  |
| 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
Foreign buyers sink $2.4b into office
property
Amount invested so far this year
outstrips the $1.9b for the whole of last year
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
Lack of Office Space Pushes Rents Up
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
Office costs up 65% in 2006
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
Pick-up in demand and little new supply
The local local office property
market has turned the corner and the outlook for the rest of year - be it
rent, demand or investment - is positive. That's the buoyant sentiment
expressed by property analysts who spoke to Business
Times
yesterday.
'In late 2004, we already began to notice a
turnaround, both in terms of the pick-up as well as rental rates. So I think
that's likely to carry forward,' said Tay Kah Poh, Knight Frank's executive
director of consultancy & research.
'The office property segment is looking good.
We're clearly seeing demand picking up. More importantly, in terms of
supply, especially in the CBD, there's no new supply coming into the
market,' said Leslie Chua, head of real estate intelligence services Asia at
Jones Lang Lasalle.
Analysts say the pick-up will be led by prime
office space in the Raffles Place area.
Mr Chua expects Prime Grade A office rents to go
up between 5 and 10 per cent this year. That means tenants should be
prepared to pay above the current rates of $4.80 per square foot a month to
put a prime Raffles Place address on their stationery.
CBRE Richard Ellis said prime office rents are
likely to grow 10-12 per cent from the current $4.40 psf. Knight Frank's Mr
Tay is equally optimistic. He believes prime office rents could increase an
average of 10 per cent or even more.
Rental rates for Prime Grades B and C office
buildings will also rise, albeit at a slower rate of up to about 5 per cent,
said Mr Tay.
One reason driving rents up is the improved
business sentiment.
'The office market behaves in a very rational
way,' explained Mr Tay. 'When companies expand, it is because there's
business opportunities. And as a result of that, they will demand more
office space.'
He said it also helps that interest in South-east
Asia as a whole has picked up lately. This ties in with the Economic
Development Board's aggressive efforts to promote Singapore and get
companies in the services and financial sectors to relocate here, boosting
office property demand.
Echoing that point of view, CBRE's executive
director Moray Armstrong said: 'Take-up is most likely to be led by
expansions of existing tenants, as the business outlook remains favourable.'
Jones Lang's Mr Chua noted that with the changing
demands of financial institutions, relocations and renewals will become
increasingly common and contribute to much activity in the leasing market.
'Financial institutions, for example, are looking for larger floorplates,'
said Mr Chua.
Supporting that view is DTZ Research. In its
latest quarterly report on the local property market, it said that the boost
in demand for office space will come 'predominantly from the financial
services sector'.
But more importantly, analysts say the limited new
supply of prime office space in the next two years will push up rents in
desirable areas. Only three major projects are scheduled to be completed in
the next two years - 1 George Street, 3 Church Street and One Raffles Quay.
CBRE said the new supply of office space in the
next four years will also be limited to 2.67 million square feet, working
out to be about 0.67 million square feet of new supply each year. This, CBRE
said, 'should help to underpin the overall recovery of the office market'.
Given the improved investment market sentiment in
the local office property market, CBRE's Mr Armstrong expects a continuation
of that trajectory.
'The low interest rate environment and the
continued healthy office demand would lead to more opportunistic buying of
quality office properties with yield-accretive potential,' Mr Armstrong
predicted.
Major transactions last year included 78 Shenton
Way for $151 million or $506 per square foot, Sinsov Building at $34 million
or $641 per square foot, and The Globe at $19 million or $487 per square
foot.
'We're seeing renewed interest in the commercial
market. Singapore is after all still a piece of safe haven, and so in
balancing their portfolios, people will seriously consider and Singapore
would be among one of their picks,' said Jones Lang's Mr Chua. 'In terms of
pricing of assets, I think we are much lower than what Hong Kong is. And in
term of yields, it's comparable.'
Knight Frank's Mr Tay also sees the investment
market expanding.
'There should be further interest from funds,
institutional investors and people who think that the market has bottomed
and rents will head upwards further and therefore it's a good time to go and
buy.' -
by Alexandra Ho SINGAPORE
BUSINESS TIEMS 27 Jan 05
Singapore Office Market: Flight to Quality
Prime office rents expected to rise further
Prime office rentals look set to rise further after
posting their second consecutive quarter of gains, says CB Richard Ellis.
The firm cited Singapore's economic recovery and a strong take-up as
tenants move from lower-quality buildings to prime buildings for its
optimism.
