According to the analysts, they see no problem with the downward trend of prime office rents as such deterioration is a necessary correction.
Prime office rents in the CBD have been greatly affected by low demand and oversupply of office space.
Since the start of 2008, rents have dropped by 40 percent. However, market watchers affirmed that rents were far from free fall. Due to the unusually high prices that resulted from 2007’s boom, such slowdown in the rate of office rents was a necessary correction that was already expected to happen.
“We could see office rentals return to a 2005 level. Office rentals have risen to such a high rate, so we must not take it that the 2007 rates are the norm,” Independent Property Consultant, Nicholas Mak, stated.
“For example, it was quite common before 2005 to find that Raffles Place rentals could be under S$6 (per square foot per month) in some places,” Mr. Mak added.
By 2010, prices of rents must already level out from S$6 to S$10 per sq ft per month with the CBD, said the experts. The figures are low compared to the average of S$15 in the fiscal year 2007, as well as in 2008.
The developments in the city have also experienced some delay due to the oversupply in office space. Nevertheless, new potential projects have been considered outside the town as a result of the interest in inexpensive non-central locations for companies that can be housed outside the CBD.
"If you talk about huge projects like the Marina Bay area, probably not as many, there is just an over supply right now. But if you look at smaller projects, especially along the new MRT lines, that is going to be interesting because they have good infrastructure and have a competitive advantage because of pricing," said BCI Asian Construction Information Managing Director Thor Kerr.
The new projects include the combined developments down the South Beach Road and the new Fusionopolis Tower beside the Buona Vista.
Such interests in non-prime properties are expected to keep prime rental rates down until big tenants are once again drawn in the CBD and the global economy fully recovers.