Singapore: Demand for retail spaces stayed strong in Q4 2014, with occupancy rates for malls in Orchard/Scotts Road, other city areas and suburban areas staying above 90%. As at 2014, net absorption recorded a 7.1% increase to 1.67 million sq ft from 2013 indicating a healthy demand.

In 2015, some 1.2 million sq ft of NLA will be injected into the market. Of the 1.2 million sq ft of NLA to be injected, 99% will be concentrated in the other city areas and suburban areas. In Orchard/Scotts Road, approximately 8,000 sq ft of NLA will be released in 2015 as compared to 407,000 sq ft in 2014. Projected supply of retail spaces within Orchard/Scotts Road is expected to be limited at 24,000 sq ft of NLA over the next five years.

The market dynamics is reflected in the rents observed in this quarter. Islandwide, average rents largely remained the same q-o-q at $25.39 per sq ft in Q1 2015. Rents in the other city and suburban areas remained flat q-o-q at $17.98 per sq ft and $28.05 per sq ft respectively. The rents in the above areas are expected to stabilise due to the large proportion (99%) of retail supply in the coming year as well as the maturing e-commerce sector. Reflecting the limited supply of retail spaces in the Orchard/Scotts Road area, average rents inched up marginally by 0.3% q-o-q to $30.13 per sq ft in Q1 2015, which further contributed to the strong resilience in rents.

According to CapitaMall Trust’s latest financial results for 2014, portfolio shopper traffic decreased by 0.9% y-o-y, while overall tenants’ sales per sq ft declined by 1.9% y-o-y. The findings further noted that the brick-and-mortar Fashion retailers’ y-o-y sales declined by 1.3% and the Shoes and Bags retailers’ sales declined by 0.8% y-o-y in 2014. Declines in both sectors’ sales are a reversal from the 1.3% and 9.4% increase reported in CapitaMall Trust’s 2013 financial results.

The fall in their tenants’ sales has largely been attributed to the maturing e-commerce sector. Joint ventures between the e-commerce companies and logistics companies are likely to further lower the shipping and delivery costs, boosting the attractiveness of online shopping. In 2014, Alibaba Group took a stake in SingPost to increase its penetration for its Consumer-to-Consumer business. As a result, e-commerce giant Taobao Marketplace South East Asia entered into a partnership with Singpost’s POPStation in October last year. With more than 70 POPStations islandwide, shoppers are able to conveniently pick up their parcels at their own preferred time and location with no extra costs.

Dr Lee Nai Jia, DTZ’s Associate Director of Research, noted, “The e-retailers are able to offer goods at prices lower than what the traditional retailers can offer by circumventing the high labour costs, payments to middle-men and rent for retail space. As consumers become comfortable transacting online, more shoppers will be drawn to the virtual shops to make their purchases.”

With growing competition, online fashion retailers are coming up with creative ideas to differentiate themselves. Zalora and Love Bonito for instance, experimented with physical pop-up stores on short term leases to close the gap between online and offline retailing. The aim was to increase brand awareness and to acquire new customers by “filling the trust gap” some consumers have towards online shopping. The digital platform had been incorporated into the pop-up stores, allowing shoppers to browse and make the purchases online. The differentiating factor is that the shoppers are now able to experience the products in the physical stores before committing to a purchase.

On a broader scale, online and offline fashion retailers are reinventing their business models to counter the competitive operating environment. Retailers are launching mobile apps to tap on the high smartphone penetration rate. In the most recent research paper released by Maybank Kim Eng, Singapore’s smartphone penetration rate is at 90%, with 45% of smartphone users making online purchases with their mobile devices. H&M launched its first mobile app in 2010, with Zara following suit in 2012 and subsequently Zalora in 2013. More recently, Myntra, a major Indian clothing e-store, announced the closure of its online store from May to focus on its mobile app.

Ms Anna Lee, DTZ’s Director of Retail, noted, “As the talk about the threat of e-commerce and reduction in foreign labour dependency ratio start to dwindle, retailers are reinventing their business models to differentiate themselves from their competitors. These issues have pushed them to come up with creative solutions such as the exploration of shorter term leases and tapping on the advantages of the mobile market to increase their market share. In the longer-term, we expect to see a positive transformation of how retailers conduct their businesses.”

