The entire year of 2009 saw an almost 50 percent decline in office rents in Singapore. Observers attribute this mainly to the global economic crisis.
The decline is not a cause for undue concern, as it follows a 90 percent spike in rents the previous year.
However, analysts said that there is a big possibility that rents will fall further next year.
Office rentals in Singapore have suffered amid the global turmoil, as many companies with offices in the area have either cut back on space needs, or wound-up operations.
"I think it swung from extreme pessimism in the beginning of the year to hopeful optimism at the end of the year. In the beginning of the year, no one was looking at lease renewal or expanding, but towards the end of the year we see more activity coming in," said Research Senior Director Chua Chor Hoon of DTZ Debenham Tie Leung (SEA).
Managing Director Donald Han of Cushman & Wakefield said: “It’s been pretty much a slide down the hill in terms of rents concerned, mainly because of the fact that after the global financial crisis, a lot of banks have started to retrench staff and give up premises.”
“We have pretty much bad news in the first and second quarter where rents came down by as much as 40 per cent in the first half of 2009. The good news is we started to see an uptick in demand in the third quarter."
However, instead of stopping the further decline of rents, the demand only helped retard the pace of the decline.
At the start of the year, renting office space in the prime areas in Singapore would cost around $16 per sq ft. But that is down to around $7.90 now.
According to the analysts, the fall this year isn’t as bad as it appears when taken in historical context.
"In 2007, when the market went up at stratospheric levels, rents went up by 89 per cent in just one year. So to come down 55 per cent in 2009, versus an uptick of almost 90 per cent, we still have a balance of upside in that sense," added Mr. Han.
At its peak, some office building prices reach as high as $21 per sq ft.
Even property watchers observed that rents are likely to keep falling before bottoming out at about $6 by the end of 2010.
They said that one of the reasons for a continued fall is the new supply coming on stream.
"The biggest problem for office market is the supply element has been huge mainly because of Government Land Sales introduction in 2007. A lot will start to complete in 2010 and 2011," Mr. Han added.
Mr. Chua said: “The supply is substantially higher than historical average. There is more than two million square feet of new supply this year compared to historical average of 1.5m square feet. And we are going to have more than two million square feet of new supply over the next two years. That’s something that’s going to weigh down on the office sector.”
DTZ claimed that the outlook for the office sector will rely largely on the economic recovery of Singapore as this will have an effect on the expansion plans of various businesses.