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Office rents reverse downtrend, prices also up in 3rd quarter

Office rents reverse downtrend, prices also up in 3rd quarter.

The office market showed signs of a turnaround in the third quarter although vacancies rose to their highest in 12 years. The good news was in the area of prices, which rose 0.4 per cent in the three months to Sept 30 compared with the second quarter. This followed a 1.4 per cent fall in the second quarter.

Rents rose as well, up 2.4 per cent in the quarter for the first time in 10 quarters, after a decline of 1.1 per cent in the previous three months, according to Urban Redevelopment Authority data on Friday.

This is an indication that prior fears around a supply overhang have diminished as leasing commitments to new developments continues to gather steam, an analyst said.

The big surprise is office rents turning around sooner than expected. With strong third-quarter gross domestic product numbers confirming an earnings recovery story this year, market confidence has returned. While demand has been soft, primarily among banks and financial services companies, the slack has been picked up by sectors like shipping, energy, legal and technology.

The improvement in rents reinforced confidence in office building investments, signalled by the recent acquisition of Asia Square Tower 2 and the awarding of the Beach Road site. En bloc activity has also spilled over to commercial and mixed-use buildings.

Despite vacancies jumping 13.3 per cent from 12.4 per cent in the second quarter because of the completion of the Marina One development, there are signs the market has reached a turning point.

Last month, GuocoLand and its parent Guoco Group were awarded the Beach Road commercial site with a bid of $1.622 billion, setting a new benchmark price for a Government Land Sale site in Singapore

Although the vacancy rate is at a 12-year high, it came on the back of 5.4 million square feet of office space coming onstream islandwide between 2016 and 2017 alone. Now that the tsunami of office supply has passed, and with rents having fallen to very attractive levels, major occupiers are taking advantage of this market trough to negotiate for early renewals and relocations. Corporate decision-makers are responding to signs of economic improvement and are more forthcoming in terms of corporate expansion.

Leasing momentum in new projects remained steady in the third quarter.

Adapted from: The Straits Times, 30 October 2017