Source: DTZ

Sentiment for the office sector remains positive as capital values and rents continue to rise amidst a backdrop of limited supply and higher occupancy rates, according to DTZ. Based on data from URA REALIS, 151 strata-titled offices changed hands in Q2 2014. For the first half of this year, a total of 257 strata-titled offices were transacted. This was 51.6% lower than the 531 units transacted in the same period last year.

Lee Lay Keng, DTZ’s Regional Head (SEA), Research commented: “Notwithstanding, the continued interest in strata-titled office units and enbloc office deals, amidst expectations of further rental increases, helped lift average capital values of office space in Q2. Based on a range basket of existing buildings tracked by DTZ Research, capital values of office space within the Raffles Place and Shenton Way/Robinson Road/Cecil Street areas inched up 0.5% and 0.2% quarter-on-quarter (q-o-q) respectively in Q2.”

Average office rents also rose in Q2, and by a faster pace compared to the growth in capital values, as islandwide occupancy rate increased 0.4 percentage-point q-o-q to 95.0%. This was in spite of a lower net absorption figure of 290,000 sq ft, compared to 322,000 sq ft in Q1 2014, as only orchard gateway was completed in this quarter. This brought the cumulative net absorption for H1 2014 to 612,000 sq ft, still higher than the 545,000 sq ft reported in H1 2013.

Demand in Q2 stemmed mainly from tenants consolidating their operations from various locations or expanding within their existing buildings. These demand sources remained diversified across industries such as social media, pharmaceuticals and technology, as well as secondary financial institutions. For instance, Aon will be re-grouping its operations to SGX Centre in H2, while Jardine Lloyd Thompson will consolidate its operations at CapitaGreen after its completion at the end of the year. Social media firm LinkedIn is moving out of AXA Tower (30,000 sq ft) to take on a larger space at Marina Bay Financial Centre Tower 2 (50,000 sq ft) while Twitter, currently operating out of a serviced office in Samsung Hub, is reportedly looking for a larger and permanent office space.   Within the CBD, occupancy rates and rents increased the most in Marina Bay in Q2. The occupancy rate of Marina Bay rose 3.3 percentage-points q-o-q to 91.4%, while average gross rents increased 6.5% q-o-q to $12.25 per sq ft per month. With no new supply in the CBD until the completion of CapitaGreen at the end of this year, leasing interest for Asia Square Tower 2 remains strong. For instance, Vodafone recently signed a lease for 30,000 sq ft at Asia Square Tower 2.

Elsewhere in the CBD, the occupancy rate at Shenton Way/Robinson Rd/Cecil Street declined the most from 97.9% to 94.7%, with average gross rents stagnant q-o-q at $8.00 per sq ft per month. The fall in occupancy was due largely to the significant space vacated by the Singapore Exchange (SGX) from their flagship building. The average occupancy rate in the area, however, is expected to strengthen in H2 as Aon will absorb part of SGX’s vacated space when they relocate. Insurance broker, Willis, will also take up 20,000 sq ft in the same building.

Going forward, an estimated 2.7 million sq ft of office space will be completed between H2 and 2015. This works out to an annual average supply of 1.8 million sq ft, which is in line with the past three-year (2011-2013) annual average demand of about 1.7 million sq ft. Activity in the office market is therefore expected to remain healthy in the near term. In addition, office space at developments due to be completed in H2 has been filling up, with some pre-commitments announced. For instance, CapitaGreen is now 21% pre-committed, while a fund management group and City Serviced Offices were also understood to have signed on for space at South Beach Tower.

Beyond 2015, however, the pipeline supply of office space will reach a new peak of about 3.9 million sq ft in 2016, with about 60% located in the CBD. Major iconic and premium office buildings expected to be completed in 2016 include Marina One, Guoco Tower and Duo Tower. This could exert some downward pressure on office rents going forward until this additional space can be absorbed.

Cheng Siow Ying, Executive Director of Business Space commented: “Notwithstanding, the large supply in 2016 presents an opportunity for occupiers to review and formulate their long-term accommodation strategies. Occupiers exploring relocation and consolidation options could enjoy first-mover advantage should they decide to take up space in the upcoming developments.”