Rival firm Jones Lang LaSalle also noted this 'flight-to-quality' trend
among office tenants, which has resulted in better-quality buildings leading
the rental upturn. However, it said a full recovery in office rents on the
island may not materialise in the near term given that there are still over
7 million sq ft of empty offices.
JLL did, nonetheless, predict a 'full recovery' in the next 15 months as
the space gets absorbed gradually, as demand for offices is boosted,
assuming the economy continues to recover.
Figures released yesterday by both JLL and CBRE painted the same trend -
the second straight quarter of rental gains for Singapore's office market,
which has been reeling from a glut in the past few years.
CBRE said the average prime office rent has risen 3.7 per cent in Q3 over
Q2, bringing the gain over the past year to 5 per cent. The average monthly
rent currently is $4.20 per square foot, up from $4.05 psf in Q2. The figure
had stagnated at $4 psf in the few quarters prior to that.
JLL said that for small office units of 2,000 to 5,000 sq ft, the average
gross effective rent in the Central Business District inched up 1.4 per cent
in Q3 to $3.60 psf a month. For large office areas of 10,000 to 20,000 sq
ft, the average rental in the Raffles Place and adjacent sub-market posted a
2.7 per cent quarter-on-quarter improvement in Q3.
CBRE's figures showed that with the flight to quality, the average
occupancy rate for Grade A office space in the Raffles Place and Marina
Centre locations is currently around 93 per cent, up from 92 per cent three
months ago and 88 per cent at the start of the year.
However, the islandwide occupancy remained relatively flat at around 83
per cent.
CBRE said that the upward pressure on prime rents will remain in Q4, on
the back of strong take-up for prime office space and lower vacancy.
Rental growth in 2005 is expected to be sustainable assuming the economy
continues to grow.
'We anticipate a strong performance of Grade A space and, as the
availability of such space tightens up, there will be a gradual improvement
of occupancy in the wider office market. Without doubt, the recovery in the
office market is underway,' said CBRE executive director Moray Armstrong.
He reiterated his prediction, made a couple of months ago, that prime
Grade A office rentals will increase up to 50 per cent - over the next two
to three years. - by Kalpana Rashiwala
SINGAPORE
BUSINESS TIMES 29 Sept 2004
Prime Grade A office rent could rise
by up to 50%
2-tier
market: office buildings in prime areas are enjoying strong demand and
benefiting from a flight of tenants from non-prime areas
Richard Ellis is predicting a recovery of
up to 50 per cent in office rentals over the next two to three years for
prime Grade A buildings in Singapore, assuming the economy continues to
improve and there are no external shocks.
But in making the forecast, the firm's executive
director Moray Armstrong stressed that 'this projection on rental
performance is highly selective and is relevant only for better-quality
grade A buildings'.
'The overall office market, while improving, will
still remain weak because of the oversupply and high island-wide vacancy
rate of about 18 per cent,' he said yesterday. 'For the overall market to
perform strongly will take time and a substantial reduction in overall
vacancies for significant rental growth that can be enjoyed across the whole
market.'
Mr Armstrong also stressed that while he is
predicting a hike of up to 50 per cent over a two to three-year period, this
will be from a current low base of about $4 per square foot in average
monthly rent. 'In absolute terms, an increase from $4 psf to $6 psf isn't
that sensational.'
Mr Armstrong reiterated that a two-tier office
market is developing in Singapore, with Grade A buildings in prime locations
like Raffles Place enjoying strong demand and benefiting from a flight of
tenants from less choice blocks in non-prime areas. 'The non-prime office
segment is likely to see lower demand and the current low occupancy rates
will persist. Rents for such space can be expected to remain fairly flat,'
CBRE said yesterday.
On the other hand, it said: 'Prime office rents
will almost certainly see upward pressure developing by the end of the year.
An average of 5 to 10 per cent increase for the whole of this year could be
sustainable.'
The property consultancy cited a continued
improvement in demand for office space in the second half of the year on the
back of strong economic growth. The highly anticipated Business and
Financial Centre (BFC) site, which is now available for application by
developers, is 'not expected to have any significant dampening impact on the
market in the next two to three years as the completion of the first phase,
at the earliest, will be in late 2008 or early 2009, assuming the successful
sale of the site in second half of this year', CBRE said in its Q2 Singapore
Market Review released recently.
