After two years of pressure caused by rapid rise of rents, office renters finally saw the market favouring them.
According to a report from the property consultancy Savills, for four straight years of decline, flat leases await them as a sign of forthcoming office space, surpassing the lustreless demand.
Chris Marriott, the regional commercial head of Asia-Pacific, anticipates high-quality office values to divide by the end of next year from the height of last year, and that recovery will not begin till 2012. Top-tier structures in the central area, such as Republic Plaza and One Raffles Quay suggest Grade A space.
He said at a briefing yesterday that office rents were expected to go down 30 percent to 40 percent this year, and by 20 percent to 25 percent next year.
The predicted decline was due to the large volume of office space to be finished by year 2011 – 5.5 million square feet, or nearly 30 percent of all active Grade A space.
Simultaneously, the demand for these new offices, which recently exceeded the supply when companies were expanding, had become weak because of the worldwide economic slowdown, according to Mr. Marriott.
“Office rents have generally come off by 10 per cent from the peak last year, although for new lettings we’ve seen more like a 25 percent drop,” he said.
Rents of average Grade A reached the highest point at $15.10 per square foot in the previous year and went down to $13.70 per square foot by the end of the year. Savills thinks they will go down to $6 to $7 per square foot by next year, making prime office space 20 percent relatively low than in Hong Kong. Office market in Singapore will perceive a more extreme adjustment, somewhat due to the new space proportion in relation to a bigger existing space, Mr. Marriott added.
Other estate experts have the same opinion that office owners are in for a hard-hitting time.
Donald Han, the managing director of Cushman & Wakefield, is tipping a 20 percent slump in leases this year and another 20 percent decline in the following year, although the falls may be larger if the economic outlook of Singapore continues to get worse, he said.
For the past three months, nearly all Grade A office owners have lessened rents by up to 10 percent to 15 percent, he said. “Landlords…are becoming more aggressive in trying to keep their tenants happy.”
Still, he explained that albeit rents go down at $7.50 per square foot, in his own prediction, they will stay higher than in the last decline when they touched $5 per square foot.
Moray Armstrong, the executive director of CB Richard Ellis does not expect rents to adjust that much. “We have seen in previous cycles that when demand picks up, the available office supply is often very swiftly absorbed.” He also added that the cycles have been short quite often in the past two to three years.
Shaun Poh, the senior director of Debenham Tie Leung’s, said that landlords are really prepared to make a negotiation. “Some of the landlords have stopped quoting actual prices; now they just ask tenants to make them an offer,” he noted.
Existing tenants try to cash in during the recession, said Mr. Poh. “Some tenants who have already settled on a price are asking to renegotiate or to get longer rental holidays.”
However, not all owners are troubled. CapitaCommercial Trust, which possesses eleven prime estates, said it does not believe that overall leases are reduced sharply, as compared to the previous downturn trends. A spokesperson said that the trust costs $15 to $17 per square foot for Grade A space, although its overall rent on average is only $7.44 per square foot. They expect positive renting reversions for rents renewed in 2009.