Based on research made by property firm Savills, Grade A office rents in Singapore are likely to be trimmed down by 30-40 percent in this year, and another 20-25 percent in the following year is also viable.
In 2008, rents in Singapore fell 1.9%. The property firm’s research, which calculated rents at rival markets Shanghai and Hong Kong as well, reveals that Singapore may suffer the worst hit in Grade A office space rental declines in 2009 and 2010.
Savills said Grade A office rents in Singapore rose at $13.70 psf pm (per square foot per month) at the end of 2008, but is expected to plummet to 8-9 psf at the end of 2009, and to $6-7 psf by 2010.
Hong Kong Grade A rents are expected to fall by 30 percent in 2009, and 10 percent in 2010. A 3.3 percent increase was seen in Hong Kong’s Grade A office rents last year. Grade A rents in Hong Kong were about HK$59.80 psf pm in 2008. Savills predicts that this would fall to HK$42 psf by the end of 2009 and HK$38 psf as 2010 closes.
Consequently, Grade A office rents in Singapore are expected to remain low by 20 percent than those in Hong Kong by 2010. In the first quarter of 2008 and in the last two quarters of 2007, Singapore’s Grade A office rents were higher than those in Hong Kong since rents increased in 2006 and 2007. In 2007, Grade A office rents increased two folds after mounting 50 percent last 2006.
However, rents in Hong Kong became higher again as rentals thrived in 2008. Grade A rents plunged to an average $15 psf pm in the fourth quarter of 2008, a 12.5 percent fall in 2007. In calculating market rents, Savills and CBRE use diverse baskets of properties, though these two firms estimate that rents will continue to plunge in 2010 and 2009.
In the previous years, Hong Kong and Singapore hurry in developing offices in support of their growing financial services sectors. But unwanted space emerges to depress rents due to the global downturn. Yet, rents in Hong Kong may be the least affected since new office supply in the Chinese territory was extended earlier than here.
Savills Asia-Pacific’s regional head of commercial Chris Marriott said, “With a minimum of a four year lead time for any significant office development, Hong Kong’s core supply arrived in the nick of time to satisfy the burgeoning demand whilst Singapore has been caught by the unforeseen credit crisis”.
Savills said that new prime office space of about 5.5 million square feet is set to surface here from the current year to 2011, while there is about 4.52 million sq ft coming up in Hong Kong.
Mr. Marriott assumes that Hong Kong to see a rapid upturn. Rental recovery in Singapore is likely to transpire from 2012 onwards, though investor interest is projected to accelerate early on 2010.
There are several new funds with allotments for Asian regions which are now aiming at assets regionally. “These institutions are already focusing on prime assets in core markets at discounts”, Mr. Marriott said.
Singapore, Hong Kong, Australia, Korea and Japan are some of their particular targets, and will begin buying once prices are trimmed down by vendors, Mr. Marriott added.