Office landlords, long dependent on banks, are broadening their tenant base to soak up empty space as the commercial property market inches towards recovery after a three-year slump in rents.
Property owners such as CapitaCommercial Trust and Suntec Real Estate Investment Trust are using the cheapest rents in three years to lure commodity traders, law firms and software companies. The new tenants are moving in as financial-services firms scale back expansion plans in the wake of the European debt crisis.
“Singapore’s office market is getting a lot more diversified,” said Ms Elysia Tse, Senior Vice-President of Strategy and Research at Aviva Investors Asia. “We are at the turning point where we see supply stopping, demand slightly turning positive, vacancy declining, and rents have stopped falling.”
Office inventory surged after the government in 2005 extended the traditional Central Business District with the development of Marina Bay, home to 10 office towers and the Marina Bay Sands hotel and casino.
Then came Lehman Brothers’ collapse in 2008, a global recession and later the euro zone crisis. These sent vacancy rates soaring to a high of 14.5 per cent in the third quarter of 2010.
Prime-office lease rates declined to S$9.55 per square foot per month in the first quarter of this year, according to CBRE Group, which ranks Singapore’s overall office rents the 19th highest globally. Rents for prime space peaked at S$18.80 psf in August 2008, CBRE data shows.
But things are expected to soon change. Rents in the best buildings may start to rise this year, according to CBRE and Cushman & Wakefield.
Vacancies in Singapore fell to 5.1 per cent in the first quarter from the previous three months, the lowest since September 2008, CBRE said. Annual new supply will be 38 per cent lower than in the past 20 years, CapitaCommercial Trust forecasts.
The office market is benefiting from Singapore’s emergence as Asia’s wealth-management centre. The Republic has also become a commodities hub and the largest foreign-exchange centre in the region after Tokyo.
Companies are also attracted by some of the lowest occupancy costs in Asia. Rents, local taxes and service charges average US$99.65 (S$126.60)psf on an annual basis, according to a CBRE survey. That compares with US$235.23 in Hong Kong, the world’s most expensive office market, and US$161.16 in Tokyo.
British law firm Clifford Chance, French oil-and-gas company Lynx Energy Trading, American publisher McGraw Hill Financial, German software maker Software and Zurich-based bakery Aryzta are among companies that have moved into Marina Bay Financial Centre’s Tower 3, completed in March last year.
“We are becoming more optimistic about the prospects and outlook for the office sector,” said Mr Moray Armstrong, Executive Director of Office Services at CBRE in Singapore.
Source – Today – 26 June 2013