Third quarter average office rents up 7.3%

Singapore’s private conventional industrial rents were stable following a slight increase in the previous quarter.

The office market rebounded in Q3 2010 as rents grew across all districts. Prime rents in Raffles Place rose 6.3% quarter-on-quarter (QOQ) to $8.40 per sq ft per month, following a 1.3% increase in Q2 2010. Average office rental values in other parts of the city centre saw a significant rental growth of 4.2% to 7.3% in the quarter after remaining unchanged in Q2 2010, according to a DTZ Research report.

With increasing demand, island wide office occupancy rose further by 1.7 percentage points QOQ to 94.9% in Q3 2010. This is despite the substantial increase in stock of more than 1.1 million sq ft from the completion of Tokio Marine Centre and Marina Bay Financial Centre (Tower 2) as the latter was already fully pre-committed before completion.

Ms Cheng Siow Ying, DTZ’s Executive Director, Business Space noted: “With rental values on the rebound, larger occupiers are anxious to lock in rents for prime office space. This has led to strong pre-commitment rates for uncompleted office buildings like the Ocean Financial Centre.”

An estimated 7.0 million sq ft of office space is expected to be completed between Q4 2010 and 2015. After factoring a reduction of 1.3 million sq ft of existing space that will be demolished for redevelopment and adding potential supply from two government land sales sites that were recently awarded and another two which had been launched for tender, the average annual supply would be about 1.5 million sq ft. This is not excessive compared to the historical 10-year annual average take-up of 1.2 million sq ft as demand is expected to be higher than 1.2 million sq ft after coming out of a recession.

Ms Chua Chor Hoon, Head of DTZ South-east Asia Research commented, “The outlook is favourable as office demand is expected to grow with economic expansion. However, demand could be dampened if the major economies in Europe and the US turn out to be more sluggish and affect Singapore’s economic growth. There is also a substantial amount of new office space (3.03 million sq ft) coming on stream next year which could moderate the rate of rental increase.”

Meanwhile, island wide private conventional industrial rents were stable in Q3 2010 following a slight increase in the previous quarter.

Average monthly gross rents for first-storey private industrial space were unchanged at $2.00 per sq ft while rents for upper-storey space stood at $1.60 per sq ft per month. Average monthly gross rents of first-storey and upper-storey private industrial space had declined from the Q3 2008 peak of $2.35 and $2.05 per sq ft per month respectively before rising 2.6% and 3.2% respectively in Q2 2010.

Rents for hi-tech industrial properties, which include business park and science park space, were unchanged for the third consecutive quarter at $3.15 per sq ft per month in Q3 2010. Rents for hi-tech industrial properties are 30.0% below its peak in Q3 2008.

The rental gap between decentralised offices and hi-tech industrial space remains fairly narrow. Average rents at Tampines are about 21% above average hi-tech rents. Although the rental gap has widened from 11% in H1 2010, it is still below the over 70% difference seen in 2008. Hence there is little motivation for potential occupiers to seek office space in hi-tech industrial properties.

Ms Cheng Siow Ying, DTZ’s Executive Director, Business Space commented: “Hi-tech rents are expected to be remain constant for the rest of the year as a substantial supply of business park space was completed last quarter and more are expected to be completed by the end of the year, such as Biopolis Phase 3 and Solaris (Fusionpolis Phase 2B).”

“As the yearly pipeline supply over the next two years is less than the 10-year average annual take-up of 9.16 million sq ft, industrial rents are expected to increase gradually,” noted Ms Chua Chor Hoon, Head of DTZ South-east Asia Research.