Prime office rentals continue slide in Q3

Even as vacancies improved in the prime office market in the last quarter, rentals continued their downward trend, suggesting that recovery is unlikely in the near term.

The sharpest decline in vacancies was seen in the Marina Bay sub-market, which fell three percentage points from Q2 to 9.8 per cent in Q3. Orchard Road was the only exception, where the vacancy rate rose a touch to 2 per cent from 1.5 per cent in the second quarter, though it remained a tight market.

Despite the slight improvement in the vacancies, overall Grade A rent in Q3 2012 fell 3.6 per cent from the previous quarter to $9.13 per square foot (psf).

The largest drops were recorded in the core CBD areas of Marina Bay and Raffles Place, where rents slipped by 2.5 per cent and 3.9 per cent, respectively.

Rentals in the City Hall and Marina Centre vicinity fell 1.8 per cent in Q3 after remaining flat in the previous quarter.

A comparison of rental trends across all sub-markets in Q3 showed that the office market had softened but at a more moderate pace than the first half of the year.

Although analysts expect a continued decline in vacancies over the next quarter that should help stabilise effective rents in the CBD, short-term recovery is unlikely given the cautious demand and the more than 1.2 million sq ft of vacant space due to come onstream in the next six months.

Year-to-date, total net absorption totalled 1.69 million sq ft, surpassing 10-year average net absorption of 1.12 million sq ft. But this still lags behind annual net absorption levels in 2010 (four million sq ft) and 2011 (2.1 million sq ft).

Source: Business Times – 9 October 2012