Source: DTZ

A recent study by the Ministry of Trade and Industry revealed that Real Estate Investment Trusts (REITs) are not driving up retail rents, contrary to the growing perception that the main cause of rising retail rents are retail malls being acquired by REITS.

Covering a total of 35 REIT-owned malls and 76 malls owned by single-owners over the period of year 2000 to 2013, the study indicated that not taking into consideration the observable characteristics of malls such as location and asset enhancement initiatives (AEI), “rents in REIT owned malls are not statistically different from rents in single-owner malls.”

Aside from mall ownership, the study also used key dataset comprising anonymised retail rental transaction data from the Inland Revenue Authority of Singapore (IRAS) or information on the monthly rent, rental commencement date and physical characteristic – including total floor area, type of retail outlet and floor level – of individual retail units, as well as the postal code of the mall in which the unit is located.

“A casual observation of rental trends indicates that REIT-owned malls generally have higher rents than single-owner malls,” it said. “Such casual observations of rental data could have led to the perception that REITs are driving up retail rents.”

“Yet, the observed differences in the rental levels and growth rates of REIT-owned malls and single-owner malls may have been due to systematic differences in the characteristics of the malls, rather than because of the nature of mall ownership,” the MTI report added.

According to the study, these systematic differences include how the two types of mall owners make choices in physical characteristics such as location, and non-physical characteristics like mall profitability, among others.

The study also noted that “among the malls which were acquired by REITs, there is no evidence to suggest that rents increased as a result of the REIT acquisition. In particular, after acquisition, the rents in REIT-owned malls were not statistically different from the rents in malls yet to be acquired by a REIT.” It also added that a future analysis on whether the acquisition of malls by REITS improve the performance of retailers resulting to higher rents.

Source: YAHOO!

A RECENT long-lease agreement between UOL Group and the Central Provident Fund (CPF) Board has raised an interesting question: Is it better, from a shareholder point of view, for an office landlord to lease out a large chunk of office space on a long lease to one single tenant or to have the space divided and leased to a number of smaller tenants on shorter leases and thus achieving higher per-square-foot (psf) rents?

The lease agreement between UOL Group and the CPF Board involves the renting of nearly 210,000 sq ft that will be vacated at Novena Square’s two office towers by Procter & Gamble (P&G) when its leases expire in two tranches: in mid-2015 and 2016.

At first glance, having smaller tenants is the better option, as it appears to maximise revenues. But on closer examination, this is not necessarily the case.

The CPF Board will start renting the space at Novena Square from the fourth quarter of next year. The initial lease term is understood to be 10 years with options for renewal. Talk in the market is that rental rates are likely to be staggered, but the average monthly rent over the duration of the lease term is believed to be in the low $7 psf range.

This is the second major bulk office leasing deal UOL has announced in the past three years. In October 2011, its hotel arm Pan Pacific Hotels Group revealed it had inked a 30-year-lease agreement with the Attorney General’s Chambers (AGC) for the whole of One Upper Pickering, a 15-storey office block with 87,067 sq ft net lettable area (NLA). That building was completed in late 2012 and the AGC began operating from the new premises in March 2013.

Lump-sum payment

Instead of paying a monthly rental, the AGC paid an upfront lease premium of $127.2 million in one lump sum. Based on a straight-line calculation, that sum translates to a monthly rent of just over $4 psf. When service charge is included, net present value calculations reflect an average gross effective monthly rental of about $7 psf – below the $9-$10 psf that comparable buildings in the vicinity are said to be commanding. Likewise at Novena Square, rents are said to be around $8-$8.50 psf a month. Both figures apply to smaller areas of under 5,000 sq ft.

So it is that UOL’s bulk leasing deals at One Upper Pickering and Novena Square Towers beg the question whether the property group could have fetched higher rental income by sourcing for a string of smaller tenants – instead of jumping into a deal with a large tenant, and that too ahead of the space being available. Moreover, the timing of the deal with the CPF Board is interesting given that UOL, in its recent first-quarter results statement, said: “Rentals of office space are expected to move upwards amidst rising market confidence.” So why the rush if the Singapore office market has seen improved conditions since the second half of last year?

