A LIMITED supply of office space could boost rents this quarter and in turn spur investment and leasing activity, said consultancy CBRE yesterday.
Research head Desmond Sim noted that there is already pressure on rents for Grade A space - some tenants may want to renew leases before prices escalate.
He added that more big investors - including private equity and sovereign wealth funds - may start to put money into the office market this year.
"There's a lot of liquidity. All this while, they've been keeping a lookout for a good deal, and due to the uncertainty last year, they were restricted to not doing big deals," he said. "I'm not surprised if there are some big deals this year on the back of the recovery in the office market, which would give them higher yields."
Offices said to be on the market include AXA Tower at 8 Shenton Way and Keppel Reit's 92.8 per cent stake in Prudential Tower.
AXA Tower owner BlackRock is said to be seeking at least $1.35 billion, which works out to about $2,000 per sq ft (psf) for the 674,000 sq ft of net lettable area.
There is talk that Keppel Reit is looking at a price of $2,400 psf for Prudential Tower, which would value its stake at $531 million based on the 221,241 sq ft of space that it owns in the building.
CBRE said in a report yesterday that Grade A office rents jumped 2.1 per cent in the October to December period last year from the preceding three months "as many tenants went into expansion mode".
Occupancy improved across the market and the overall vacancy rate fell 1.67 percentage points to 4.8 per cent in the fourth quarter, it said.
These are signs the office market is finally on the mend, Mr Sim said, pointing out that rents have been declining since 2011 and stayed mostly stagnant in the first three quarters of last year.
One major factor in the market recovery has been keener interest from Asian financial institutions, said the CBRE report. Japan's Mizuho Bank, for example, leased 110,000 sq ft of space in Asia Square Tower 2 late last year.
Another factor that will boost rents is that while demand is beginning to expand, supply remains limited.
CapitaGreen is the only major Grade A office project expected to be completed this year.
No significant new supply is expected to hit the market next year and the Marina One project may come onstream only in 2016, Mr Sim said.
Marina One, a mixed-use development in Marina South, will add about 1,880,000 sq ft of new office space.
The project is expected to launch its residential units for sale this year for around $2,800 to $3,000 psf.
Marina One is being developed by M+S, a 40-60 joint venture between Singapore investment firm Temasek Holdings and Malaysian sovereign wealth fund Khazanah Nasional.
This story was first published in The Straits Times on Feb 18, 2014
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