Singapore posts big jump in third quarter office rents

Asian office rents up 3.2% in the third quarter, confirming the recovery of region’s office demand.

Office leasing markets in Asia’s leading commercial centres enjoyed an active third quarter of 2010 as both domestic and multinational corporations displayed a keen appetite for quality office accommodation stimulated by new business start- up activity and expansion and repositioning of existing occupiers on the back of sustained regional economic growth. Led by strong growth in Greater China and Singapore, overall office rents in Asia rose 3.2 per cent q- o- q in the third quarter of 2010, marking the second consecutive quarter of growth and confirming the recovery of overall office demand in the region. Demand for quality space arising from relocation or expansionary activity grew noticeably, a trend which manifested itself in the decline of vacancy in new office buildings in selected markets across the region. Overall vacancy further declined by 60 basis points q-on- q to 10.3 per cen, according to a CBRE report.

The Hong Kong office market enjoyed a buoyant third quarter and recorded the largest magnitude of rental growth of any market in the region. Rental growth in Singapore also accelerated during the review period and posted the biggest jump since the end of 2007 on the back of strong net absorption. Prime rents in Singapore saw a big jump of 7.2 per cent quarter- on- quarter, from S$6.90 psf per month to S$7.40 psf per month during the period thanks to increasing demand from financial institutions, insurance firms and professional business services companies. Major leasing deals reported during the period were primarily focussed on various new Grade A developments. Vacancy in Grade A buildings fell due to the remarkable net absorption of 1.2 million sf, the largest such figure recorded since 2000.

Moray Armstrong, Executive Director, Office Services, CBRE Singapore said “Singapore has enjoyed particularly strong occupier demand over the past six months. Even whilst the volume of leasing activity may ease going into 2011, we remain optimistic on the market outlook. By way of example, concerns over the large volume of secondary stock due to come on stream when major occupiers relocate to the major developments nearing completion have largely dissipated as a consequence of deals signed in the past few months.”

In Hong Kong the active leasing market and limited new supply of Grade A office space drove a hefty 10.8 per cent q- o- q rise in citywide office rents and brought vacancy down to 5.9 per cent, the lowest level since the outbreak of the global financial crisis. Occupiers actively took up space in several newly completed office buildings in decentralised locations due to the lower rent on offer and the high availability of quality office space relative to the main office districts. Tenant demand will remain focused on these decentralised locations due to the limited new supply currently available in traditional commercial districts.

Elsewhere, take- up in Beijing returned to the peak levels witnessed in 2007, underlining the rapid pace of recovery in the city’s office market. It wasn’t all good news for landlords, however, with rental growth in cities including Guangzhou, Shanghai and a number of major cities in India already being constrained by the large quantum of new supply coming on stream in the short to medium term, despite solid demand for office space in these locations. The downward pressure on rents in several markets such as Seoul and Kuala Lumpur is likely to increase in light of what tenants commonly perceive of the emergence of excess supply in these markets over the short to mid- term future.

In Japan the Tokyo Grade A office market saw mixed fortunes during the quarter with well- located Grade A buildings succeeding in securing new tenants but other Grade A buildings in less attractive locations continuing to encounter difficulty in filling vacant space. Overall rents decreased as most firms remained focused on cost reduction amid the uncertain domestic economic outlook. Landlords suffering from pockets of stubborn vacancy were observed relaxing their lease terms and adjusting their rents downwards to fill empty space.

Office demand in Seoul stabilised during the third quarter with flat rental growth and a slight drop in the vacancy rate. The occupational market continued to be dominated by consolidation and cost reduction continued to be two main trends driving the market and new buildings scheduled to come on stream in the CBD before the end of 2010 were observed to be offering below-market rents to attract tenants, a move which led to intense competition among landlords of existing and new office buildings.

The Grade A office market in Taipei strengthened during the third quarter as economic fundamentals improved and net office absorption returned to positive levels. Although the period witnessed an increase in relocation and expansion activity as well as a rise in enquiry level, occupiers remained cost conscious and rents grew only marginally by 0.2 per cent q- o- q.

Leasing activity in the major office markets in India continued to gather momentum during the period with rents firming up and vacancy trending downwards on the back of strong demand amidst a noticeable rise in enquiry levels. However, occupier interest was more focused on cost effective suburban locations providing a wider choice of quality office facilities. Net absorption in New Delhi remained strong in both the Grade A and Grade B segments but overall rental values were largely stable due to the abundant availability of stock in the National Capital Region (NCR).

Commenting on the outlook for the Asian office leasing market for the remainder of 2010, Andrew Ness, Executive Director of CBRE Research Asia, said: “Concerns over the possibility of a slower global recovery will inevitably affect the pace of overall office rental growth in the region. However, the market fundamentals in Asia remain firm and the continued regional economic rebound in the post global downturn period in suggests office demand is grounded more solidly, as compared to other regions. Forthcoming quarters should see domestic and multinational companies continue to expand, but in a cautious way, leading to the slower growth of overall rents.”