.

For 1 Finlayson Green, some market watchers suggest that there could be some other fees or costs associated with the transaction which could take its net acquisition price above the $145 million headline price paid by the buyer.

When Develica bought the property over two years ago from Singapore's Hong Leong Group, its NLA was reported to be about 86,500 psf. Develica was later reported to have refurbished the building for $2 million and increased net lettable area by 7 per cent by leasing to one tenant per floor. That would have boosted the property's NLA to about 92,500 sq ft. However, industry observers have been citing the building's NLA at between 88,200 and 89,000 sq ft recently.

1 Finlayson Green received its Temporary Occupation Permit in 1994

'However, this is a relatively small asset in the group's office portfolio and establishing a record price for 1 Finlayson Green would help to raise the valuations on the rest of its office buildings. So this will still benefit the group if it decides to go ahead with an office Reit,' as a seasoned observer put it.

The group's office portfolio in Singapore includes Republic Plaza, City House, Hong Leong Building, 80 Robinson Road, The Corporate Office, Commerce Point, and Fuji Xerox Towers.

The record price of $2,200 psf for office space was set in early 1996 when Straits Steamship Land, now Keppel Land, sold seven floors of what is now known as Prudential Tower in the China Square area to Prudential Assurance Company Singapore.

Just last week, BT reported the sale of Parakou Building, a spanking new freehold office block at the corner of Robinson Road and McCallum Street, for $2,013 psf of NLA, or $128 million. This is the highest per square foot price achieved in the current office cycle. The buyer was UK fund manager New Star and the seller, Parakou Shipping Group of Hong Kong.

1 Finlayson Green received its Temporary Occupation Permit in 1994.

Its NLA is around 76,000 sq ft.    - 2010 March 8   BUSINESS TIMES

The Singapore office market has seen its prospects improve dramatically since a gloomy start this year.

While office rents are still expected to dip further next year, although at a much slower pace than over the past 15 months, an unexpected flurry of leasing activity recently has led some to predict a bottoming-out of office rents as early as mid-2010.

'We are currently witnessing a strong recovery in leasing activity. Some tenants are even starting to look at expansion,' says CB Richard Ellis executive director (office services) Moray Armstrong.

Property consultants are predicting a return to positive office demand to the tune of more than one million sq ft next year on the back of economic growth. But with over 2.7 million sq ft of new space slated for completion in 2010, vacancies will continue to rise and rents dip, albeit at a slower clip than in 2009.

Older buildings suffering a flight of tenants to new projects still face a challenging year ahead. Still, some expect the authorities to keep a close watch on the Republic's competitiveness in office rents. Mr Armstrong suggests 'it is not unrealistic to foresee that the government may release a couple of prime office sites in the Marina Bay area in the second half next year'.

'A lot will hinge on how the office market performs in the next three months. The government wants to ensure the supply pipeline is healthy so that businesses feel confident about Singapore's ability to meet long-term demand for growth from headquarters and corporates.'

Jones Lang LaSalle's regional director and head of markets Chris Archibold acknowledges 'some talk in the market that office supply may become limited in 2013 and 2014 in the CBD Core'. 'The Singapore government is likely to continue monitoring the office market and inject supply into the market through the reserve list in anticipation of an upturn to avoid the supply crunch we saw in 2007,' he added.

CBRE data shows gross average monthly rental value for Grade A office space has slipped 7.95 per cent quarter on quarter to $8.10 per square foot in Q4 this year. This is the smallest q-on-q drop since office rents began falling in Q4 last year. The latest Q4 2009 figure reflects declines of 46 per cent for the whole of 2009 and 57 per cent from the peak of $18.80 psf in Q2/Q3 last year. CBRE is projecting a further contraction of 13.6 per cent next year to reach $7 psf by end-2010.

Colliers International's average grade A rental data for various CBD micromarkets show q-on-q dips of 1.9 per cent in Raffles Place/New Downtown and one per cent in Bugis/ Beach Road in Q4 2009, with rents unchanged in Shenton Way/Tanjong Pagar, City Hall/Marina Centre and Orchard Road. For the whole of 2009, the falls ranged from 42 to 53 per cent, but Colliers predicts rental declines will moderate to 'within 5 per cent' in the first six months of next year from current levels.

DTZ projects a 15-20 per cent drop in average monthly rental value for prime office space in Raffles Place next year, which it says has halved this year to $7.90 psf from $16 psf in Q4 2008.

Mr Armstrong sees rentals stabilising around mid-2010 particularly for better-quality buildings. DTZ's SE Asia head of occupational and development markets Angela Tan says rents will likely bottom in 2011. 'If the economy grows more strongly than expected, rents could bottom earlier in end-2010.'

The completion of new projects is creating a two-tier market. Says JLL's Mr Archibold: 'Given the pick-up in leasing activity, we expect the bottom in rentals for new prime Grade A office buildings to be as close as H2 2010. However, there's likely to be longer downward pressure on rentals in existing prime Grade A office buildings as landlords seek to backfill vacancy caused by tenants relocating to new developments.'

Mr Archibold points to a 'flight to quality' by occupiers with leases expiring in older buildings to newer, higher-quality buildings, riding on lower rents and the larger contiguous spaces that could enable them to consolidate operations into a single location.

On a brighter note, CBRE's Mr Armstrong says he has started seeing some of the resurgence in leasing activity being driven by expansion and not just replacement needs. This is laying the foundation for decent positive take-up.

Analysts expect positive demand to continue this quarter following the modest turnaround in Q3. However, with some 570,000 sq ft of negative demand in H1 2009, the year will still end in negative territory. Colliers' executive director (commercial) Calvin Yeo forecasts positive demand of 1.55 million sq ft in 2010; CBRE predicts positive take-up of about one million sq ft next year and 2 million sq ft in 2011.

Meanwhile, shadow office space - surplus stock put up for subletting - has fallen to about 256,000 sq ft from 583,000 sq ft at its peak in June 2009, says Mr Yeo. 'We expect shadow space to dissipate by H2 2010 as the economy recovers.'

Colliers estimates islandwide office vacancy rose from 12.2 per cent as at end-Q3 2009 to 12.8 per cent as at end-2009. On a full-year basis, this is a 4 percentage point rise. Mr Yeo expects the figure to inch up 1.1 points to 13.9 per cent by end-2010. - 2009 December 11    BUSINESS TIMES

The vacancy rate in prime Grade A buildings rose from 1.8% in Q3 2008 to 6.1% in Q2 this year

The office market here, like many around the world, has seen a fundamental shift in dynamics over the last nine months, with a marked drop in demand since the collapse of Lehman Brothers a year ago leading to a drop in rents. While all markets are cyclical, Singapore's commercial property market has seen rental fluctuations that are typical of a more volatile market such as Hong Kong.

The reason for this is that many new developments were cancelled or delayed during the Asian financial crisis/Sars period in 2002-2004. The typical four-year construction period for a Grade A office building means that there is a lag in the supply pipeline, which was adversely affected from 2006-2008.

These were the years which saw a substantial increase in demand for office space. Much of it came from the financial services sector, partly as a result of the global growth of this sector and partly as a result of Singapore's successful repositioning as a global financial services centre.

Jones Lang LaSalle's research shows that from the bottoming out of the market in 2004 to the peak in Q3 2008, Grade A core CBD vacancy shrank from 11.6 per cent to 1.8 per cent and rents surged by 303 per cent. Post credit crisis, the negative take-up and concerns of over-supply have led to rents dropping by 48 per cent between Q3 2008 and Q2 2009.

Market sentiment tailed off rapidly between Q4 2008 and Q1 this year as occupiers began to give up space at the same time that some of the new developments were completed. The result is that the vacancy rate in prime Grade A buildings rose from 1.8 per cent in Q3 2008 to 6.1 per cent in Q2 this year.

A number of occupiers tried to mitigate part of their outgoings by either subletting or finding replacement tenants for their space. By June, 'shadow space' - currently leased space that occupiers are looking to dispose of, including space not available until 2010 - stood at 800,000 sq ft. If shadow space is included, the vacancy rises by about 30 basis points.

Part of the decline in sentiment has been caused by concern over future supply. Singapore has a larger than normal supply pipeline, especially in the core CBD. That said, there is an argument that in order to attract inward investment, Singapore has to constantly upgrade its office space offering and the new buildings coming to the market are, in the main, well specified and offer a significant upgrade to occupiers.

In the short term, net take-up is expected to remain low as there has not been any uplift in new office demand despite a less pessimistic economic outlook. Interestingly, the first two months of Q3 have seen significantly higher activity in the office market. There are two main reasons behind this increased activity.

Firstly, activity that is lease expiry driven. Given that the first wave of the long awaited new supply has now started to hit the market, there is some vacancy in the market and tenants now have real options. On the back of this we are seeing a discernible flight to quality in favour of the new developments ready this year.

The biggest roadblock to relocating today is a lack of budget for capital expenditure (capex). On the back of this, a number of active inquiries are focused on fully fitted 'shadow space' that negates the need for capex spend for fit-out.

Secondly, there are quite a number of large occupiers (50,000 sq ft plus) in the market who have been sitting on the sidelines for the last nine months for various reasons. They might not have been able to accurately predict their future headcount, lacked a capex budget, or else anticipated a weaker market ahead.

These occupiers are now coming to market as it has fallen significantly. Also, occupiers of this size would need to plan a move 12-18 months in advance, and this is close to the completion periods of new supply.

A significant number of these occupiers, especially those in the financial services industry, are also looking for enhanced specifications such as trading floors, enhanced power and air-conditioning provision and space for their dedicated equipment - back-up generators and air-conditioning, etc. The ability to supply such needs is limited and hence the first movers into a building have more chance of securing the specifications they need.

The increased activity is also being generated by the desire among some occupiers to secure branding rights (naming or signage rights) to the building they plan to occupy. The availability of this in the market is even more limited and hence occupiers will commit early in order to secure them.

Given the drop in rents and uplift in market sentiment on the back of both the global stock markets and local residential market, in the short term we expect to see the office market continue to be active. However, given the supply scenario, we expect rents to still face some downward pressure, albeit at a more muted pace, and much of the activity to be from consolidation or a flight to quality as occupiers upgrade.

The writer is regional director and head of markets, Jones Lang LaSalle   - published 2009 September 22    BUSINESS TIMES

Office rents in Singapore fell for the fourth consecutive quarter in Q3 2009, but the pace of decline has eased on the back of returning business confidence, said CB Richard Ellis (CBRE).

Data from the firm said that prime office rents in Singapore averaged $7.50 per square foot (psf) per month in Q3. This reflected a 12.8 per cent quarter-on-quarter decrease, compared with the 18.1 per cent decline in Q2 2009 and 18.6 per cent contraction in Q1 2009.

In all, prime rents have fallen 53.4 per cent in Singapore since their peak in Q3 last year.

As in Singapore, the slower decline in office rents in Hong Kong is partly attributed to the improving stock market.  - 2009 September 2004   BUSINESS TIMES

Steepest fall in office occupancy cost

A plunge in Grade A office rents has raised Singapore's competitive edge somewhat. According to Colliers International, office occupancy costs here were the fourth-highest among 26 Asia-Pacific cities in Q2 this year - down a notch from a quarter ago.

As rents stay weak while the economy stabilises, property consultants also expect some companies to take advantage of the situation to expand.