At end-Q2 the average prime office rental rate was
$4.05 psf a month, up 1.25 per cent from the preceding quarter and marking a
turnaround after 13 quarters, the firm noted. (CBRE's definition of prime
office locations includes Raffles Place, the New Downtown and Marina
Centre.)
In line with this rise, Singapore rose a notch in
CBRE's latest global ranking of office occupation costs in 158 locations.
The Republic was the 60th most expensive office place in June this year in
which to rent office space, compared with its 61st position six months
earlier.
CBRE's latest ranking of office occupation costs
measured in US-dollar terms, released yesterday, shows that globally the
trend in prime office occupation costs remains down. Two-thirds or 105 of
the 158 locations surveyed saw a decline. But 43 markets experienced an
increase, with the biggest rise of 19 per cent registered in London's West
End. This increase maintains the West End's position as the world's most
expensive office location at US$177.39 per square foot per annum - with a
much increased margin.
'Not only has there been a slight increase in the
value of sterling against the dollar, but the West End has experienced a
sharp rise in prime office rents over the last six months. There is now a 48
per cent difference between the total occupation cost in the West End and
the second most expensive location, which is London's 'City' area at
US$119.49 per square foot per annum,' CBRE noted. - SINGAPORE
BUSINESS TIMES 23
July 2004
The drop in office rents continued to become
smaller in Q4, leading Jones Lang LaSalle to forecast that they will
stabilise further or even begin to firm next year.
But with an oversupply of about eight million sq
ft of offices, the property consultancy does not expect any sudden upward
movement in rents over the next six to nine months.
As well, JLL noted that in spite of expectations
of an economic recovery next year in Singapore, this would translate into
better office demand only in the second half of 2004 given that demand for
offices lags GDP movements by six to nine months.
'Occupancy rates have to improve closer to 88 to
89 per cent - from current levels of around 85 per cent - before there is
any likely upside pressure on rents,' noted JLL's head of research
(Singapore) Teresa Khoo.
Rival agency Cushman & Wakefield's Singapore
managing director Donald Han says that office rents on the island could well
stabilise next year, but only in the second half. He estimates Prime Grade A
rents in the city area may ease by 5 per cent at most over the next six
months, after sliding about 12 per cent this year. 'The balance of power
will still be with tenants, at least for the first half of 2004,' he added.
Although JLL expects stable rentals next year,
rates in some better quality and newer buildings in choice locations may see
some potential upside next year, at the expense of older buildings that have
not been upgraded as tenants make a 'flight to quality', said Ms Khoo.
JLL estimates that new office supply for next year
will be about 1.15 million sq ft, followed by 1.47 million sq ft in 2005. In
contrast, the figure for this year will be only about 382,500 sq ft - a
historic low for the past 10 years as the market continued to reel from the
existing glut.
Demand continued to be weak over the past 12
months, with a negative net take-up of about 275,000 sq ft.
For Q4, the rate of rental decline, which had
started to slow down in Q3, moderated further.
Islandwide, the average gross monthly rental for
spaces of 2,000 to 5,000 sq ft posted a 1.5 per cent quarter-on-quarter
decline in Q4 to $3.30 per square foot, compared with the previous quarter's
5.6 per cent slide. 'This is the second consecutive quarter that the rate of
rental decline has slowed down and is also the smallest quarter-on-quarter
decline registered since rentals started heading south in Q2 2001,' said JLL.
The drop over the past 12 months has been about
18.5 per cent.
Within the CBD Core area, which includes Raffles
Place, Cecil Street, Robinson Road, Shenton Way and Anson Road, the average
monthly rental fell by 1.4 per cent from $3.60 psf in Q3 to $3.55 in Q4.
Giving a finer breakdown, JLL said that the Prime
Grade A average rent in the CBD Core dipped 1.1 per cent from $4.60 in Q3 to
$4.55 in Q4. The drop over the past year has been 16.5 per cent, while the
decline from the recent market peak of $7.90 in Q1 2001 has been more than
40 per cent.
As for larger office spaces ranging from 10,000 to
20,000 sq ft in the Marina Centre area (excluding strata space) and Orchard
Road belt, average Q4 rents were unchanged from a quarter earlier at $4.25
psf and $3.85 psf respectively, according to JLL. However, rents continued
to ease for similar space in Raffles Place and the surrounding vicinity to
$3.70 psf, down 2.6 per cent from Q3.
