Office capital values seen easing 5% this year

Office capital values could fall 5 per cent for the whole of 2012 according to an analyst report.

The average capital values of Grade A office space in the Raffles Place/New Downtown micro-market softened by a marginal 0.5 per cent - from $2,459 psf in Q1 to $2,447 psf by end June - following pressure from the third consecutive quarter (since Q4 2011) of easing office rents.

There was sustained interest, however, in the sales market, which was buoyed by low interest rates and continued availability of new strata supply.

Oxley Tower saw 60 per cent of the 56 office units released snapped up within the first few days of its launch at prices ranging from $2,800 psf to $3,490 psf. EON Shenton also saw more than 30 office units sold out of the 50 units released during its preview, at between $2,150 psf and $3,000 psf.

Equally brisk were en bloc sales of strata office units. In April, 51 strata office units in Parkway Centre were collectively sold for $53.4 million ($1,043 psf). In May, 66 strata office units in Burlington Square were sold at $89.3 million ($1,318 psf).

On the rental front, rents of islandwide Grade A office space slipped by 1.2 per cent in Q2 compared with the 4.2 per cent fall in Q1.

In the Raffles Place/New Downtown micro-market, the average monthly gross rents for Grade A office space fell 3 per cent quarter on quarter to $9.47 psf. This segment experienced a 5.3 per cent quarter-on-quarter drop in Q1.

Similarly, rents in other micro-markets moved by between zero per cent and -2.4 per cent in Q2, versus the -2.3 per cent to -8.8 per cent plunge seen in Q1.

The threat of an impending supply overhang remains. This stems from the substantial amount of space that could be returned to the market upon lease expiry, as existing tenants moved to newer premises. It is estimated that some 150,000 sq ft of space could be relinquished in H2 2012.

The erosion of office rents in the Raffles Place/ New Downtown micro-market is expected to continue into the next six months, but the pace of decline could decelerate from the 8.1 per cent fall registered in the first half.

Rental decline is expected to keep within 15 per cent for the entire year.

Source: Business Times – 27 June 2012