Colliers noted that monthly gross rents for Grade A offices in Singapore's central business district (CBD) posted the sharpest fall in Q2, compared with other major cities in the region. Rents slid 26.2 per cent quarter-on-quarter, averaging at $6.73 psf per month in Q2.

As a result, Singapore fell from third to fourth place in a ranking of office occupancy costs. Tokyo remained the most expensive place in the Asia-Pacific to rent an office - average Grade A CBD office rents there were 2.2 times that of Singapore's, up from 1.6 times in Q1.

Hong Kong also kept its No. 2 spot. Average Grade A CBD office rents there were 1.4 times that of Singapore's, growing from 1.2 times in Q1. Ho Chi Minh City rose one notch to replace Singapore in third place on the list.

Colliers expects office rents in Singapore to continue falling up till H1 next year, albeit at a slower pace. This is because demand from most companies is likely to stay subdued, while supply of shadow space could increase.

This means that Singapore could continue slipping in the list of the most expensive Asia-Pacific cities to rent an office, said Colliers research and advisory director Tay Huey Ying.

While most companies may be cautious about expansion, some may take advantage of lower rents to grow in anticipation of better times ahead. 'Flight to quality and opportunistic expansion can be expected to intensify on the back of continued rental weakness,' Ms Tay said.

Cushman and Wakefield managing director Donald Han agreed, noting that companies have been more willing to relocate to larger premises since May or June this year.

'The economy now looks like it's on the mend' and some companies 'are budgeting for a possible increase in headcount' by some 10-15 per cent, he said.

Mr Han added that a few quarters ago, most firms were still watching the rental market and would rather extend their leases than commit to more space. As rental declines moderate, 'tenants are going to say - how low can it go?'

Colliers cited Dresdner Bank as an example of companies expanding or upgrading their space requirements as office rents fall. The bank will be moving from Tung Centre at Collyer Quay to 71 Robinson Road where it will take up 20,000 sq ft of space

AIG takes 5 floors at new Shenton Way tower

In one of the bigger office leasing deals in recent months, AIG is understood to have leased five floors or about 60,000 square feet at the recently completed South Tower of 78 Shenton Way. CB Richard Ellis is said to have brokered the deal.

AIG is understood to be relocating operations from leased premises at two adjacent buildings on Martin Road in the Mohamed Sultan Road area to the South Tower.

These operations include the entity currently known as American Home Assurance Company. BT understands that the leasing deal involved some 'structuring'. Among other things, 78 Shenton Way's owner, Germany's Commerz Grundbesitz Investmentgesellschaf (CGI), is said to have taken over AIG's remaining lease term at Martin Road.

CGI also owns 71 Robinson Road, which it bought in April last year while still under construction for $743.75 million, reflecting a record price of $3,125 psf of net lettable area. The seller was a joint venture between Lehman Brothers and Kajima Overseas Asia.    - 2009 September 23    BUSINESS TIMES

Prime office rents check their slide

The pace of decline in prime office rents slowed in the first six weeks of the second quarter and the improvement has been most visible in the key Raffles Place sub-market, going by latest data from Cushman & Wakefield.

The property consultancy's monthly average rental value for prime Raffles Place slid 6.6 per cent in the six weeks since the end of Q1 2009 to $9.44 per square foot as at May 15, a much smaller decline than the 28.8 per cent quarter-on-quarter drop registered in Q1 this year. This brings the total year- to-date decline to 33.5 per cent from $14.20 psf a month at end-2008.

The average Grade A Raffles Place rental eased 8.7 per cent in mid-Q2 2009, again a more moderate drop than the first quarter's 27.7 per cent Q-on-Q slump.

The moderation in rental decline was also seen in the other micromarkets in Cushman's prime office basket - namely, Shenton, City Hall and Orchard. Cushman's overall prime office vacancy rate crept up 0.4 percentage point to 5.5 per cent as at May 15, milder than the 2.1-percentage point Q-on-Q hike to 5.1 per cent in Q1 2009.

'The deceleration of rent declines is not surprising in light of the recent global stock market rally and signs of the oft-mentioned green shoots starting to emerge in major economies around the world,' Cushman said in its report. This has caused a mood shift among landlords - from one of nervousness to a 'more considered and cautious stance'. 'The continued caution is understandable in light of competition from the oncoming stream of new office supply,' Cushman added.

CB Richard Ellis executive director (office services) Moray Armstrong acknowledged that the pace of rent declines has 'shown signs of easing in the past couple of months' and expects this trend to continue. 'There's some semblance of confidence seeping back into the system,' he said.

'Relocation and leasing activity has been very limited for the past six to nine months. We're looking out for a restoration of normal level of leasing activity, combined with the restoration of positive occupier demand. Those will be the signs that we're emerging out of the office downcycle. We're not there yet,' Mr Armstrong added.

The office market may be weighed down by looming new supply - with 9.9 million sq ft net lettable area of offices slated for completion from 2009 to 2013. This year alone, the new supply is projected at about 2.56 million sq ft, 83 per cent above last year's 1.4 million sq ft.

Demand-wise, the Singapore office market has already seen two consecutive quarters of negative take-up: 366,000 sq ft in Q4 2008 and nearly 323,000 sq ft in Q1 2009, based on official figures.

Cushman's director of research Ang Choon Beng predicts around 40 per cent full-year contraction in prime office rents, with a bigger slide expected for Raffles Place.

'While our forecast model predicts that prime office rents would continue to be weak through 2009, we believe the market has, in some instances, already priced in 70 per cent of the anticipated full-year decline. With the significant portion of the rent declines behind us, we think tenants can start to be more confident of entering into leases.'

Cushman's figures show that in the Shenton micromarket (which includes Shenton Way, Robinson Rd and Anson Rd), the average monthly rental value slipped 6.5 per cent in the first six weeks of Q2 2009, slower than the 18.7 per cent Q-on-Q contraction in Q1. The City Hall location - which includes the Marina Centre area - saw an average 9.4 per cent rent reduction in the first six weeks of Q2 from the end-Q1 level, against a 27.2 per cent Q-on-Q drop in Q1. Similarly, for the Orchard area, the 9 per cent mid-Q2 drop was smaller than the 15.5 per cent slump in Q1.

Cushman's director of commercial and industrial agency Kelvin Chiang says that along with an uptick in tenant inquiries and demand in the first six weeks of this quarter, there wasn't much sublease (shadow) space being added to the market. Neither does he foresee any significant supply of additional 'shadow space' - which refers to excess space that companies try to sublet - in the months ahead.

DTZ executive director (occupier services) Angela Tan says that while there has been no let-up in the amount of shadow space in the market, there is healthy interest in such space as it offers 'good value proposition for short-term use since the space usually comes fully fitted out and reduces the initial set-up cost for the new occupier'.  - 2009 May 21   BUSINESS TIMES

To let: 400,000 sq ft shadow office space
Financial institutions in search of tenants for space that they pre-committed to

Close to 400,000 square feet of shadow office space is now available as financial institutions scramble to find replacement tenants for the space that they pre-committed to in the boom years.

A white paper on the subject by Colliers International says that the amount of shadow office space in Singapore rose by a steep 48 per cent over the last two months to hit 370,000 sq ft in May 2009 - up from 250,000 sq ft in March.

This is equivalent to 0.5 per cent of the islandwide office stock, or about the size of MAS Building at Shenton Way.

Likewise, Jones Lang LaSalle (JLL) estimates that some 400,000 sq ft of shadow office space is now available. The bulk of this came onstream from February to May this year, said JLL's regional director and head of markets, Chris Archibold.

Shadow space is loosely defined as excess office space that companies have leased but are looking to sublet to a third party for reasons such as reduction in headcount.

Colliers' white paper, which was released yesterday, identified the financial industry as the largest contributor of shadow space. It accounts for 46 per cent of all shadow space currently being marketed.

'This is hardly surprising,' said Colliers. After all, the financial services sector experienced explosive growth of 11.7 per cent in 2006 and 15.7 per cent in 2007. During this period, many financial institutions - including Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, Prudential Assurance and UBS - embarked on aggressive expansion plans.

'With the current economic downturn being fuelled by the collapse of the global financial markets, the reverse is now true,' Colliers observed.

The white paper also gave a breakdown of where the available shadow space is located.

Of the 370,000 sq ft of shadow space available as at May 2009, some 42 per cent is located in the Raffles Place/New Downtown micro-market.

A further 24 per cent is located in the Marina/City Hall area, while the Shenton Way/Tanjong Pagar micro-market accounted for some 14 per cent.

Even more shadow space is likely to become available over the rest of the year and in 2010, analysts said.

Colliers projects that some 400,000 to 600,000 sq ft of additional shadow space could become available by 2010 from just financial institutions.

The problem will be worsened when construction of new major office buildings, in which financial companies have pre-committed to large amount of spaces, is expected to be completed.

'This will add to the downward pressure on rents exerted by the potential supply of 9.6 million sq ft from Q1 2009 to Q4 2012, and could keep rents depressed for a prolonged period of time and delay market recovery until after 2010,' said Colliers.

It projects that Grade A office rents will decline by up to 60 per cent in 2009 and 20 per cent in 2010.

JLL's Mr Archibold, who similarly estimates that another 400,000 sq ft of shadow office space could be added up to 2010, also expects rents to take a hit from the increase in shadow space.

Colliers' data shows that as at March 2009, grade A office rents in the Raffles Place area have plummeted by some 41 per cent since peaking in Q3 2008.

The intense race for tenants has even resulted in landlords offering incentives such as rent holidays in addition to closing rents that are sometimes 25-30 per cent below asking rents in order to retain or secure new tenants, the firm observed.  - 2009 June 11    BUSINESS TIMES

Office occupancy posts steepest fall since 1997

The islandwide average office occupancy rate slid 2.1 percentage points quarter on quarter to 93.6 per cent in Q1 2009, according to DTZ. This is the steepest quarterly fall since Q3 1997, when a decline of 2.6 percentage points was recorded.

No lack of space: During the last office slump, shadow space also emerged, and according to CB Richard Ellis research reports, this amounted to more than one million sq ft at end-2002

The average office occupancy rate at Raffles Place was 92.9 per cent at end-Q1 2009, translating to the greatest quarterly decline of 2.7 percentage points since Q4 2004 when the occupancy rate fell 2.8 percentage points, DTZ said.

'Office occupancies in Anson Road/Tanjong Pagar and decentralised areas suffered even larger declines of 3.6 percentage points to 93.7 per cent and three percentage points to 95.2 per cent respectively, due partly to the completion of Murray Terrace and two transitional office projects - 11 Tampines Concourse and Mountbatten Square,' the property consultancy group said yesterday. Office vacancies are expected to rise further and rents will slide.

DTZ executive director Ong Choon Fah said: 'Office demand has almost collapsed. Substantial new supply is starting to come on stream from this year, followed by more supply next year and in 2011. In addition, there is competition from shadow space.'

Shadow space refers to excess space that companies try to sub-let. There was at least 106,000 sq ft of such space available for leasing in Q1, according to DTZ. 'This constituted only 2.9 per cent of the total vacant office space, but is expected to grow in the next few quarters as more companies are likely to return excess space to the secondary market through cost-cutting measures,' DTZ said. 'In addition, some companies which have pre-leased space in new projects completing within these two years are likely to sub-lease excess space as they further streamline business operations and intensify space usage.'