During October to December, lease renewal and
allocation deals continued to dominate market activity. Similar to the
previous quarter, some corporates took advantage of attractive rental rates
to lock in better-value-for-money deals. The key financial/banking sector
appeared to be on the mend, with investment banks like Deutsche Bank and
Credit Suisse First Boston reportedly looking to hire selectively again, JLL
noted.
Most property consultants expect demand to improve
next year depending on how the economic recovery pans out. Also expected to
boost demand for office space will be the US-Singapore Free Trade Agreement,
which kicks in from Jan 1 and which could lead to more demand from US firms
in the professional and service-related industries, suggested JLL's Ms Khoo.
'However, these are unlikely to be big-space users,' she acknowledged.
- by Kalpana Rashiwala&nnbsp; Singapore
Business Times 24 Dec 2003
Long time ago in Singapore, owning an office building
was a symbol of success and a reliable source of income. Today it's a major
headache.
The woes of office landlords are well known. But
just how bad the situation has become was made clear last Friday when the
Urban Redevelopment Authority released its latest quarterly update on the
property market.
Office sector occupancy suffered a net shrinkage
of half a million sq ft in the first quarter. Add the previous quarter, and
some 800,000 sq ft of space have been vacated by businesses that either
shrank, relocated or folded.
Singapore is trying to shift away from its
reliance on manufacturing to become a 'knowledge economy'. While a drop in
demand for factories and perhaps warehouses is expected, there should be an
uptick in demand for offices. Knowledge workers, after all, work in offices.
But this doesn't yet show through in the URA figures.
For perspective, however, Singapore has a total of
68.5 million sq ft of office space. The loss of half a million sq ft
represents a mere 0.7 per cent of stock. By itself, that's nothing to lose
sleep over (though the owners of these half a million sq ft would disagree).
But unless the trend of shrinking demand for offices is reversed, it will be
a major worry for landlords.
Already, some 13.6 per cent of all offices are
unoccupied. And that's 9.3 million sq ft of vacant space - generating no
income. Assuming average rentals of $4 per sq ft per month, it's an annual
$446 million lost to office owners.
Even those with tenants are not faring that well.
The URA rental index shows office rents fell 5.3 per cent in the first
quarter, after a 7.5 per cent fall in the final quarter of last year. The
office rent index stood at 93.6 at the end of March, down from 100 in Q4
1998.
Put ano ther way, a landlord collecting $4 psf a
month from his office space in December 1998 will now, on average, be taking
$3.74, according to the URA figures.
But the actual collection could be less than $3,
as landlords have resorted to the old trick of maintaining high rental rates
on the surface while giving ever-larger discounts on the side.
Taken together, discounts, rate cuts and plain
vacancy are costing landlords probably more than $1 billion a year in
income.
Of course, the other side of the coin is that
businesses that rent their office space have seen significant cost
reductions - which is no bad thing. Many of them will argue that it's high
time rents came down.
For landlords, however, the situation isn't going
to improve soon. The global economy may be recovering, but Singapore,
unfortunately, is at the wrong end of Asia. North Asia is booming and office
rents are soaring in Shanghai and Beijing, but it's the opposite story in
South-east Asia.
Furthermore, a significant segment of Singapore
companies service regional clients and their fortunes are tied to this
region. Until South-east Asia pulls itself out of the doldrums, it's hard to
see a quick turnaround for these companies and, by extension, demand for
office space.
Is the worse yet to come for Singapore landlords?
Their Hongkong counterparts are lamenting the prospect of 24-hour free
travel between Hongkong and the cheaper Shenzhen, which they fear may
encourage an exodus of businesses across the border and leave gaping holes
in HK's Central and other business areas.
Singapore office owners must be praying they don't
suffer such a fate. - By Lee Han Shih
Singapore
Business Times December 2002
11m sq ft of office space lying idle
16% vacancy rate sees Raffles Place rents ease 23% this year to
$5 psf - below Q1 2000 low
A total of about 11 million sq ft of office space
- representing 16 per cent of the total stock in Singapore - is currently
vacant, latest figures from CB Richard Ellis show.
The vacant space is enough to fill 12 Republic
Plazas and is a jump of 47 per cent from the figure a year ago, when the
vacancy rate was about 11 per cent.
This amount of empty offices has been brought
about by a huge supply of newly completed office developments and negative
net new demand - a phenomenon seen for the first time in over 20 years.