Confidence in the sector is being boosted by reports of improved demand from occupiers in sectors such as oil and gas, pharmaceutical, social media, information technology and insurance. Moreover, CBD (central business district) office supply is expected to be tight in the short term, with no major completions expected next year. Given this positive short-term outlook for the Singapore office market, landlords are able to push for higher rents. However, supply is expected to pick up again starting from 2016 – with major completions such as Guoco Tower in Tanjong Pagar, 5 Shenton Way, Marina One, Duo in Ophir Road and Frasers Centrepoint’s project in Telok Ayer Street. While there are new office demand drivers, there hasn’t been much visibility on new demand from banks, the major occupiers of CBD offices.

UOL may have had this in mind in deciding to lock in the CPF Board as an anchor tenant at Novena Square for the space to be vacated by P&G. Clinching the CPF Board at Novena Square is no small feat either. While Novena Square is a good class development, it is 14 years old and in recent times, large occupiers typically have preferred to move into new developments.

Strong plus point

Moreover, the strong tenant covenant that comes from blue-chip government occupiers such as the CPF Board and AGC is a strong plus point as far as security and stability of leases go. There are other plus points in UOL’s strategy. In the case of Novena Square, the near dovetailing of the expiry of the first tranche of P&G’s lease with the start of the CPF Board’s lease allows UOL to minimise vacancy. And by leasing a chunk of space to a single tenant, it extracts higher NLA – compared with carving out smaller rental units, which entails setting aside more corridor space and other common areas. In other words, while UOL may have been able to achieve higher $ psf rents from renting the space to many small occupiers, the overall rental collection may not be higher.

Moreover, having a large number of small tenants on short leases typically of three years means that there’re likely to be more changes of tenants, implying higher incidence of void space and vacancies. And commissions/marketing costs will likewise go up for a landlord that has to find replacement tenants more frequently – compared with taking a blue-chip tenant on a longer lease.

In the case of a deal like One Upper Pickering, the substantial sum of $127.2 million from the upfront 30-year-lease sale would come in handy to a landlord: to repay borrowings or even fund the development itself, for instance.

Some industry watchers expect more government agencies to seek long-term leases for large office space as they decentralise. They can negotiate for lower rents, and by locking in a lease for a longer period, are assured of continuity of operating from the same location.

Given the plus points for landlords, such leases may not be a bad idea.

Source: STPROPERTY

[SINGAPORE] Kallang Wave, the new retail mall in the Singapore Sports Hub, named its anchor dining, retail and lifestyle tenants yesterday. Besides hypermarket FairPrice Xtra, food court chain Foodfare and climbing-wall operator Climb Central, Kallang Wave’s confirmed tenants include Uniqlo, H&M, Forever 21 and Harvey Norman.

More than 80 per cent of the 41,000-sq-m mall, whose official opening is planned for July, is occupied, said Kallang Wave’s manager, SMRT Alpha.

“We are appealing to a broad spectrum of Singaporeans, from seniors, lifestylers, sports enthusiasts families (to) youths,” said SMRT Alpha director Dawn Low. “The tenant mix has been engineered and curated to address basically a broad spectrum of needs.”

That said, the mall is decidedly sports-themed. With their 1,000 sq m of climbing surface, the climbing towers in the mall’s atrium will be the largest air-conditioned climbing wall – and the tallest indoor one – in Singapore, said operator Climb Central.

Even familiar tenants have been given a sporting update. FairPrice Xtra will offer not just groceries, electronics or casual wear, but bicycles, sporting equipment and sportswear. Foodfare plans to be as accommodating to sports enthusiasts, offering a bicycle parking corner and an emphasis on healthy food options.

Some tenants will also be launching new business lines with Kallang Wave’s soft opening starting progressively in June.

SportsLink, for example, will open its first running-centric concept store, Runnur, in the mall. Likewise, Power Up Express’s retail unit in the mall will also offer podiatric consultation, sports taping and sports massage services, a combination that the firm says will be a first for Singapore.