BT understands that Macquarie is prepared to sub-let some of the space it has signed up for at Marina Bay Financial Centre's (MBFC) Tower 2 under the project's first phase, which is slated to be ready in Q2 2010. Macquarie has taken more than 74,000 sq ft on levels 16 to 18 of the tower.

Market watchers said they would not be surprised if DBS Group too tries to sub-let part of the 700,000 sq ft it has leased at MBFC's Tower 3, in the project's second phase, given that it axed some 900 staff in November.

Elsewhere in Singapore, Citibank is said to be offering over 100,000 sq ft of shadow space at various locations, including Capital Square, Marsh & McLennan Centre and Millenia Tower.

DTZ executive director Angela Tan said: 'Shadow space, which usually comes with existing fit-outs and shorter lease terms, allows tenants to save on initial set-up costs and provides flexibility.'

Shadow space also emerged during the last office slump. According to CB Richard Ellis research reports, this amounted to more than one million sq ft at end-2002.

DTZ said the fall in office rents gathered momentum in Q1 2009, with an average decline of 18 per cent from the preceding quarter across the island. Prime office rents in Raffles Place dived 25 per cent quarter on quarter to an average of $12 psf per month in Q1.

Average office rents in Tampines Finance Park fell the most, easing 32 per cent to $5 psf per month amid an increase in supply emanating from the newly completed 11 Tampines Concourse and the availability of shadow space at Tampines Plaza.  - 2009 April 2    BUSINESS TIMES

Prime office rentals on fast slide down

The slide in prime office rents has continued into the first quarter of this year. CB Richard Ellis estimates that average Grade A and prime office rental values in Singapore both slipped about 18 per cent in Q1 this year over the preceding quarter.

CBRE's estimate of the Q1 2009 average gross monthly rental of Grade A office space was $12.30 per square foot, down 34.6 per cent from the peak of $18.80 psf in Q2 and Q3 last year.

'We foresee the average monthly rent for Grade A space to fall to single-digit level during the course of second-half 2009,' CBRE executive director (office services) Moray Armstrong said.

Vacancy for Grade A offices also rose from 0.9 per cent in end-2008 to 2.9 per cent by end-March 2009.

CBRE predicts that more of the same can be expected for H1 2009 as demand stays weak. 'Vacancies can be expected to rise sharply and there will be no arrest in the slide of rents,' Mr Armstrong reckons.

'I think there's likely to be higher leasing activity by year-end and certainly going into 2010 - although the outlook for rents remains bearish,' he added.

He also forecasts that 'the Singapore office market could see negative take-up for the whole of this year in excess of one million sq ft, around the levels the market has experienced as recently as 2002/2003'.

Last year, the market saw a net increase in office demand of slightly under 200,000 sq ft, not even 10 per cent of the figure for 2007.

Cushman and Wakefield Singapore managing director Donald Han said that negative net demand for office space for 2009 could be anywhere from 500,000 sq ft to one million sq ft, depending on how badly the economy fares.

He estimates that average monthly Raffles Place rents will slip by about 30 per cent for the whole of this year to slightly below $10 psf by end-2009. 'About 38 per cent of prime office space in Singapore is occupied by the financial services sector and this is the segment that's worst hit this downturn,' Mr Han pointed out.

CBRE's average monthly rental estimate for Grade A space - which covers the best office space within the firm's prime office basket - of $12.30 psf as at end-March this year is 18 per cent lower than the $15 psf as at end-2008.

Its $10.50 psf estimate of monthly average prime rental value as at end-March 2009 represents an 18.6 per cent quarter-on-quarter decline from $12.90 psf as at end-2008.

The end-Q1 2009 rental estimates for both categories of office space represent drops of about 34 per cent from the same period last year.

CBRE reckons that the Grade A vacancy rate rose from 0.9 per cent as at end-2008 to 2.9 per cent as at end-March 2009. In the broader Core CBD comprising the micro-markets of Raffles Place, Marina Bay, Shenton Way and Marina Centre, the vacancy rate increased from 4.6 per cent as at end-2008 to an estimated 6.9 per cent as at end-March 2009. These vacancy figures do not take into account 'shadow space' or excess space that companies try to sublet.

'Right now, the shadow space is at a tolerable level, but we haven't seen the full knock-on impact of attrition and realignment of businesses. In due course, shadow space will grow as subletting activity rises, and this will serve to further erode rentals,' Mr Armstrong said.

Pre-lease momentum in new office developments has stalled in the past two quarters as corporates grapple with more immediate challenges within their businesses before even looking at long-term premises planning, CBRE said. But some end users now have a bit more clarity on their requirements. 'Some of the merging companies will necessarily need to co-locate and those are the deals starting to emerge,' Mr Armstrong said.

Towards the later half of 2009, CBRE expects a few selective office deals to firm up, largely due to the expected premises consolidation requirements arising from mergers and company restructuring.   - 2009 March 25    BUSINESS TIMES

Raffles Place Q4 office rents slide 15.8%

Prime office rents in Raffles Place sank 15.8 per cent quarter-on-quarter (qoq) in the final three months of 2008 to an average of $16 per square foot per month (psf pm), representing the first decline since Q4 2003, according to DTZ Research.

Ample supply: In Raffles Place, the average office occupancy fell 1.3 percentage points qoq to 95.6 per cent in Q4 2008. Island-wide, occupancies slid 0.8 of a percentage point to 95.6 per cent

The drop was the biggest among the micro markets tracked by DTZ. Office rents in the Marina Centre micro market also fell a hefty 12.9 per cent qoq to $13.50 psf pm.

'While the low level of new office supply supported rents in the first nine months of 2008, the market began to favour occupiers in Q4 as demand fell,' DTZ said. 'Landlords have lowered their asking rents and are offering attractive incentives to retain existing tenants and attract new ones.'

Office vacancies edged up further in Q4 2008 as demand dwindled. Except for Tampines Finance Park, where occupancy remained at 96.8 per cent, occupancy in all other micro markets declined.

In Raffles Place, the average office occupancy fell 1.3 percentage points qoq to 95.6 per cent in Q4 2008. Island-wide, office occupancies slid 0.8 of a percentage point qoq to 95.6 per cent, as new supply was added and demand weakened as companies shelved expansions, cut back on space needs or shifted to cheaper locations such as high-tech industrial space or converted state property.

DTZ said that shadow space is beginning to surface as occupiers dispose of excess space, although the amount available for occupation in Q4 2008 was still insignificant, at about one per cent of total vacant office space island-wide.

In response to falling demand, there has been a cutback in new office supply - but not enough to ease an impending glut as most major projects are already under construction, DTZ noted. Deferred developments totalling about 872,000 sq ft of new office space include South Beach, office extensions at Tampines Mall and Funan DigitaLife Mall and the redevelopment of Marina House. DTZ puts potential office supply from 2009 to 2013 at 11.3 million sq ft, compared with an earlier estimate of 12.1 million sq ft.

DTZ said that in view of the deteriorating global financial situation and the large amount of new office space coming on stream in Singapore this year, occupancy rates and rents are expected to decline further in 2009.

The firm also noted that sentiment in the industrial property market has soured, as the manufacturing and office sectors continue to weaken. Rents for private conventional industrial space declined in Q4 2008 for the first time since Q3 2003.

Rents for first-storey and upper-storey private industrial space dipped 2.1 per cent and 2.4 per cent respectively qoq to $2.30 and $2 psf pm. Rents for hi-tech industrial property slid 4.4 per cent qoq to $4.30 psf pm - the first decline since Q2 2004. - 2009 January 6    BUSINESS TIMES

Prime office rentals coming down  
Q4 sees them crash by up to 20% in some cases as tenants call the shots

Landlords may be frowning but those looking for office space have reason to cheer. After climbing steadily for nearly four years, average Grade A and prime office rental values in Singapore are estimated to have slipped about 20 per cent in the fourth quarter of this year over the preceding quarter, according to latest figures by CB Richard Ellis.

Grade A covers the best office space within CBRE's prime office space basket.

The Q4 decline means that for the whole of this year, the estimated fall in rentals is around 13 per cent for Grade A space and 14 per cent for prime space. 'Modest rental growth featured in the early part of 2008, but the market had peaked by Q3 2008. It was only in Q4 that the sheer depth of the financial crisis pitched the office market into decline,' CBRE executive director Moray Armstrong said.

'We expect further downward pressure on rents through 2009,' he added without elaborating.

The firm estimates the average monthly Grade A office rental value at the end of this year at about $15 per square foot, down from $18.80 psf in Q3. The average prime office rental value in Q4 is estimated to have eased to $12.90 psf from $16.10 psf in Q3. The Q3 figures were unchanged from the preceding three months.

The latest figures confirm that the office upcycle which had seen rents galloping over the past two years has ended.

Office rents nearly doubled last year, rising 96 per cent for Grade A category and 92 per cent for prime space. That was on top of respective gains of 53 and 50 per cent posted in 2006.

Putting the latest rental slide in perspective, Mr Armstrong said: 'The extraordinary pace of rental growth experienced through the past three years was clearly not sustainable and would have been arrested by the increased volume of new supply in the pipeline. We had already anticipated a supply-led softening in the market from 2010 onwards.

'The rapid deterioration in the economy and loss of business confidence have accelerated the process as office demand has dried up.'

Tenant retention is the top priority for existing landlords. Next year is likely to be a market where lease renewals outnumber relocations, Mr Armstrong says.

Cushman & Wakefield Singapore managing director Donald Han predicts Grade A office rents will weaken a further 10-15 per cent in first-half 2009 from current levels. 'Landlords are more keen to provide existing tenants with an incentive to retain them, in terms of rental discounts during lease renewal negotiations; because if they leave, the landlord will suffer downtime until it finds a replacement tenant that will also have to be given fitting-out time. This means loss of rental income.'

The office rental slide reflects a reversal of the market dynamics to a more demand-led rather than a supply-led model, Mr Han argues. 'Office rents had surged because of a shortage of existing office stock; now rents are softening because of weakening demand,' he explains.

Another seasoned market watcher said while a 20 per cent drop in Q4 rentals seems alarming, the absolute drop of about $3.20 to $3.80 psf in monthly rents is not so, given that 'rents were at artificially high levels' on the back of shortage of existing Grade A and prime space.

Grade A vacancy rates had been sub-1 per cent for almost two years before rising to 1.2 per cent in Q3. Some analysts estimate this will rise further to over 2 per cent by end-2008.

CBRE does not expect to see significant changes in vacancy levels until sizeable new office developments start to be completed from 2010.

Tenants, meanwhile, are looking to contain costs during the economic downturn, Cushman's Mr Han observes.

CBRE's Mr Armstrong says: 'Corporates will be under severe pressure to contain and indeed reduce costs. (But) the reality in the Singapore office market is that many tenants with renewals and rent reviews next year under leases committed three to four years ago will still be faced with rents that could potentially increase by 75 per cent to 150 per cent. We expect some fairly robust negotiations.'

He also predicts an increase in subletting and surrenders of space by tenants if job attrition in the key financial services sector spirals.

