Office rentals may have dipped 3-5% in 1Q12

Pre-leasing activity at major new buildings is now somewhat sluggish after rents peaked in 2H11, says OCBC.

Here’s from OCBC analyst Eli Lee

Over 2H11, we saw office rents peak as Grade A rents declined 0.5% QoQ in 4Q11 while Grade B rents fell by 0.4%. Vacancy rates also increased – Grade A vacancies came up from 10.9% (3Q11) to 11.6% (4Q11); CBD vacancies from 7.7% to 8.8%. We also judge pre-leasing activity at major new buildings to be somewhat sluggish (One Raffles Place - 42% pre-committed, MBFC T3 - 62%).

We expect further rental dips in FY12 and believe, from our channel checks, that Grade A rents has already fallen 3-5% QoQ in 1Q12. Given continued macroeconomic uncertainties and an ample office pipeline of 4.2m sqft NLA in FY12-13, we now forecast office rentals to fall 10-15% in FY12 and believe that it is too early to call a bottom for rentals at this juncture.