Although net absorption in Q2 2013 was 55% quarter-on quarter (q-o-q) lower than Q1, at only 170,000 sq ft, islandwide office occupancy rates increased notably q-o-q by 0.9 percentage-points from 95.4% to 96.3% in Q2. The increase in occupancy rates were in part contributed by substantial office building terminations in Q2.
Occupancy improved the most across all areas in Shenton Way/Robinson Road/Cecil Street by 3.3 percentage-points q-o-q to 94.8% while in Raffles Place, occupancy increased by about 1.0 percentage-point to 94.3%. Average gross office rents in both Shenton Way/Robinson Road/Cecil St and Raffles Place held firm q-o-q at $7.25 per sq ft per month and $9.30 per sq ft per month, but fell year-on-year (y-o-y) by 4% and 2% respectively.
Occupancy rates for Q2 improved because of the fairly large office stock removals in the quarter. These buildings, located mainly in Shenton Way/Robinson Road/Cecil St, have a cumulative net lettable area (NLA) of approximately 430,000 sq ft which are no longer available for occupation. The entire Robinson Towers and its Annex Building, International Factors Building, The Corporate Office, Cecil House and some floors in DBS Tower 1 were vacated in Q2 in view of future redevelopment plans. Some of the displaced tenants from these older buildings due for redevelopment moved either into nearby buildings in the CBD or the CBD fringe, where rents can be about 10% to 20% lower. Rental increases were seen in some areas in the CBD fringe due to sustained demand from a diversified tenant profile, additional demand from displaced tenants and the recent lack of new supply. Average gross rents in Orchard Rd, Bras Basah/Selegie Road and River Valley edged up by 2.3%, 2.4% and 3.3% respectively in Q2. Elsewhere, in Marina Centre, Anson Rd/Tanjong Pagar and Beach Road/North Bridge Road, average gross rents held firm in Q2.
Cheng Siow Ying, DTZ’s Executive Director of Business Space commented, “Rents in decentralised offices have also held up well. Last quarter saw some movement of occupiers from industrial space to decentralised offices as the government authorities continue to reinforce eligibility criteria on users in hi-tech buildings. In addition, tenants from older buildings and those displaced from buildings due for redevelopment are propping up demand for decentralised office space as well, such as in the soon-to-be completed Metropolis. Although 1.5 million sq ft of decentralised office space will be completed in H2 2013, only 14% lower than islandwide supply last year, there will still be room for decentralised office rents to grow. Nexus@One-North, Jem and Metropolis have all secured strong pre-commitments before its completion date. Jem is currently fully committed, while Metropolis and Nexus@One North have a known pre-commitment rate of 89% and 83% respectively.”
Meanwhile, in Marina Bay, occupancy rates also increased by 1.6 percentage-points q-o-q to 95.2% in Q2 as average gross rents in Marina Bay held firm at $10.50 per sq ft per month. New occupiers continued to move into Asia Square Tower 1 and Marina Bay Financial Centre Tower 3. In Asia Square Tower 1, new leases over Q2 were signed from companies in the advertising, legal, energy and trading fields, bringing its total occupancy to above 90%. With occupancy rates in Marina Bay improving consistently since the start of 2012, some landlords are now less flexible with settling rents. This is an indication that rents in Marina Bay are firming and could start moving slightly upwards in H2 2013. A similar uptrend in rents is expected in Raffles Place and Shenton Way, supported by healthy occupancy rates and continued demand from non-financial sectors.
Lee Lay Keng, DTZ’s Head of Singapore Research, commented, “If economic growth improves as expected in H2, we expect CBD office rents to start rising in H2. This increase in rents however will be calibrated as demand for office space from banks and financial services firms, which tend to pay higher rents, will remain modest. Office demand will continue to be supported by the non-financial sectors such as the IT, energy and infocomm and professional sectors which have recorded more positive sentiment.”
Source: DTZ Singapore
