CBD vacancy rates dip with demand from smaller firms

DEMAND for central city office space from mainly smaller enterprises drove down vacancy rates in the second quarter although tenants are still cautious.

Vacancy rates in the Central Business District (CBD) fell from 11.5 per cent in the first three months of the year to 10 per cent in the three months to June 30.

But the rebound has still left rates below the levels recorded in the first half of last year when vacancies were at 4.4 per cent.

The biggest squeeze on space was in the City Hall/Marina Centre, Orchard Road and suburban markets where Grade A vacancies dropped to ultra-low levels of below 2 per cent in the quarter.

A dearth of project completions after Marina Bay Financial Centre Tower 3 was finished earlier this year.
There is also more shadow space - the excess room tenants lease to sub-tenants to reduce rental costs - but at least the rate of growth is slowing.

Such space is expected to increase by over 60 per cent by the end of the year and potentially add a full percentage point to Grade A vacancies.

In the past three months, shadow space expanded to 474,000 sq ft from 439,000 sq ft in the previous quarter.

However, better numbers in certain areas do not indicate a turnaround for the sector as some financial tenants continued to give up excess space during the quarter, a trend that is likely to continue this year.

Prime rents in Marina Bay and Raffles Place slipped, partly due to landlords offering rent holidays in leases.

Marina Bay rents fell 7 per cent to a monthly average of $10.40 per sq ft (psf) while those in Raffles Place dipped 3 per cent to $9.20 psf.

Prime office rents in Orchard average $9 psf a month and are now right on the heels of those in Raffles Place, a level not seen since 2004.

Source: The Straits Times – 30 June 2012