The decline in prime office rents in Orchard Road, City Hall and Shenton Way are leveling off, going by mid-Q4 figures from Cushman & Wakefield.
The property consultancy firm observed that the monthly prime office rents in the Shenton Way area dropped just 0.8 percent in the first six weeks of Q4 from $6.04 per sq ft in Q3 to $5.99 per sq ft. This decline is too small compared to the 10 percent plunge during the second and third quarter.
Rents had sustained relatively well, although the Shenton Way district had a double-digit vacancy rate. This was due to the emergence of new space from buildings like 71 Robinson and Mapletree Anson.
There is “landlord reluctance to lower rents amid signs of improving office space absorption,” said a spokesman from Cushman & Wakefield.
Take-up of office space turned positive in the third quarter after its constant decline for three consecutive quarters, according to the Urban Redevelopment Authority.
Likewise, monthly prime office rents in the City Hall area were flattening. It only had a slight dip of 0.4 percent from $6.80 psf in the third quarter to $6.77 psf. The figure indicates a big improvement from the 5.4 percent slide between the second and third quarters.
Prime office rents in Orchard remained relatively stable at $6.89 psf, marginally lower than the $6.90 psf in the third quarter. Rents there dipped 6.3 percent between the second and third quarter.
Both the Orchard and City Hall areas have low rates for single-digit office vacancy. According to Ang Choon Beng, research director of Cushman & Wakefield, lease renewal has been more stable in these areas. There was also a relative lack of new space, unlike in the Raffles Place and Shenton Way areas.
Like those in Orchard Road, City Hall and Shenton Way, office rents in Raffles Place have yet to flatten out. Monthly Grade A rents for Raffles Place dropped 3.5 percent from $8.13 psf in the third quarter to $7.85 psf. Also, monthly prime rents in Raffles Place fell 2.6 percent from $7.80 psf in the third quarter to $7.60 psf.
On the other hand, Raffles Place’s commercial landlords are assured that rental declines are lower compared to rental declines between Q2 and Q3.
Mister Ang anticipates that for the rest of 2009 and during the first half of next year, prime rents will “remain soft”. “We think the influx of 2.2 million sq ft of new prime office space in 2010 needs to be well absorbed before we can see a bottoming of prime office rents,” he said.
“In markets with a large supply overhang, such as Singapore, there is likely to be continued upward pressure on incentives as owners seek to secure tenants,” said Jones Lang LaSalle in a separate report.