'Take-up in new developments will inevitably be sluggish until demand improves and tenants are able to secure capital expenditure approvals to relocate. It will be highly competitive,' Mr Armstrong says.   - 2008 December 11     BUSINESS TIMES

• Goldman Sachs forecasts office and retail rents in the city-state will decline significantly

Lehman's collapse marks Office Rents peak

The collapse of Lehman Brothers Holdings Inc may contribute to an easing of demand for prime office space in Singapore, where commercial rents are already peaking amid slowing economic growth, property consultants said.

The market turmoil that also this week forced the sale of Merrill Lynch & Co to Bank of America Corp and a bailout of American International Group Inc will probably further slow expansion by international companies in Singapore, said analysts at DTZ Debenham Tie Leung and Cushman & Wakefield.

‘Rents have peaked and with the collapse of Lehman and the further shakeout in financial markets, this is going to accelerate,’ said Ong Choon Fah, Singapore-based regional head of research at DTZ Debenham, a property consulting firm. ‘Financial companies are the ones occupying the very prime space and a lot of them are in survival mode.’

Home prices and office rents in Singapore have cooled after rising to records last year, and Colliers International said this month that office-vacancy rates in the US will rise to the highest in three years as financial-services companies slash jobs after reporting writedowns of US$515.8 billion.

Gains in Singapore office rents will be limited as global economic growth slows, the property researchers said. Singapore’s economy is forecast to grow between 4 per cent and 5 per cent this year, slowing from 7.7 per cent in 2007, as demand for Asian-made goods wanes and writedowns mount at banks and securities firms.

Lehman, which this week filed the biggest Chapter 11 bankruptcy in history, occupies office space in Suntec Real Estate Investment Trust’s Suntec development. The firm has about 270 employees in Singapore.

Suntec Reit, a property trust partly owned by Hong Kong billionaire Li Ka-shing, has dropped 26 per cent in Singapore trading this year. CapitaCommercial Trust, an office landlord run by South-east Asia’s largest developer, has slumped 36 per cent during the period.

So-called Grade A office rents will probably drop to about S$14 a square foot a month in 2009 from S$16 this year, Merrill Lynch analysts led by Kar Weng Loo estimated in an Aug 26 report.

Rents may fall further to S$10 in 2010, when the first phase of the 2.6 million-square-foot Marina Bay Financial Centre is scheduled to be completed, and to S$8 by 2011, the brokerage said. For the second half of 2008, rents for prime office space will be little changed after climbing about 7 per cent in the previous six months, said Donald Han, Singapore-based managing director of Cushman & Wakefield. Still, supply of prime office space is likely to remain tight until 2010 and any office space vacated by Lehman will probably be filled quickly, Mr Han said.

‘The market is still in a very healthy state and occupancy in Suntec, where Lehman has its offices, is in excess of 96 per cent,’ Mr Han said.

‘The only issue is that negative sentiment will creep in, with the fact that such a big investment bank that has a long history of operating in Singapore is collapsing will shock the market.’  - 2008 September 18    BUSINESS TIMES

Grade A office rents in Singapore's Central Business District (CBD) have declined for the first time since the office market troughed in 2004.

The average gross monthly Grade A rental value for the Raffles Place area slipped 1.4 per cent to $17.64 per square foot (psf) in the third quarter, from $17.89 psf in the preceding quarter, according to the latest data from Knight Frank.

The Suntec/Marina Centre/City Hall area led the declines in Grade A office rentals in Q3, with a 6.2 per cent quarter-on-quarter fall to $15.13 psf. In the Shenton Way/ Robinson Rd/Tanjong Pagar area, the drop was 2.8 per cent, followed by a 2.7 per cent decline along Orchard Road.

Knight Frank director (research and consultancy) Nicholas Mak said that he expects office rentals to continue declining by 14-19 per cent islandwide in the next 12 months (from current levels) as the global financial turmoil and possible mergers and acquisitions contribute to consolidation and reduction in office demand.

Giving her take on weakening office demand, DTZ executive director Ong Choon Fah said: 'Most companies are in cost containment mode and would be looking for ways to manage the increase in their accommodation costs. There has also been quite a lot of leakage of CBD office demand to business parks and vacant state properties converted to offices.'

Mrs Ong reckoned that headline office rents may not come down much but noted that leasing incentives like rent-free periods have started to reappear. Agreeing, an analyst said: 'Major landlords will try to maintain headline rents, because once rents come down, it affects their whole portfolio.'

Besides weaker demand for office space amid the financial turmoil, Knight Frank's Mr Mak attributed the softening rentals in Q3 to the government's efforts to increase office supply (including transitional office sites). 'In addition, landlords are more cognisant of the substantial supply of office space that will be completed from 2010 and have become more realistic and flexible in their rental expectation when it comes to lease negotiations; they want to hold on to their tenants and maintain their buildings' occupancy rates,' Mr Mak said.

The fall in the average Grade A Raffles Place rental value in Q3 marks the first quarterly decline since Q2 2004. This incipient weakening follows a rapid escalation in office rentals over the past two years on the back of tightening supply and strong demand from occupiers, including global financial institutions expanding their operations in Singapore. Average Grade A Raffles Place rents surged 82 per cent last year and that was on top of the 67 per cent gain posted in 2006, according to Knight Frank.

But it's a different story now. 'Since Q1 2008, there appears to be a crack in the growth momentum for office demand in the Downtown Core area due to external factors such as the US sub-prime crisis that began in the second half of last year,' said Mr Mak.

The slowdown in demand in the Downtown Core area - which includes the key office districts like Raffles Place/Marina Bay, Shenton Way and Marina Centre - and tapering off in rentals in Q3 does not come as a surprise, he adds. 'The tenants in this area are primarily financial institutions, many of which had already completed their expansion or consolidation plans over the last 24 months and some are adopting a more cautious approach by putting any further expansion plans on hold,' Mr Mak observed.

Knight Frank's data showed that Grade B offices in Singapore also experienced downward pressure on rentals in Q3. The biggest fall was in the Orchard Road location, where the average rent decreased 7.8 per cent quarter-on-quarter to $10.70 psf a month in Q3. Raffles Place and Shenton Way/ Robinson Rd/Tanjong Pagar Grade B offices were less impacted by easing office rentals and dipped by 1.8 per cent and 2 per cent quarter-on-quarter respectively.

As a whole, offices in non-CBD locations also mirrored the general slowdown in rental in Q3. Rentals continued to weaken for the Beach Road/Middle Road area, with a 3.4 per cent quarter-on-quarter drop. Suburban areas too met a similar fate with quarter-on-quarter rental decreases ranging from 1-8 per cent.

Looking ahead, Knight Frank said that in the short term, the beleaguered financial markets are expected to lead to many firms either postponing their expansion plans or consolidating their space usage. Restructuring at some organisations could lead to sub-letting of excess space to ease cashflow problems.    - 2008 September 30   BUSINESS TIMES

Prime and Grade A office rents nearly doubled in 2007 but the pace of increase has since eased with gains of around 7 to 10 per cent in the first-half of this year from end-2007 levels.

Morgan Stanley said last week it expects Singapore office rents to peak earlier, by end-2008 instead of end-2009, due to lower expectations for office demand, which will be below upcoming office supply (including business parks).

CBRE data shows that some 645,000 sq ft net lettable area of offices would be coming on stream in 2008-2009 from the five transitional sites awarded so far. Market watchers say that any further projects on transitional office sites sold today will be completed closer and closer to 2010, from which point several major office developments are slated for completion, including Marina Bay Financial Centre (MBFC) and Mapletree Business City.

About 10.1 million square feet of new office space will be completed between Q3 2008 and 2012, inclusive of the 645,000 sq ft of transitional offices, CBRE's numbers show.

Office rents to rise 10%: RREEF
But no hike next year as new supply from key projects starts coming in

Office rents here are expected to rise a further 10 per cent or more this year - before growth all but disappears in 2009.

Upcoming bay views: Artist's impression of the Marina Bay Financial Centre

According to a report by Deutsche Bank's property arm RREEF, rental growth is expected to 'evaporate' by 2009 as extensive new supply starts to come onstream from projects such as the Marina Bay Financial Centre (MBFC), Ocean Building and Marina View.

From 2010 to 2012 - when the market adds 570,000 square metres of new Grade A office space - Grade A stock is expected to increase 25 per cent, the report says.

'The vacancy rate, currently near one per cent, will shoot up to 2005 levels by the time this new wave of supply is all brought on line,' it adds.

RREEF expects rent momentum - the 'general momentum behind the potential changes in rent, not an absolute variation in rates' - to decrease in 2010 and 2011, then stabilise in 2012.

In its report, Asia Pacific Property Cycle Monitor, it says each property sector has a clearly identifiable cycle with four main phases:

• recovery (high but declining vacancy rates - stable to rising rents);
• growth (low and declining vacancy rates - rising rents supportive of construction);
• post-growth (low but increasing vacancy rates - rising/flattening rents); and
• contraction (high or increasing vacancy rates - falling rents).

'The office market has the greatest volatility of the three main commercial sectors,' says RREEF. 'The retail and industrial sectors are less volatile due to the relatively high levels of owner-occupation, with less investment activity and limited modern supply, particularly in the industrial sector.'

While the office sector is currently still in the growth stage, a post-growth stage is expected in 2009, followed by two years of contraction, and finally recovery in 2012.

On the upside, the retail property sector is expected to remain in the growth stage until at least 2012.

RREEF attributes this to a 'broad construction boom' and 'robust economy'. 'Two new malls in the Orchard Road area will join the island's existing stock of dated retail space in 2008, which could spur structural change in the market,' it says. 'Extensive pre-leasing of this space will keep Singapore's retail vacancy rate steady in the one per cent range.'

RREEF expects retail rental growth to average 3 per cent per annum between now and 2012.

It also sees the industrial property market booming - especially business parks. It projects growth until 2010, when a post- growth stage will kick in until at least 2012. Rents, which grew at double-digit levels in 2006 and 2007, should continue to rise this year, before the rate of increase tapers off to single digits.

While the spillover effect from the office sector has led some companies to turn to business-park space for their back-office operations, RREEF reckons that this effect will 'diminish' when the large supply of new office space comes onstream from 2010.

It also adds a note of caution: 'While it poses no immediate competitive threat to Singapore, Malaysia's long-term plan to develop the Iskandar Development Region in Johor will be a project with structural implications for Singapore, and its progress should be monitored over the long-term.'   - 2008 June 24  THE BUSINESS TIMES

CBD offices still available at $6-9 psf a month 
Small pockets of space can be found in older buildings in the central district

The average Grade A office monthly rental in Singapore touched $18.80 psf in Q2, while the vacancy rate for such premium space stands at a mere 0.6 per cent.

Older but cheaper: At Shenton House (foreground), asking rentals for units on the seventh and 25th floors are said to be in the $6.50 to $7.00 psf range

However, small pockets of space ranging from a few hundred square feet to 3,000 sq ft are still available in older buildings in the Central Business District. For example, at Cecil Street, Shenton Way and Tanjong Pagar, monthly rents range from $6 psf to $9 psf.

At International Plaza next to Tanjong Pagar MRT Station, a 400 sq ft unit without a window is going for a monthly rental of $6 psf, while a 1,500 sq ft unit on a higher floor has a $9 psf rental tag.

Over at Octagon along Cecil Street, two units (of 1,300 sq ft and 2,000 sq ft) are being offered at $7.80 psf.