CBRE estimates net demand contracted by about one
million sq ft this year due to companies downsizing or exiting the market
altogether. It also caused office rents to slide this year.
Going by Colliers International's figures, the
average monthly rental for premium grade Raffles Place offices slid 23 per
cent this year to $5 psf a month, which is even below the $5.68 psf plumbed
during the previous trough in Q1 2000.
Current rents are also only about half the $10.26
psf at the office market peak in Q2/Q3 1996.
Property consultants say things will get worse
before they get better. One positive factor is that new office completions
will ease significantly next year - estimates range from Jones Lang
LaSalle's 590,000 sq ft to Colliers' 1.2 million sq ft, against about 3.7
million sq ft this year (the highest in five years).
However, as JLL said in a report issued yesterday:
'Demand for office space is unlikely to improve over the next three to six
months in view of the uncertain regional and domestic economic environment.'
CBRE executive director Chris Fossick said the
downward pressure on rents is likely to persist in the short-term given the
high vacancy but forecast that rents should bottom out in the second half of
next year on expectations of improved economic conditions.
'We expect greater leasing activity in the office
market in 2003, driven in part by highly competitive rents. However, more
market activity will not necessarily translate to an early rebound of office
rents, as new demand is likely to remain subdued in the early part of 2003
and the supply overhang will take time to shrink,' he added.
'Office rents can only improve when demand
increases, occupancy rates start to go up and there are more tangible signs
of economic growth in 2003,' he cautioned.
Colliers International director (commercial)
Calvin Yeo said he expects vacancy rates to rise further next year. 'It will
take time for the excess supply to be soaked due to the time-lag between
recovery in businesses and their expanding their office-space requirements.
Things still hinge largely on the economy and world events,' he said.
Colliers data shows that vacancy rates in the
prime Raffles Place area are currently at an all-time high of 22 per cent.
Some two million sq ft out of a total stock of 9.6
million sq ft is empty and this includes 262,800 sq ft of 'shadow space' -
which refers to space currently leased by tenants but which they don't use
because of shrinking operations and which they are willing to sublet, very
often at lower rents than what they themselves are paying.
Property consultants declined to name buildings in
the Raffles Place area which are substantially empty but, within property
and financial circles, it is widely known that these include The Exchange
(due to the Singapore Exchange's move to SGX Centre in Shenton Way), 63
Market Street (the former KeppelTatLee building) and the recently completed
Marsh & Mclennan Centre in China Square. OUB Centre is soon expected to
join their ranks when Exxon Mobil moves to the HarbourFront office park.
In all, Colliers estimates that there is about
875,000 sq ft of shadow space in Singapore, up from 380,000 sq ft a year
ago.
The phenomenon of vacant office buildings is not
limited to buildings owned by the private sector. Media reports this week
said The Estimates Committee had highlighted a list of 19 buildings owned by
the government with a total of 1.9 million sq ft of vacant office space.
These include the former Housing & Development Board HQ in Bukit Merah
and JTC Corp's HQ.
Property consultants said the overall high vacancy
rates on the island are the result of the high supply of 3.78 million sq ft
of new offices completed this year and dwindling demand.
Besides shrinking businesses, an important
dampener on office demand this year was the decision by big companies like
IBM and Sony to relocate out of the CBD to business parks in Changi and
Jurong respectively.
Looking ahead, analysts observed that while the
government's recent decision to defer the sale of the New Downtown site for
the mega Business & Financial Centre to the second half of next year
sounds like good news, the size of the project (4.3 million sq ft gross
floor area) may still prove a drag on the market's recovery as larger
occupiers hold off decisions on office premises strategy in expectation of
this project coming on stream.
Figures from Colliers show that the average gross
rental rate for premium grade space in Raffles Place for Q4 fell 9.7 per
cent over the previous quarter to $5 psf a month. For the whole of this
year, the decline has been 22.7 per cent.
The average rent in Shenton Way/Robinson Road is
currently at $3.96 psf a month, down 2.5 per cent over Q3. Marina Centre
area's average rent is currently $5.20, a 4.6 per cent decline from Q3.
- By Kalpana Rashiwala SINGAPORE
BUISNESS TIMES 20 Dec 2002
Raffles Place rentals fall 5%
in Q3
Prime Grade A average office rental values
in the traditional Raffles Place financial hub continue to head south,
falling 5 per cent quarter-on-quarter in Q3 to $5.70 psf a month, plumbing
near decade lows.