“We are creating a diverse, inspiring and inclusive experience that encourages people to make sports part of their daily lives,” said Sports Hub chief operating officer Oon Jin Teik. “With its innovative layout and tenant selection, we are confident the Kallang Wave will attract a strong interest even among the less active to participate in sports.”

SMRT Alpha, a joint venture between SMRT Investments and NTUC FairPrice subsidiary Alphaplus Investments, also announced that Citibank and OCBC Bank will be Kallang Wave’s bank partners.

Both banks are planning year-long sponsorship deals, during which Citibank SMRT Platinum Visa cardmembers will enjoy shopping and dining deals at the mall. By spending money at Kallang Wave, Citibank SMRT cardmembers can redeem vouchers to offset SMRT taxi fares or free bus and train rides there.

Meanwhile, OCBC cardholders will enjoy year-round parking privileges at the mall, as well as benefits at the Women’s Tennis Association Championships that will be held at the Sports Hub in October when they shop at Kallang Wave.

Citibank will provide ATM facilities in the mall, while OCBC will have a branch there open six days a week.

Source: STPROPERTY

More property owners are turning to the auction market as an alternative mode to increase their chances of selling off their properties amid a slowdown in resale activity, revealed a Knight Frank report.

In Q1 2014, the number of properties put up for auction increased by 13.4 percent on a quarterly basis and 21 percent year-on-year.

The residential sector formed the bulk of properties put up for auction, reporting a 51.2 percent share. This was followed by shops and shophouses which accounted for 21.3 percent, while industrial properties made up 18.9 percent. Offices and HDB shops took the remaining 3.9 percent and 4.7 percent share respectively.

Of the 65 residential properties put up for auction in Q1 2014, approximately 79 percent were non-landed properties whilst the remaining 21 percent comprised a variety of detached, semi-detached and terrace houses. Three residential properties were sold last quarter, a rebound from just one in the third quarter of last year, while no residential properties were sold via auction in Q4 2013.

In terms of transaction values, total auction sales value jumped more than four folds from $3.9 million in Q4 2013 to $17.9 million in Q1 2014. The residential sector, although behind the office market, made up 42 percent or about $7.5 million in sales value.

Going forward, with the property market still reeling from the TDSR framework and the property cooling measures, sales volume of properties in the open market is expected to remain low this quarter.

“Some buyers and sellers increasingly perceive auctions as an attractive channel to transact properties within their price expectations. This will likely lead to more properties being put up for auction, especially with the current property cooling measures in place,” said Knight Frank.

Source: PROPERTYGURU

WITH their tennis courts, swimming pools and barbecue pits, the new wave of industrial developments opening their doors in 2015 and 2017 almost resemble residential properties in terms of the facilities they offer.

One example is Tagore Lane’s Business 1-zoned Tag.A. Instead of projecting the utilitarian image associated with industrial properties, Tag.A has a glossy facade and houses a rooftop pavilion, swimming pool, basketball court, gym and barbecue pits, among various facilities.

New strata-titled industrial developments touting amenities such as those offered by Tag.A have been selling well and target ambitious young businesses, noted Oxley Holdings chief executive officer Ching Chiat Kwong.

Oxley is behind four such properties, three of which have sold all their units, said Mr Ching. He added that 65 per cent of units have been sold at Oxley’s most recently launched development with similar features, Eco-Tech @ Sunview, which comes equipped with a basketball court.

“Developers (want) to differentiate their products with these facilities,” said CBRE head of research Desmond Sim. “It’s the ‘Milo dinosaur’ effect. If you don’t put a heap of Milo powder on it, it’s ‘iced Milo’ – you can sell it for only half the price. (If) you can term it something special, then people will choose the product and pay more.”

The people choosing these products are a younger generation looking for alternatives to the “cold, clean kind of look” typical of industrial properties, he added.

Colliers International executive director Tan Boon-Leong agrees: “Nowadays . . . buyers are more sophisticated. Gone are the days when you’re selling a factory with smoke coming out of the chimney.

“You’re going to hire the degree holders. (With these facilities) your value-added quantum is higher. So the professionals are the ones you’re trying to attract,” he added.

In an increasingly competitive talent market, these facilities contribute “to companies being able to secure and retain the best talent”, said Cushman and Wakefield managing director Toby Dodd.