At 146 Robinson Road, tenants are being sought for a few units of between 1,000 and 3,000 sq ft on various floors with an asking rental of $7.50 psf.

At Shenton House, asking rentals for units on the seventh and 25th floors are said to be in the $6.50 to $7.00 psf range.

'While there are many office buildings asking for double-digit monthly rents, users can still find office units at single-digit rents on the fringe of Raffles Place, such as Robinson Road and Cecil Street.

'These buildings are mainly older and have smaller floor plates. In addition, they are mostly sandwiched between other buildings and offer very limited or no car park lots in the building,' says Knight Frank director, business space (office) Agnes Tay.

We would expect smaller companies providing professional services and non-financial companies to find such options attractive in terms of rental levels and at the same time without compromising on the convenience of location. These tenants could be in fields like auditing, accounting, consultancy, legal services, design, shipping and IT,' she added.

Tenants willing to pay slightly higher rents but still shy of Grade A rates also have several options in the CBD.

At UIC Building on Shenton Way, owner United Industrial Corporation has put on hold its development plans for the property and is said to have for leasing a total 43,000 sq ft comprising units of various sizes from 700 sq ft to 9,000 sq ft.

The asking rental is said to be about $11 psf. UIC is said to be offering tenants leases of three years but without options for renewal.

In more prime buildings such as the Arcade near Raffles Place MRT Station and 8 Shenton Way (formerly Temasek Tower), asking rents are higher, around $10.50-14.50 psf and $12-14 psf respectively, BT understands.

Bigger office spaces in the CBD are also becoming available, partly due to the government's initiative to move its agencies out of the CBD to ease the acute shortage of prime offices.

Singapore Land Authority will be giving up seven floors or 92,569 sq ft at 8 Shenton Way when it moves to Revenue House in Novena in Q4 this year.

InfoComm Development Authority is also expected to give up some space at Suntec City by the year-end.

Swiss banking group UBS is also believed to be giving up about 47,000 sq ft of space it no longer needs on the 10th and 15th floors of Suntec City Tower.

The space may be available for lease as early as September, BT understands.

A UBS spokeswoman said: 'We are giving up some space at Suntec City because we've achieved more efficient space usage. But even after releasing this area, we'll still continue to occupy some 200,000 sq ft at Suntec City alone. In addition, since last year we've leased 230,000 sq ft at One Raffles Quay. So we would still have grown our Singapore footprint from 250,000 sq ft in 2006 to 450,000 sq ft.'

Industry observers are keeping their eye on other big office occupiers to see if they, too, would release excess space.

DTZ noted last week that the government's efforts to create more immediate office space - such as releasing transitional office sites and awarding disused state properties to the private sector for conversion to offices - has helped to ease the supply crunch and pressure on rentals.

This CBD office shortage will be eased from 2010 as new office projects are completed.

'Going forward, as companies and government agencies start to move out of the CBD and more new supply comes onstream, office occupancy is likely to ease and limit rental growth in the CBD for the rest of 2008,' DTZ said.   - 2008 July 7    THE BUSINESS TIMES

Flight to quality may cool office rents in places 
Spiralling rentals almost ground to a halt in Q2 with more cautious economic climate

For office tenants in Singapore wearied by steep rental hikes in the past couple of years, some relief is at hand.

The sharp escalation in office rents screeched almost to a halt in the second quarter of this year as a more cautious economic outlook became widespread. Average prime and Grade A office rents edged up just 0.8 and 0.6 per cent respectively in Q2 over the preceding three months, according to latest figures from CB Richard Ellis (CBRE).

'We may see on an average basis, marginal advancement in rentals in second-half 2008 beyond current levels. 2009 will probably be flat, and for 2010 and 2011, we may see office rents easing' as new supply is completed, says CBRE executive director (office services) Moray Armstrong.

Last year, prime and Grade A office rents nearly doubled and that came on top of the 50-plus per cent gains they posted in 2006, on the back of tight office space and strong demand from occupiers including global financial institutions expanding their operations in Singapore.

Alarmed that spikes in office rents in the past two years may threaten Singapore's business competitiveness, the government has been boosting supply.

While new office developments being built are not expected to face difficulty pulling in tenants, vacancies created in older properties from a departure of tenants in a 'flight to quality' will create downward pressure on rents, market watchers say. A lot will also depend on how demand pans out.

CBRE noted yesterday that 'it was evident that the volume of leasing transactions driven by expansion was lower in the past two quarters'. The pace of leasing pre-commitments in new prime office developments has slowed but negotiations are still progressing, the property consultancy said.

'A couple of large occupiers have identified excess space which can be made available for subletting, but at this stage, this has not become a notable trend,' it added.

Mr Armstrong says that the significant number of new developments being built in the central business district (CBD) is likely to lead to a more competitive environment for pre-letting. 'Existing landlords can be expected to adopt more defensive positions, with tenant retention being given greater priority as the completion of new supply is now more imminent.

'Increasing competition from higher-quality new buildings should serve to cap rental appreciation from today's levels,' he adds.

CBRE's figures show that about 10.2 million square feet of new office space will be completed between 2008 and 2012, the bulk of which (6.7 million sq ft) is targeted to be ready in 2010-2011.

Key projects slated for completion in 2010 include Marina Bay Financial Centre (MBFC) Phase 1 and 50 Collyer Quay. The following year will see the completion of MBFC Phase 2, Ocean Financial Centre, OUB Centre Phase 2, Marina View (North Tower) - all in the financial district - and Mapletree Business City in the Alexandra Road area.

To redress the office shortage, the government has not only been selling more sites for development into Grade A projects in the CBD but is also seeking to resolve the short-term supply shortage by releasing 15-year leasehold 'transitional' office sites outside the financial district that can be developed into low-rise projects within a year.

These will cater to tenants that don't need premium office space. As well, vacant state properties are being leased to the private sector for conversion into offices.

Putting the supply numbers in perspective, CBRE says: 'At face value, potential confirmed supply seems abundant, but it should be viewed in context with strong take-up. Some 22 per cent of known supply from Q3 2008 to 2012 is pre-committed, with around 9 per cent under offer.'

Jones Lang LaSalle (JLL) managing director (South-east Asia) Chris Fossick says: 'We expect very strong interest in the new office developments completing over the next few years from tenants wishing to relocate and expand into new high-quality office stock and to meet their corporate social responsibility goal of occupying 'Green Mark' buildings.'

JLL expects prime and Grade A office rents to increase 18 per cent for full-year 2008 but to grow more moderately next year. 'We expect strong take-up of office space over the coming three years due to pent-up demand that has accumulated because of the tight supply over the past couple of years,' Mr Fossick adds.

Office landlord Hongkong Land director (commercial property, South Asia) Robert Garman says that occupier demand for offices on the island has been holding up well against the backdrop of an uncertain global economic environment. 'Commitment levels for MBFC have exceeded our expectations and we feel confident moving forward,' he adds.

CBRE data shows the average monthly prime office rental in Singapore as at Q2 this year was $16.10 psf, just 10 cents higher than the Q1 figure and reflecting a 7.3 per cent increase in the first half of this year (against the end-2007 level). For the whole of last year, the increase was 92.3 per cent.

CBRE's data also showed that the average Grade A office rental stood at $18.80 psf a month in Q2 this year, up 15 cents from the preceding quarter and a 9.6 per cent appreciation for the first half. This is more moderate than the 96.4 per cent hike seen for the whole of 2007.

'Grade A vacancy also remained very tight at 0.6 per cent. No new development will be completed before H2 2009,' CBRE notes.   - 2008 June 27   THE BUSINESS TIMES

 High rentals don't worry some MNCs

Rising office rents may have forced some businesses to adopt a wait-and-see approach on expansion here but others are expanding anyway.

A report by Cushman & Wakefield (C&W) reveals that key leasing transactions in December 2007 include Swiss wealth manager Julius Baer taking up 26,000 sq ft of office space at HarbourFront Tower 1, US-based global engineering, construction and diversified services company Flour Daniel leasing 15,000 sq ft at 80 Robinson Road, and US-based drug development services company PharmaNet relocating to 5,000 sq ft premises at Springleaf Tower.

Standing tall: US-based drug development services company PharmaNet is relocating to 5,000 sq ft premises at Springleaf Tower

Bank Julius Baer was the fastest growing company in the finance and banking services sector in 2007 and its spokeswoman Lim Li Koon said that leasing the HarbourFront premises is part of its 'business continuity plan' strategy. Ms Lim also said that it would continue to operate out of its office at One George Street.

C&W managing director Donald Han said that the office market is experiencing a 'flight to availability of space for expansion' with tenants also hoping to take advantage of lower rents in the office sub-markets.

According to C&W, latest data showed that prime office net effective rents were at an average of $14.30 psf per month in November 2007, an increase of 3.5 per cent over October 2007.

Similarly net effective rents for the Top 25 Grade A office buildings rents rose to an average of $16.02 psf per month in November 2007 from $15.54 psf per month in October 2007.

Mr Han said many businesses in Grade A areas like Raffles Place, where occupancy is close to 100 per cent, are currently negotiating to renew their leases. 'Companies that need to be located close to their clients cannot move far from this comfort zone,' he said.

Those that can are looking outside the CBD. Average rents for the office sub-market in areas like Beach Road and HarbourFront are around $10-$11 psf per month.

'The secondary (sub) market is becoming the primary target for tenants looking to relocate at the moment,' Mr Han said.   - 2008 January 3  SINGAPORE BUSINESS TIMES

Calm replaces frenzy, but office sector will still be buoyant
Supply remains tight in short-term, prices may rise slower in 2008

The tight supply of office space seen this year will spill over into 2008, keeping rents buoyant and rising in the region of 20 per cent for Grade A space.

However, the massive supply expected from 2010 onwards, coupled with a growing resistance to rental hikes and the possibility of a slowdown in the US economy, will likely bring a sense of calm with the new year, replacing the manic price increases that dominated much of 2007, when rents in areas like Raffles Place increased by 100 per cent.

Colliers International director for research and consultancy Tay Huey Ying says that based on the average annual office absorption rate in the last three years of about 2.3 million sq ft, islandwide occupancy could reach 95 per cent by 2010, but added that this was 'unlikely in view of the looming US recession'.

Colliers estimates that potential supply is estimated to be 5.2 million sq ft, or about 1.7 million sq ft a year for the next three years.

'In the likely event of a moderation in annual office demand by some 25-30 per cent to an annual average of some 1.6 million sq ft in the next three years, islandwide occupancy rate would still remain at a healthy level of above 92 per cent by 2010,' added Ms Tay.

Cushman & Wakefield's (C&W) estimates for the shorter term reveal a more dire supply situation.

C&W managing director Donald Han says that only 2.7 million sq ft of new office space will be completed for 2008 and 2009, or an average of 1.35 million sq ft per annum. Projected take-up however, has historically been around 2 million sq ft.

But while rents will continue to rise, tenants may simply up their tolerance thresholds and resist expansion by 'hot-desking, working from home, or reconfiguring workstations', at least until rents stabilise, reckons Mr Han.

Landlords' rental expectations will remain high but Mr Han believes that tenants are beginning to resist high rents and expects 'more corporates who are large users of space to continue adopting cost segregation strategy in 2008'.

