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

One year on, Anson House sold again at 73% profit

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

• Singapore's 10 Tallest Buildings

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