Another practical consideration is the boost in sales these facilities could offer upper floors. These are typically the hardest floors to sell in an industrial property, said Mr Tan, but a view overlooking a swimming pool could change that.

“It will add value to the upper floors. (Otherwise) who would want to ramp up all the way to the 10th storey?”

Sales are not the only side to these properties’ value coin; the developments should also command higher rentals because of the increased maintenance fee burden that the recreational facilities place on owners.

However, once these projects are granted their Temporary Occupation Permit, they do not seem to command a premium rental compared to traditional offerings, said OrangeTee head of research and consultancy Christine Li.

One example cited by SLP Research is UB.One, a basic industrial project whose $2.88 per square foot per month average asking rent tops that of the two recreation-ready projects located nearby: Oxley Bizhub and Oxley Bizhub 2. The three projects were completed within two years of each other, said SLP.

There are several possible reasons why these facilities may not be as well received. “Some SME bosses are concerned that their workers might get distracted by these facilities and hence become less productive at work,” Ms Li said.

Mr Tan wonders how many employees would be comfortable swimming in a pool where their colleagues and bosses can see them from their cubicles. A possible explanation for the way sales have outperformed rentals is that these developments appeal to some investors, said SLP research head Nicholas Mak.

“While the lifestyle facilities may appear appealing . . . the most important factors to end-users are the accessibility, the usability (in terms of suitable specifications) and the business synergy with other companies in the vicinity,” said Mr Mak, adding that this explains why these projects tend to attract more investors than end-users.

Investors who are used to buying residential property but are new to the industrial market are the ones attracted to these properties, he said.

He believes that after the government implemented property- cooling measures such as the additional buyer’s stamp duty (ABSD) and the total debt servicing ratio (TDSR), these investors may have moved to the industrial market, drawn to industrial properties with familiar, premium residential features.

Recreational facilities remain deal sweeteners, said CBRE’s Mr Sim. “Learned investors will still look at the basics . . . price, location and the potential of the product being launched.”

Source: BTINVEST

Continuing from the healthy leasing activity in the second half of 2013, the office market recorded another quarter of strong take-up in Q1 2014. Occupancy rates continued to climb in the CBD, supporting further increases in rents. This rental growth momentum is expected to continue until 2015 in view of the limited supply, according to DTZ.

Net absorption for Q1 2014 was about 572,000 sq ft, indicating consistent quarter-on-quarter (q-o-q) improvement in take-up since Q2 2013. Demand in Q1 stemmed mainly from occupiers expanding within existing buildings or taking larger space within new premises. Google, for example, took additional space in Asia Square Tower 1 while Shell leased a larger amount of space when they relocated to Metropolis.

While demand from the non-financial sectors continued to hold up, sentiment in the banking and finance sector is fairly mixed. According to the Hudson Report on Employment Trends Q1 2014, the banking and financial services sector in Singapore has seen an increase in hiring intentions across three consecutive quarters, up 7.4 percentage-points to 50% in Q1, which should translate to an increase in demand for office space. However, this has not been seen across the board as many banks still remained cautious and instead sought to optimise resources and reduce costs.

Shadow space was estimated to be around 270,000 sq ft in Q1, with the largest proportion in the decentralised areas due to the Ministry of National Development (MND) putting up several floors in Jem for sublease. While the amount of shadow space is the highest since Q2 2012, it is expected to be quickly absorbed as there has been significant interest for the available space. For example, General Motors is reported to have selected OUE Bayfront for the relocation of its international headquarters from Shanghai and could possibly absorb the shadow space put up by Bank of America Merrill Lynch within the building. At Marina Bay Financial Centre Tower 2, Barclay’s surplus space which has been on the market for almost a year is also expected to be taken up very soon. Likewise, several firms have indicated keen interest in sub-leasing MND’s space at Jem.