'Assuming half of a front end office in the CBD pays $15 psf while the other half of backroom operations pays a $4 psf industrial rate, the blended rate achieved is $9.50 psf, which makes businesses more agile and competitive in a high cost environment,' Mr Han said.

He also noted that the Grade B office sector is enjoying high occupancy rates of 95-98 per cent with some fringe areas like the Tanjong Pagar, Beach Road and Chinatown micro markets seeing record rental transactions.

Mr Han added: 'There has been a growing trend of companies buying premises for own use in lieu of renting. These have similarly led to the rise of rental and capital values for conservation shophouses and strata-titled offices.'

Capital values rose rapidly in 2007. According to Savills Singapore, average Grade A capital values rose 33 per cent in Q2'07 and 23 per cent in Q3'07, quarter-on-quarter.

For 2008, however, Savills is projecting a 20 per cent increase for the whole year.

The sector will also continue to be bolstered by institutional buyers. Savills director of marketing and business development Ku Swee Yong said: 'They invest in Singapore for interest rate arbitrage, tax gains, forex gains or diversification, and portfolio diversification. The office investment market will continue to be filled with investor interest and we will see a constant supply of funds chasing after very few assets.'

The lower price fetched for Marina View Parcel B recently does not alter his view either. 'Marina View Parcel B had restrictions due to the common services tunnel construction access. The price is not reflective of the market because you have to discount for the inconvenience. I don't believe one can draw any conclusions from the price,' he added.

With good returns on capital values, Knight Frank director, research and consultancy Nicholas Mak believes that 2008 will see investors continue to look for short term gains. 'A few have already been flipping commercial properties because the profit is too good to pass up,' he added.

Better yields may persuade these investors to hold for longer term rental returns but Mr Mak only expects yields to rise in 2009 or 2010.

For 2008, the tight supply will be mitigated by limited office space completion and new transitional office sites being developed.

Interest in the transitional sites has been encouraging.

CB Richard Ellis executive director (office services) Moray Armstrong said: 'The successful award of the first transitional office parcel at Scotts Road and the swift pre-commitment of the entire block by insurance giant Prudential provides a good gauge of strength of the leasing market in 2007.'

CBRE estimates that Grade A rents will average $18.50 by end-2008 but Mr Armstrong expects the market to be, 'more friendly beyond 2010'.

'This is likely to be factored into property decisions by the corporates,' he added.

By CBRE's analysis, more than 68 per cent (or about 6.2 million sq ft) of the on-coming supply from 2008-2012 is likely to be categorised as Grade A - almost doubling the current Grade A stock.    -   2007 December 21    SINGAPORE BUSINESS TIMES

It's December and Anson House is changing hands again - for a much heftier price.

GE Real Estate has sold it to a private property fund managed by Australia's Macquarie Bank for $129.5 million - about 73 per cent more than what it paid for the 13-storey office block last December.

The price paid by the Macquarie-managed fund works out to $1,701 per square foot of the building's existing net lettable area (NLA) of 76,127 sq ft. This is slightly higher than the 72,122 sq ft NLA reported earlier as the building's efficiency has been improved - for instance, by converting some of the common areas to lettable space.

The latest sale was brokered by Jones Lang LaSalle's Asia Capital Markets Group and shows that office blocks continue to be traded by foreign institutional investors.

Based on current leases in the building, the $129.5 million reflects an initial net yield of about 3.6 per cent, but this is set to increase with about half of the building's NLA coming up for lease renewals by end-2009.

The 13-storey building, completed nine years ago, includes about 5,300 sq ft NLA of retail space on the ground floor. Anson House also has 98 carpark lots. It stands on a site with a remaining lease of about 89 years. Last year's sale of the building to GE Real Estate was by a company owned by former Singapore Land chairman SP Tao and his Indonesian partner, Mackmoor Pte Ltd.

Nearby, 78 Shenton Way was sold recently for $650.78 million to Germany's Commerz Grundbesitz Investmentgesellschaft (CGI) group. This works out to $1,857 psf based on a total NLA of about 350,000 sq ft, inclusive of six levels of new offices that are being built above the carpark podium by the seller, a joint venture between Credit Suisse and CLSA funds.

The deal is said to include income support as well as a return on the new office extension while it is being built amounting to about $16 million in total to be paid by the seller to the buyer.

Excluding this sum, the effective price being paid by CGI works out to about $635 million or around $1,814 psf. The property is on a site with a balance lease term of about 75 years.    -    2007 December 20     SINGAPORE BUSINESS TIMES   

Modest bidding for CBD office site as caution sinks in
Top offer of $779.42 psf ppr half of next- door site's recent bid

The new-found caution surrounding the Singapore office market is now spilling over to the Central Business District.

Reflecting this, a site at Marina View diagonally behind One Shenton yesterday attracted a top bid from Macquarie Global Property Advisors (MGPA) of $779.42 psf per plot ratio - only about half of the group's winning bid in September for the site next door.

Knight Frank managing director Tan Tiong Cheng acknowledged that office investors have turned cautious. 'The outcome of the sub-prime episode may have an impact on demand for office space in Singapore, while the government has expressly stated recently it will boost supply of office land in the next few years to alleviate the current shortage,' he said.

Another reason for the lower bid for the latest site - Marina View Land Parcel B - is that it has a minimum hotel component of at least 25 per cent of the site's maximum gross floor area, property consultants said. 'Hotel land values are a lot lower than office values,' said Mr Tan.

'The latest tender outcome is also a knee jerk-reaction to what has been happening lately in the US - the sub-prime crisis being worse than initially thought and big banks being affected. Banks are prime users of office space.'

The only other bid at yesterday's tender came from units of CapitaLand, at $898 million or $734.52 psf ppr.

BT understands that CapitaLand was to team up with Thai tycoon Charoen Sirivadhanabhakdi's privately held vehicle Pacific Coast Assets, had its bid been successful.

By most counts, the top bid at yesterday's tender by MGPA unit MGP Kimi of $952.89 million or $779 psf ppr was lower than had been predicted.

CB Richard Ellis executive director Li Hiaw Ho had expected Marina View Land Parcel B to fetch about $1,200 to $1,300 psf ppr, lower than the $1,409 psf ppr that an MGPA unit paid in September for the next door Marina View Land Parcel A, considering the minimum hotel component for the latest plot. 'There is a chance that the state's reserve price may not have been met and that the latest site may not be awarded,' Mr Li suggests.

However, other property consultants argued that the plot will be awarded.

Mr Tan said his firm, Knight Frank, predicted in late July projected that the site would attract bids of $1.1 billion to $1.3 billion, or $900-1,060 psf ppr. 'Taking the mid point of $1.2 billion, the top bid was about 20 per cent lower than our projection. To me that is within range, and I would expect the site to be awarded,' Mr Tan said.

'The price is still substantially higher than other sites sold in the Marina Bay area in recent years.'

Jones Lang LaSalle's Asia Capital Markets head Stuart Crow said: 'The price seems fair going by recent land bids and taking into account the hotel component for this site.'

MGPA's top bid at yesterday's tender also 'reinforces the foreign investor interest in the Singapore property market fundamentals', he added. 'In my view, the site will be awarded.'

Mr Crow estimates that MGPA's bid price for Parcel B yesterday reflects a break-even cost of about $2,200 to $2,300 psf for the office component of a potential development on the site. As for the hotel component, market watchers estimate the break-even cost could be about $700,000 to $800,000 per room.

Marina View Land Parcel B has a site area of about 0.9 hectare and can be developed into a maximum gross floor area (GFA) of about 1.22 million sq ft, of which at least 60 per cent must be for offices and at least another 25 per cent for hotel use.  -  2007 November 14   SINGAPORE BUSINESS TIMES

Office demand spills out of CBD as rents soar     

Office rents across Singapore have all breached historic highs, says real estate consultant DTZ Debenham Tie Leung, with Raffles Place now commanding average monthly rents of $14.50 per square foot (psf).

This represents an increase of 11 per cent over the previous quarter.

And despite the completion of the 81,460 square feet of new office space at 135 Cecil Street during the quarter, the office market still suffered a net loss of 455,390 sq ft of stock due to the demolition of Asia Chambers Building and the addition and alteration works going on at two existing office blocks - OUB Building and Ocean Building.

The authorities have been trying, among other measures, to address the crunch by making short-term lease office space available.

DTZ executive director (consulting and research) Ong Choon Fah said: 'The rapid rise of office rents is likely to impel prospective tenants to source for lower-cost alternatives outside the CBD.'

In its report, DTZ highlights that CBD fringe and decentralised areas like Alexandra and Novena have been attracting much of this spill-over demand.

In particular, the Alexandra zone now enjoys full occupancy with average monthly gross rents at $6.80, an increase of 13 per cent quarter on quarter.

In the Orchard Road zone, monthly rental increases are significantly higher at 25 per cent quarter on quarter and now the rents stand at $10.60 psf per month.

Future supply can be expected from government land sales sites.

In the third quarter, three sites were sold.

Two were at Anson Road/Enggor Street, going to Mapletree Investments and LaSalle Investment Management, while one site was at Beach Road, which went to a consortium consisting of City Developments, Istithmar and El-Ad Group.

DTZ believes the sites could generate an estimated 1.03 million sq ft of gross floor area of office space.

It also noted that there is another 5.7 million sq ft of commercial space from various government sources available in H2 2007.

But with demand from the financial sector for office space not expected to decline anytime soon - DTZ cites a Bank for International Settlements report which ranks Singapore as its fifth-largest centre for foreign exchange trading - interim government initiatives have had to be introduced to alleviate some pressure.

The Urban Redevelopment Authority launched two transitional office sites at Scotts Road and Tampines Concourse with 15-year leases in the quarter, with the site at Scotts Road drawing 11 bidders.

And DTZ also estimates that at the end of the third quarter, 663,766 sq ft of short-term lease office space has been made available through the Singapore Land Authority. - 2007 September 29   SINGAPORE BUSINESS TIMES

The changing face of office space
How the development of New Downtown at Marina Bay will shape new offerings in the current CBD

With demand for office space in Singapore outpacing supply in the last three and a half years on the back of healthy economic growth, rents have been surging, with prime space seeing a rise of over 200 per cent since the lows of 2004.

New look: The New Downtown (above) will not only bring a brand new skyline to the existing CBD (next), but also up the standards of design and facilities

Monthly gross rents of Grade A space in Raffles Place grew by a phenomenal 222 per cent from an average $3.95 per sq ft at the trough in Q1 2004 to a record $12.69 psf as at end Q2 this year. Occupancy of office space island-wide hit 92 per cent as of Q2 2007 - the highest level since Q3 1996, with most prime office buildings enjoying near full occupancy.

Against this backdrop of soaring rents and a dearth of supply, office tenants are eagerly awaiting new office stock coming to the market. This will largely comprise prime office developments in the New Downtown at Marina Bay.

Assuming the two new white sites at Marina View currently on tender are developed by 2011, the New Downtown would yield some 5.4 million sq ft of prime office space. This is equivalent to 47 per cent of the current Grade A stock in Raffles Place and Shenton Way/Tanjong Pagar.

The New Downtown at Marina Bay will not only give the Central Business District (CBD) a new skyline, but could also spur higher building standards in the existing CBD. When landlords of existing Grade A buildings in Raffles Place and Shenton Way/Tanjong Pagar redevelop or retrofit their properties in the coming years, they will have to raise their specifications to match those of offices in the New Downtown to stay competitive.

