Office Rents Expected to Drop Further

Commercial MARKET

Office rents expected to face further decline

OFFICE rents in Raffles Place are expected to decline by 12-15 per cent in 2012 and 2013, before returning to growth in 2014.

Net absorption of purpose-built office space for the first half of 2012 is estimated to be almost 720,000 sq ft.

Prime rents in Singapore have dipped 3 per cent since the end of last year, despite being still the third highest, at US$945 per square metre (psm) per annum.

Hong Kong tops the chart, at US$1,782 psm per annum, followed by Tokyo, at US$1,173 psm per annum.

Occupiers in Hong Kong have seen prime rents decline 11 per cent since end-2011, putting the city's rents 15 per cent below their Q3 2011 peak.

Similar rental uplift is expected in Tokyo, Sydney and Bangkok.

In Tokyo, it is projected that rents will pick up further in the second half of this year, after recording a marginal increase in office rents in Q2 after more than two years of consecutive declines. Sydney and Bangkok, too, are expected to see uplift following several quarters of stable rents, mainly due to lack of new supply.

Occupiers in Jakarta and Beijing can expect continuing challenging market conditions, as these markets are forecast to experience the strongest rental growth to 2016.

In Beijing, strong demand and lack of supply caused rents to increase 20 per cent over the last six months. This is exacerbated by high levels of owner- occupation, with only half of the development pipeline likely to be made available for leasing.

However, the pace of growth has finally moderated in Q2, with rents increasing by 4.2 per cent over the quarter.

Occupiers in Jakarta can expect rents to rise 12 per cent per annum up till 2016, after prime rents jumped 14 per cent in H1 to US$201 psm per annum on the back of a surge in leasing activity. But H1's surge is from a low base, and Jakarta remains one of the most affordable office locations in the region and globally.

Source: Business Times – 14 September 2012