Latest figures from property consultancy Jones
Lang LaSalle showed that the average monthly rental value in the area has
fallen by a total of 30 per cent over six consecutive quarters since the
recent market peak of $8.15 psf reached in the first quarter of last year.
JLL does not see a recovery in the office market in the next three to six
months.
The bleak outlook for the office market
underscores concerns among many landlords about the government's plans,
announced last month, to release next year a site for tender in the New
Downtown for a mega financial hub that can yield 4.3 million sq ft gross
floor area. This is equal to four Republic Plazas.
Although the development will be built in phases,
the project worries existing office heavyweights who fear a drain of tenants
from CBD buildings to the new development, lured by cheaper rents and other
attractions.
Pre-lease commitments for the development are
being sought by Temasek Holdings unit Mapletree Investments, which is
helping the government market the site to potential developers.
'The project has prompted some major office
landlords to review their business strategies for buildings located in the
Raffles Place, Shenton Way, and Marina Centre areas,' said JLL.
Its head of research (South Asia), Cynthia Wong,
said these landlords would be looking at ways to retain key tenants by
restructuring leases with lower rentals and longer terms.
'Another strategy some office landlords might
consider is to shed some of their current exposure in the existing CBD to
free up some resources to participate in some of the action in the new
Downtown,' she added.
In its Q3 office report, JLL said the average
prime Grade A office rental rate in Raffles Place is now the second lowest
in the past decade, slightly above the $5.60 psf a month seen in the second
half of 1993.
JLL also noted the trend by MNCs like IBM, Sony
and ExxonMobil to relocate out of the CBD. It identified insurance
companies, back-office operations of financial institutions, trading firms
and manufacturing companies as possible office occupants that may not need a
full CBD presence.
'However, some of these companies may still choose
to have part of their operations in the CBD for strategic business reasons,
for instance, a rep or sales office in order to be centrally located close
to their customer base,' added JLL. - By
Kalpana Rashiwala Singapore
Business Times 25 Sept 2002
Mega office leasing deal
Unusable column measure ExxonMobil
is poised to take up 160,000 sq ft of space at the office park next to WTC.
Oil giant ExxonMobil is inking a
lease for about 160,000 sq ft at one of the twin towers at the HarbourFront
office park being developed next to the World Trade Centre.
The deal, when sealed, will be the
biggest office leasing contract this year. Sources told BT the gross monthly
rental rate is slightly over $5 per square foot. The deal, however, probably
includes a few months' rent-free period on top of the normal fitting-out
period. As a result, the effective gross rent is likely to be below $5 psf.
ExxonMobil is expected to have
naming rights for the 18-storey building as it will occupy about half of the
tower (the lower half), which is the closer of the twin blocks to the WTC
building.
It is part of an office park
project being developed by The HarbourFront Pte Ltd (an 80:20 tie-up between
Temasek Holdings and PSA Corporation) and Keppel Group. HarbourFront holds a
61 per cent stake in the project, with Keppel holding the other 39 per cent.
Keppel's headquarters will be located in the second 18-storey tower and it
will eventually raise its stake in the company owning this particular block
to 70 per cent.
Besides building the two new twin
towers, the project includes retrofitting the existing Cable Car Towers. The
twin towers are slated to be completed in Q3 next year and the refurbishment
of the Cable Car Towers in Q1 2003. The location is outside the
Central Business District but close to the planned Harbour Front MRT
Station.
ExxonMobil, formed from the merger
and Exxon and Mobil in November 1999, is currently working on an 'office
consolidation project' in Singapore, said a spokeswoman for the group. 'But
we do not have additional details we can release at the moment.'
The group's current office
premises are located at OUB Centre (the former Exxon office), Winsland House
and United Square (the last two are the former Mobil's offices).
Besides the office park, Harbour
Front Pte Ltd and Keppel Group are also partners in a condominium
development next to King's Dock, adjacent to Keppel's sprawling residential
project which includes Caribbean at Keppel Bay. The Urban Redevelopment
Authority gave approval for a 204-unit condominium on the site in September
this year.
Analysts said the ExxonMobil
leasing deal would be positive news for the sluggish office market. Another
major deal this year was British insurance giant CGU's lease for 80,000 sq
ft of offices spanning eight floors of Unity Tower 2 in Shenton Way.
-
Kalpana Rashiwala, Singapore
Business Times 2001