Among other things, this new office space will offer specifications and services catering to the evolving needs of multinationals and match the top standards found in other regional markets such as Hong Kong and Shanghai. Examples of such specifications include:

Larger floor plates in excess of 20,000 sq ft, against the current average of 13,000 sq ft

• Enhanced efficiencies with column-free regular floor plates
• Floor-to-ceiling heights in excess of 2.7m
• More robust technical infrastructure, such as dual-feed power supply to overcome power failure, and dedicated emergency power feed.
• New-generation prime office stock in the existing CBD can also be expected to offer services such as regular tenant feedback meetings.
• An increasing number of companies are also looking to raise the quality of the work space, as an attractive office environment becomes key in recruiting and retaining the best talents, comprising largely the Generation X and Y workforce who drive change. Such an enviroment will also boost overall productivity. As such, we can expect future Grade A office supply in the existing CBD to feature the following:
• Maximum work space adjacent to natural light and view
• Good ventilation
• Minimal noise intrusion from building mechanical services
• Use of non-health hazardous building materials
• Dedicated higher capacity IT fibre connectivity
• Uninterrupted power supply.

With companies becoming more environmentally aware, tenants would also prefer to locate in an environmentally-friendly office building. This would include features such as efficient energy and water consumption and conservation systems, as well as measures on indoor pollutants against the corresponding green building maintenance and operational guidelines.

Hence, many redeveloped or retrofitted Grade A office buildings in the CBD can be expected to seek a Green Mark certification from the Building and Construction Authority.

In fact, the gentrification of the current CBD had already begun with the redevelopment of buildings such as Crosby House, Ocean Building and Overseas Union House. By 2011, some 3.5 million sq ft of redeveloped Grade A office space in the current CBD is expected to be completed.

Landlords of other older buildings in Raffles Place could choose to retrofit instead. For example, the landlords of 6 Battery Road, Singapore Land Tower and UOB Plaza II have opted for retrofitting. This includes re-cladding the building façade, creating space for cafes, installing multi-media screens, and upgrading lifts, lobbies, toilets and carparks. With this, they can command top rents and occupancy rates.

Second-tier buildings, such as those built on smaller footprints, could find a niche catering to tenants who do not require the most prime office locations or large floor plates. The answer is the boutique office, typically a high quality office building with a smaller footprint. These developments have small floor plates and target smaller space users such as fund managers, private banks, re-insurance firms, professional services firms and regional offices. They offer tenants the prestige and exclusivity of being a full-floor tenant.

The live, work and play concept is taking root here so tenants would appreciate features such as shower and fitness facilities and common break-out areas with wireless computer access and flexible after-office hours air-conditioning arrangements.

In this context, the clustering of eateries, convenience stores, laundries, mobile devices support centres, and covered walkways could just make buildings along a street collectively more attractive.

Some might say the current CBD lacks character. But with the New Downtown as catalyst, the older part of the business district could see an innovative repositioning that would help Singapore's office market gain depth and breadth, catering to a broad range of tenants, from MNCs to boutique operations.   - 2207 September 27    SINGAPORE BUSINESS TIMES

Prime office rents up 3.3% in August 
Raffles Place buildings led rise, with average rents there climbing 5.6%

Prime office rents in Singapore climbed some 3.3 per cent in August to hit an average of $12.21 per sq ft per month (psf pm), Cushman & Wakefield's new office report shows.

The property firm used a basket of about 50 buildings to calculate the average rent, managing director Donald Han said.

The firm, which also tracks the office rents for the top 25 Grade A office buildings within the larger basket of properties, said that rents for the selected 25 buildings rose to an average of $12.28 psf pm as at end-August, from $12.07 psf pm in July - up 1.7 per cent.

Last month's rise in prime office rents was led by buildings in Raffles Place, Cushman & Wakefield's data shows. Average rents in Raffles Place climbed 5.6 per cent in August to hit $13.68 psf pm. Rents in the Orchard and Scotts area also rose some 2.2 per cent to $9.76 psf pm, while at City Hall/Marina Centre/Bugis, rents rose 0.3 per cent to $12.22 psf pm.

Mr Han expects overall prime office rents to hit $13.50 psf pm by year-end. However, rents at the top tier of Raffles Place properties will hit $19 psf pm by end-2007, he said.     -  SINGAPORE BUSINESS TIMES   2007 September 18

Prime office rents in Singapore still competitive

Occupancy cost in prime Singapore office locations has risen 54 per cent in the first six months of the year. Though the cost is still lower than in Hong Kong, the increase here is still the fastest in the Asia-Pacific region.

DTZ Debenham Tie Leung defines occupancy cost as the average total cost of leasing prime net usable space of 10,000 sq ft within a prime CBD location. It includes rent and outgoings, such as maintenance costs and property tax, if these are normally payable by the occupier.

And according to DTZ, average occupancy cost has more than doubled from a year ago in the Raffles Place and Marina Centre zones where average rents are now S$13.10 psf per month and S$11.80 psf per month respectively.

However, DTZ's report does show that Grade A office rents in general are still competitive compared to other regional cities at S$10.89 psf per month.

And although DTZ believes that 'unrelenting office demand', will see occupancy cost keep rising, its executive director Ong Choon Fah said: 'A lot of corporates still see value in operating out of Singapore.'

Demand for office space has been 'extremely strong' from the financial sector but Mrs Ong notes that this has also begun to 'trickle down' to other support sectors, boosting demand further.

Supporting this is DTZ's data which shows that Grade A vacancy rates in Singapore is the lowest at 2.6 per cent after Delhi at 0 per cent, followed by Shanghai (2.8 per cent), Tokyo (2.96 per cent) and Hong Kong (3 per cent).

Asked to comment on the figures for occupancy cost in Singapore, a URA spokesman said that the statistics were computed based on DTZ's knowledge of rental transactions for a selected basket of prime office buildings as well as their estimates of 'achievable rentals' where there were no actual transactions done in certain buildings.

URA, which had also consulted DTZ on its figures, added: 'The inclusion of pre-committed space may result in instances of double-counting of occupied office space, as the tenants may be vacating other office buildings when they shift to their new premises.'

Noting that different methodologies may result in different statistics, URA also noted that DTZ estimates that office occupancy rates for prime office buildings in Raffles Place, Marina Centre and Orchard Road for Q2 2007 were 97.4 per cent, 98.9 per cent and 96.9 per cent respectively.

By comparison, URA's office occupancy rate figure for Category 1 office buildings in the Downtown Core - which includes Raffles Place and Marina Centre and Orchard Planning Area - was 95 per cent for the same period, and computed based on the physical occupancy of space.

URA also said that based on Iras' records of rental contracts signed in Q2 2007, the median rental for Category 1 office buildings was S$10.33 psf per month.

DTZ said that although the increase in occupancy cost was the greatest in Singapore, occupancy cost is still the highest in Hong Kong at US$180.27 psf per year where base Grade A rents in the Central and Admiralty areas is S$20.09 psf per month.

This is followed by Tokyo at US$119.30 psf per year with base rent at S$150.55 psf per month, and Singapore at US$102.61 psf per year with a base rent of S$10.89 psf per month. -   SINGAPORE BUSINESS TIMES     14 August 2007   by Arthur Sim

The shortage of office space on the island that has led to spiralling office rents and capital values has at the same time drawn more foreign investment into Singapore office blocks.  

So far this year, foreign investors, including private equity groups and non-listed funds, have picked up about $2.4 billion worth of en bloc office buildings and sizeable strata office properties.

This surpasses the $1.9 billion for the whole of last year, which in turn was more than double the $733 million in 2005, according to latest data from CB Richard Ellis.

Also, the $2.4 billion of office buildings bought by foreign 

investors gave them a 69 per cent share of the $3.5 billion total in major office deals so far this year. The latter figure, for the period Jan 1 to June 8, 2007, is higher than the $3 billion chalked up for the whole of last year.

Big office acquisitions by overseas buyers this year include Macquarie Global Property Advisors' $1.04 billion purchase of Temasek Tower in March, the $525 million sale of SIA Building on Robinson Road to German Pension fund SEB, the $260 million purchase of Vision Crest's office block and The House of Tan Yeok Nee in the Penang Road/Clemenceau Avenue area by German fund manager Union Investment Real Estate AG (formerly known as Difa Deutsche Immobilien Fonds).

Local buyers have bought around $1.1 billion of office space so far this year, with the biggest deal being the $600 million collective sale of UIC Building at Shenton Way to United Industrial Corp. The mainboard-listed company itself owns 78.8 per cent of the property.

However, Singapore real estate investment trusts, or S-Reits, have not made any purchases of office blocks so far this year, after making acquisitions of over $700 million in each of the preceding three years.

CBRE excluded the Raffles City transaction in 2006 from its analysis as the apportionment of the value of the office space in the mixed development was not made public. The Raffles City complex also includes two hotels, convention facilities and a shopping centre, besides an office tower. Raffles City was purchased jointly by two Reits - CapitaCommercial Trust and CapitaMall Trust - for $2.1 billion. In its analysis, CBRE also excluded small strata office transactions.

Commenting on the big jump in the acquisition of office blocks by foreign buyers and falling purchases by S-Reits, CBRE executive director Jeremy Lake observed that while S-Reits are still bidding for office blocks in Singapore, they have not had much luck clinching acquisitions as the prices they can offer are constrained by the need for the acquisitions to be immediately yield-accretive to unit holders. Otherwise, there is a risk of the unit price of the Reit falling on the stock market.

On the other hand, foreign buyers, which are mostly private equity and unlisted funds, can bid more aggressively as they are looking at a total return story, Mr Lake said.

For instance, foreign buyers can offer a higher price for an office building that may reflect an initial yield, based on the building's existing rental income of, say, only 2 or 3 per cent, with the knowledge that as leases come up for renewal at higher market rents, the yield may then go up to, say, 5 per cent. Also, these players may be looking at selling the assets and crystallising a capital appreciation a few years down the road, Mr Lake said.

Looking ahead, Mr Lake expects foreign buyers will continue to remain dominant buyers of office blocks in Singapore. He also reckons that the office en bloc market on the whole will remain very active for the rest of the year. Asked if there is a sufficient stock of office buildings for sale, he said: 'When the market is strong, surprises come along the way. People whom you do not expect to sell their buildings will sell.'

CBRE data show that the average Grade A office rental value in prime locations has shot up 82 per cent over the past 12 months to $12.40 per square foot a month in Q2 this year.

The average capital value of prime office space has more than doubled over the past year to $2,500 psf in Q2, from $1,150 psf in the same period last year. At the trough of the current cycle, which stretched from Q3 2003 to Q2 2005, the figure was $980 psf.

DTZ Debenham Tie Leung data released yesterday evening also show that the average monthly prime rent in Raffles Place rose 20 per cent quarter-on-quarter to $13.10 psf in Q2.

Average rents in the Raffles Place and Marina Centre areas have more than doubled from a year ago.  - 2007 June 22   by Kalpana Rashiwala  BUSINESS TIMES

Govt moves to deal with CBD office space crunch

The government will move to tackle the office space crunch in the Central Business District, National Development Minister Mah Bow Tan said yesterday.