Cheng Siow Ying, Executive Director of Business Space commented: “The first quarter of 2014 was characterised by waves of location shuffling, as movements into recently completed buildings like The Metropolis, Nexus @ one-north and Asia Square Tower 2 took place. At the same time, landlords of buildings with vacated spaces have been proactively securing new tenants. For instance, most of the floors vacated by Shell at UE Square had already been signed up with new tenants before Shell relocated to The Metropolis, while Pontiac Land has backfilled some of Allianz’s former space in Centennial Tower after the group relocated to Asia Square Tower 2 late last year. Occupancy rates have therefore remained high in the different sub-zones, sustaining a landlord-favourable market.”

In Q1, the islandwide occupancy rate increased by 0.4 percentage-points q-o-q to 95.1%. In Raffles Place and Shenton Way/Robinson Road/Cecil Street where occupancy rates are higher respectively at 96.1% and 97.9%, average gross rents increased by 4.2% and 3.9% respectively q-o-q to S$9.95 and S$8.00 per sq ft per month. On a year-on-year (y-o-y) basis, rents in these areas have increased by an average of 8.8%.

In Marina Bay, which holds only premium grade buildings, average gross rents have increased by a slightly higher 4.5% q-o-q or 9.5% y-o-y to $11.50 per sq ft per month. Within the newer developments such as Asia Square Tower 2, there have been several outlier deals on smaller-sized units where rents have hit the mid-teens.

In the near-term, the only major new completion within the CBD is CapitaGreen (700,000 sq ft) in Q4 2014. Almost half of the new office supply between Q2 2014 and 2015 will be in decentralised areas, with completions of major developments such as Paya Lebar Square (431,000 sq ft), Westgate Tower (305,000 sq ft), Futuris/Synthesis/Kinesis (93,000 sq ft) and Galaxis (41,000 sq ft).

Rents in the CBD are expected to grow at a healthy rate of between 10 to 15% in 2014. This is higher than DTZ Research’s previous forecast, as robust demand amid an environment of high occupancy rates will reinforce landlords’ bargaining power. Based on historical trends, office rents can rise quite quickly as the market is extremely reactive to demand and supply pressures.

Lee Lay Keng, DTZ’s Regional Head (SEA), Research, commented “Strong rental growth however may not be sustainable for long due to supply-side pressures in 2016. The three heavyweight developments, Guoco Tower by GuocoLand, and the two M+S sites MarinaOne and DUO are all scheduled to be completed in 2016 and will collectively yield around 3.3 million sq ft of premium grade office space. Together with other smaller developments, the estimated amount of new office supply in 2016 will set a record high of close to 4 million sq ft. While MarinaOne and Guoco Tower are likely to compete for the same tenants, there will also be increased competition for tenants from strata-titled developments such as Eon Shenton and Oxley Tower. This is likely to exert downward pressure on office rents until the market can effectively absorb the large supply.”

Source: DTZ

Economic Overview

Various factors impacted the Asian economies during 2Q 2013, such as further confirmation of slower than expected growth in China and increasing worries on the next interest hike in Asia as the US Federal Reserve signaled they may start scaling back its quantitative easing policy later this year. Against a backdrop of weakening economic conditions across the region, individual Asian countries have seen a drop in inflation and are still subject to various challenges ahead such as the potential risk of liquidity outflow from Asia. With the economic performance yet to show any sign of acceleration, the region is entering an era of slower growth.

Leasing Market

Office rents in most key cities in Asia Pacific saw no significant growth in 2Q 2013. Although Jakarta and Manila continued to be the key performers, with strong rental growth in the order of 4-6% quarter-on-quarter (QoQ), there was a significant slowdown in terms of space absorption during 2Q 2013 despite low vacancy rates. Perth saw average rents decrease the most among cities in the region, in the order of 5% QoQ, as demand softened due to the adoption of more conservative business attitudes in the current global environment.

Sales Market

Due to various property curbs in the investment market, more investment capital originating from Hong Kong and Singapore turned to offshore markets such as China and especially Japan, where inbound purchases doubled in the past six months. In Beijing and Shanghai the en bloc sales market witnessed a rebound in transaction activity in 2Q 2013, demonstrated by a number of significant deals done by both domestic and foreign institutions. However, in Hong Kong investment demand was dampened by government cooling measures with speculators exiting the market. Meanwhile, in Australasia, investment demand from institutional buyers chasing scarce prime assets remained strong, resulting in a slight tightening of yields.

