Office rents and values down in third quarter

Moves by banks to send some functions out of the CBD to cheaper suburban areas, and the huge supply of new space in the pipeline are likely to keep the market in the slower lane, said experts.
Moves by banks to send some functions out of the CBD to cheaper suburban areas, and the huge supply of new space in the pipeline are likely to keep the market in the slower lane, said experts.PHOTO: LIM YAOHUI FOR THE STRAITS TIMES

Economic uncertainty hit the office market in the third quarter, with rents and capital values both falling.

Continuing moves by financial institutions to send some functions out of the central city area to cheaper suburban locations, and the huge supply of new space in the pipeline are likely to keep the market in the slower lane, said experts.

Data out yesterday showed that office rents fell 2.9 per cent from the second quarter to the third. In comparison, the drop from the first three months of the year to the second quarter was 2.6 per cent.

Retail space rents fell 2 per cent in the third quarter, compared with the previous three months, a big increase from the 0.5 per cent decline in the second quarter.

Office prices dipped 0.1 per cent in the quarter, compared with the previous three months. This was a turnaround from the second quarter, which recorded price increases of 0.3 per cent over the first three months of the year, according to Urban Redevelopment Authority data yesterday.

Cushman and Wakefield research director Christine Li said banks are continuing to reduce their space requirements in the Central Business District by shifting more back-office staff to cheaper business parks.

She said: "The legal sector, a significant occupier of CBD prime space, is also starting to feel cost pressures, with the Big Four law firms reportedly cutting base pay and bonuses.

"Meanwhile, the growth of the insurance sector, which has been tipped to prop up the flaccid leasing market, could also be slowed by regulatory requirements. With market sentiment unlikely to improve in the near future, due to the persistent weakness in the global economy, further rental declines are to be expected in subsequent quarters."

Mr Ong Teck Hui, national director of research and consultancy at Jones Lang LaSalle, told The Straits Times: "While the office rental index has softened appreciably, the price index has remained stable, indicating a firmer position on prices on the part of sellers.

"The price resilience in both the office and retail space shows that the position of owners and sellers has not been badly affected by the slower economy thus far."

Meanwhile, the occupancy rate of office space improved slightly in the third quarter despite weaker take-up of new leases.

Only 161,000 sq ft of space was taken up in the third quarter, down 61 per cent, compared with the 409,000 sq ft of space absorbed in the second quarter, said Ms Li.

Islandwide vacancy rates improved from 9.8 per cent to 9.6 per cent due to the removal of 32,000 sq ft of office stock.

"However, the overall vacancy rate is expected to surge to double digits next year on the back of the record supply of close to 4 million sq ft," said Ms Li.

A version of this article appeared in the print edition of The Straits Times on October 24, 2015, with the headline 'Office rents and values down in third quarter'. Print Edition | Subscribe