Acknowledging an 'imbalance' between supply and demand, he said the authorities will likely step up the pace of government land sales (GLS) in the CBD. 'I think the quantum will have to be stepped up as we see a tightening up of supply,' Mr Mah said.

The government has also set an ambitious target for further development of Marina Bay and the new downtown, which Mr Mah said could begin from as early as 2009.

To deal with the immediate office space crunch, the government is considering releasing state land for short-term use, he said.

The Urban Redevelopment Authority confirmed later that it is exploring whether vacant sites can be used for 'transient offices'.

'They would be basic but proper office accommodation that can be constructed quickly - for example, one year - and would be on land on short tenures,' a spokesman said. 'This is still under study and we have not firmed up the details yet.'

Mr Mah, speaking yesterday at the ground-breaking ceremony for a new bridge that will span the mouth of Marina Bay, painted broad strokes of how the rest of Marina Bay will take shape.

The first site to be released - a white site with an office space requirement, on Central Boulevard - will be launched for sale in May, he said.

Another key site is the stretch between the upcoming Marina Bay Sands and Marina Bay Financial Centre. Mr Mah said this choice plot will complete the loop of developments around Marina Bay when completed, but it will only be available when other construction work ends around 2009.

Other sites that will then come on stream will extend from Marina Bay and wrap around the Garden at Marina South.

The existing CBD will also be extended southwards into what is being called the Central sub-zone.

The as-yet-unnamed bridge, which will cost $82.9 million, will provide direct road access between Marina Centre and the new Bayfront at Marina South.

Mr Mah said that the bridge is part of $2 billion to be spent on infrastructure developments there, including the critical common services tunnel. 'In turn, we have attracted about $10 billion of investments to date,' he said.

Land likely to be released for development this year includes a boutique hotel site next to the Marina Bay Sands, the international cruise terminal site and the central promontory site. All are likely to go through a Request for Concept stage.

Mr Mah said he wants to reassure the business community that office space will be made available. State buildings vacated by the government could be an immediate source, he said. 'It may not be used for MNC head offices, but it can certainly be used for back-end office for financial institutions.'

The government has moved some of its offices out of the CBD but Mr Mah said there are 'one or two' left.

He also said the authorities will 'encourage' users to make better use of existing sites, but did not elaborate on whether the government will make it more attractive for owners of old office buildings to redevelop them.

With the pace of construction likely to be maintained or stepped-up, Mr Mah reiterated that sand supplies are not a concern because the authorities are finding new sources.

He said the supply and price of sand will not affect the building of the integrated resorts, and he does not expect any delay to the opening dates.

Mr Mah did, however, say the government is close to finalising details on how it will help contractors involved with government contracts who face cash flow problems because of higher construction costs. The government said earlier it would pay for 75 per cent of the additional costs for public-sector contractors.

Details are expected within the month, Mr Mah said. 'In principle, we will make progress payments. If we can help contractors with cash flow payments, we will do so.'   -   31 March 2007     SINGAPORE BUSINESS TIMES   

Imbalance in CBD Office - Supply & Demand

The redevelopment and regeneration of the Central Business District (CBD) is well under way, but it may not be happening fast enough.

According to a report by DTZ Debenham Tie Leung, average annual take-up of office space has been 1.8 million square feet for the last 10 years. Yet, the property firm notes that potential supply for 2007 is estimated at 612,000 sq ft.

In 2008 and 2009, supply will dip below 500,000 sq ft and will only pick up in 2010 to 2.15 million sq ft.

And already, the repercussions are being felt.

In its Global Office Occupancy Costs Survey 2007, DTZ shows that rents in Singapore rose 65 per cent year on year, the highest increase across all 134 locations surveyed, to US$7,860 per workstation per year.

As a result, Singapore climbed 41 places on DTZ's survey list to 55th spot globally, and was up six places to ninth position in the Asia-Pacific region.

There does appear to be an imbalance of supply and demand, and as DTZ executive director Ong Choon Fah says: 'The government can programme development.'

For Mrs Ong, the pace of redevelopment in the CBD could have been faster but as she also points out: 'Crystal ball-gazing is not easy.'

'It's a combination of planning and market forces,' she added.

Perhaps one of the best examples of this paradox is One Raffles Quay (ORQ).

A consortium of Keppel Land, Cheung Kong Holdings and Hongkong Land bought the site in March 2001 for $462 million, or $290 per square foot per plot ratio (psf ppr), at a time when, as Mrs Ong remembers, the property market was 'very bad'. Indeed, the site had previously been offered for sale in 1997 and there were no takers. The expected price of between $600 million and $800 million was also not achieved.

Mrs Ong says that the acquisition was seen as 'contrarian' at the time. But ORQ is now fully leased and achieving top rents, spurring redevelopment and a rash of acquisitions by foreign funds of buildings, most recently Temasek Tower.

Also contrarian was City Developments Ltd (CDL), which in 2002 bought the site for its hugely successful The Sail @ Marina Bay for $227.10 psf ppr - 22 per cent lower than the price paid for neighbouring ORQ.

Looking back, CDL group general manager Chia Ngiang Hong said: 'CDL purchased the white site which is now being developed into The Sail at a time when no other developer was willing to venture into building a residential development at Marina Bay.'

CDL is now redeveloping One Shenton (the former Robina House) into a high-end condominium with a retail component, and has also expressed interest in the UIC Building next door, which is for sale at about $830 million or $1,150 psf ppr (inclusive of development charge and lease top-up).

Developers now appear to be making up for lost time, and demand for development sites is high.

'Older buildings are often strategically located in prime areas that render them ideal for redevelopment. As such, although the older buildings purchased via en bloc acquisitions are not immediately available due to longer lead time required for planning process, their conversion may yield better returns,' Mr Chia said.

The spate of current redevelopments, including the government land sales site at Collyer Quay and Overseas Union House, can be attributed to the 'programming of development' by the Urban Redevelopment Authority (URA).

Some, like the redevelopment of Natwest Centre into a condominium called The Clift by Far East Organization, was prompted by a URA initiative to bring more critical mass into an otherwise quiet downtown at night.

Plot ratio incentives are also important.

A spokesman for the URA said: 'A number of existing office buildings in the CBD, in particular in the Shenton Way and Cecil Street areas, have not yet maximised their full development potential under the current Master Plan 2003.'

The pace of redevelopment has certainly picked up since 2003. Keppel Land is the latest to take advantage of the Master Plan and will soon announce plans for the redevelopment of Ocean Building.

'There are merits in redeveloping Ocean Building and these include the opportunity to add about 100,000 sq ft of gross floor area which has not been utilised,' a spokesman for Keppel Land said.

'Furthermore, it will become increasingly challenging for the building, which is about 33 years old, to attract and retain top-quality tenants. By redeveloping Ocean Building we will be able to effectively maximise the potential of the site.'

Mrs Ong for one welcomes the government's initiatives to address the issue of supply in the CBD, including the release of more development sites. She says that it is important to maintain the current 'momentum of development', not least because it allows the older parts of the CBD to regenerate.

She notes: 'In the 1970s, when the government started releasing sites in Shenton Way, it stimulated the regeneration of the old Raffles Place.' -   31 March 2007  SINGAPORE BUSINESS TIMES

The shortage of new office space is exerting increased pressure on rents, resulting in their rising by almost 30 per cent in some areas.

New benchmarks were also achieved in the Marina Centre, Orchard Road, River Valley/Singapore River, Novena and HarbourFront areas.

An analysis of market data in DTZ Debenham Tie Leung's quarterly property market report for Q1 2007 revealed that office space slated to be demolished for redevelopment will exceed the supply scheduled for completion in 2007.

In addition, average annual new supply in the next four years - 928,700 square feet - will fall short of the 1.7 million sq ft average annual take-up seen in the last 10 years.

DTZ noted that financial and business services sectors have continued to expand here.

DTZ executive director and regional head of consulting and research Ong Choon Fah added: 'The clustering of global businesses has resulted in across-the-board multiplier effects, for example, increased demand for supporting businesses.'

This has led to an increase in rents.

In Raffles Place, prime rents escalated by 28 per cent in Q1 2007 to average $10.90 per square foot (psf), higher than the previous peak of $10.50 psf in 1996.

The highest quarter-on-quarter increase of 29 per cent was achieved in the Marina Centre area, which has reached a historic high of $10.30 psf.

DTZ's report revealed that in microzones like Orchard Road and HarbourFront, rents similarly registered highs of $8 and $6.30 psf respectively.

DTZ also noted that higher rents caused some occupiers to relocate from the CBD to most cost-effective premises.

It also believes that more tenants will review workplace strategies or pre-commit earlier in future developments where possible, as rents are expected to top the highest peak in 1990 with prime rents in Raffles Place only 3 per cent shy of the $11.25 psf achieved 17 years ago.

Occupancies have also risen. DTZ highlighted increased occupancies at Samsung Hub in Raffles Place and at PSA Building in the Alexandra microzone in particular, where occupancies rose by 18 percentage points each to 98 per cent and 85 per cent.   - 29 March 2007    SINGAPORE BUSINESS TIMES   

The cost of having an office in Singapore notched up the highest increase among all 134 locations covered in the latest DTZ Debenham Tie Leung annual Global Office Occupancy Costs survey.

The 65 per cent jump to US$7,860 per work station per annum took the republic up to 55th position globally from 96th position last year, and put it among the top ten in the Asia Pacific. However it is still comfortably behind other top Asian locations like Hong Kong, which is the second most expensive in the world at US$19,730, and Tokyo's five central wards which take the eighth spot at US$13,470. Also more expensive than Singapore are Seoul (at 12th position), Mumbai (18th), Sydney (41st), and New Delhi (51st).

'Despite the hike, occupancy costs in Singapore remain less expensive compared to locations such as Hong Kong and Tokyo,' said Angela Tan, DTZ Southeast Asia's executive director and regional head, global corporate services.

Within the Asia Pacific, Hong Kong retained its top ranking from last year for occupancy cost, while Tokyo, Seoul and Mumbai maintained second, third and fourth positions. Singapore's sharp rise however bumped it up to ninth position, ahead of China's Beijing and Shanghai.

DTZ attributed the increase to the recent wave of financial institutions and other businesses setting up new global offices or expanding operations here. These have created higher demand and with new supply remaining insignificant till 2010, further rises in occupancy rates and cost can be expected, DTZ added in its report.

'With the very limited new supply until 2010, occupiers are finding it very difficult to secure office space, especially Grade A space in the CBD,' said Ms Tan. As a result, those not in the finance, insurance, real estate or business service sectors are increasingly exploring alternative locations outside the CBD, she added.

The shortage of office space is reflected in much of the Asia-Pacific market as well. Strong demand continued to be seen from the banking, financial services, insurance and IT/IT-enabled services sectors, the report said. It added that some companies faced with the prospect of higher costs are considering relocating to secondary buildings in good locations or on the fringe of central areas with good access to major transport routes.

The report also suggested that rising occupancy cost is a global phenomenon with 102 locations - or about three quarters of the markets surveyed - posting rises. Prime office locations in the US in particular accounted for the greatest number of cost increases, including those which in the previous year had stayed flat like Denver.

At the opposite end of the spectrum, the least expensive locations were also found mostly in Asia, with Surabaya and Manila at the bottom of the global list.  - by Vincent Wee   SINGAPORE BUSINESS TIMES    3 January 2007