Market Outlook

The economic environment in Asia is expected to remain uncertain as the region continues to be reactive to the overall global economic conditions. Individual governments are expected to focus on economic issues and introduce additional stimulus measures to help their countries emerge from prolonged bouts of deflation. Nevertheless, based on the findings of Colliers Asia Office Leasing Survey for 2Q 2013, it is anticipated that rents will increase in the next 12 months but the pace of rental growth will taper off. Investment transaction volume is likely to consolidate further in the second half of 2013, as risk-averse investors continue to be cautious, due to concerns that rising interest rates will lead to higher property yields and reduced property values.

Source: BTINVEST

[SINGAPORE] The Republic has moved up two spots to become the fifth-most expensive city in the world for expatriates, and the second-most pricey location in Asia.

The city-state’s high cost of living is due to its strong currency and expensive rental market, according to findings from Mercer’s 2013 Cost of Living Survey.

Using New York as the base city, the research ranks 214 cities around the world based on the comparative cost of over 200 items – including housing, transportation, food, clothing, and entertainment.

Mercer has only shared the rankings for the 10 costliest cities.

Because the cost of expatriate housing is typically the biggest expense for employers, Mercer said it “plays an important part” in determining the rankings, accounting for almost a quarter of the overall cost of living basket.

“To maintain the cost- competitiveness, the government of Singapore has been proactively making efforts to increase the supply to ease price inflation in the housing market,” Phil Stanley, Mercer Asia Pacific global mobility leader, told BT.

While Mercer said these measures “have been effective as evidenced by stable rental rates”, Singapore’s pricey rental market nonetheless contributed to the city-state’s high ranking.

Renting a three-bedroom unfurnished house in Singapore – one that meets the standards of expatriates – costs US$7,266.91 per month, while a two-bedroom unfurnished apartment costs US$3,794.94 per month.

Despite Singapore’s high cost of living for expatriates, Mr Stanley told BT that the country “continues to attract expatriate talent for the quality of life the city-state offers”.

Tokyo slipped two places and is now the third- most expensive city in the world for expatriates, but remains the costliest city in Asia. Hong Kong ranks as the sixth-most expensive city internationally, one place below Singapore.

Luanda in Angola now stands as the priciest city worldwide, due to the high cost of imported goods, and the challenge in finding secure housing there.

“Given the increasing numbers of business travellers, global commuters, and longer-term expatriates, companies are keeping a close eye on the cost of living for international assignees in different cities around the world,” said Barb Marder, senior partner and Mercer’s global mobility practice Leader.

“Organisations need to evaluate the impact of currency fluctuations, inflation, and political instability when sending employees on overseas assignments, while ensuring they can facilitate the moves they need to drive the business results by offering fair and competitive compensation packages.”

Source: STPROPERTY

Property giant CapitaLand reported a 10.1 percent year-on-year gain in its Profit After Tax and Minority Interests (PATMI) to S$571.3 million in 1H2013, supported by higher operating profits.

The first-half PATMI could have increased 15.4 percent to S$599 million, if the one-time losses of S$27.7 million incurred during its repurchase of convertible bonds in June were excluded.

Meanwhile, the company’s Q2 PATMI dipped 0.7 percent to S$383.1 million due to lower portfolio gains. Excluding this, Q2 PATMI would have moved up 8.6 percent to S$322.1 million.

CapitaLand’s overall group revenue was up 22.7 percent to S$1,844.6 million, whereby 63.5 percent came from the core markets of Singapore and China. Operating PATMI in 1H2013 was also up 43.1 percent year-on-year to S$241.3 million.

Home sales in Singapore reached 683 units valued at S$1.6 billion, while in China a total of 1,691 homes were sold at a sales value of around S$640 million.

“We delivered a healthy set of results for the first half of 2013 amidst a challenging global economic environment. With a healthy balance sheet and a strong cash position, the Group is well-positioned to seek out growth opportunities,” said Ng Kee Choe, Chairman of CapitaLand.

Going forward, CapitaLand is looking to expand its business further, focusing on the core markets of Singapore and China, said Lim Ming Yan, President and Group CEO of CapitaLand.

Source: PROPERTYGURU