Office demand continued on the upside in the first three months of 2013. Following the CBRE estimate of the credible 1.33 million sf recorded for 2012, the net absorption for Q1 2013 was calculated to be at 126,046 sf. CBRE expects that this positive demand will continue for the rest of 2013. This healthy demand has also lowered vacancy rates. In Q1 2013, the island-wide office vacancy rate decreased by 70 basis points from 5.8 per cent to 5.1 per cent.
This is the lowest recorded since Q3 2008 at 4.5 per cent. When compared across the three sub-markets, the CBD Core vacancy rate showed the highest decrease from 7.8 per cent to 6.8 per cent while the Fringe CBD corrected from 4.8 per cent to 3.9 per cent. The vacancy rate for Decentralised market inched up slightly from 2.5 per cent to 2.6 per cent. The Grade A vacancy rate corrected further from 8.8 per cent to 7.1 per cent. The Grade B vacancy rate also showed decreases from 5.9 per cent to 5.4 per cent. CBRE computes Grade A rents by the average value derived from a basket of Grade A properties located in the Central Business District including Raffles Place, Shenton Corridor, Marina Bay and Marina Centre.
Occupier demand has diversified, shifting from the formerly dominant financial industry to complementary industries such as insurance, commodities, business services and legal industries. While the market welcomed occupier demand from some new businesses, occupier consolidations and expansions were also evident. Tenancy deals of more than 30,000 sf remained limited.
Singapore’s competitive occupational costs relative to other cities was the key driver for occupier demand. Most of the rental declines occurred in the first two quarters of 2012, and rental corrections was kept to a minimum in Q1 2013. In Q1 2013, the Grade A rent saw a minor decrease of 0.3 per cent q-o-q and 9.9 per cent y-o-y to register at $9.55 psf/month.
Similarly, the Grade B market saw a slight correction of 0.3 per cent q-o-q and 2.2 per cent y-o-y to $7.09 psf/mth. CBRE expects Grade A rents to remain steady for the remaining of 2013 while downward pressure may be expected on the Grade B rents.
The key office developments in the pipeline for 2013 are Asia Square Tower 2 (782,280 sf), Jem (315,390 sf) and The Metropolis (1,180,000 sf). Asia Square Tower 2 is the only Grade A supply for the year and is already reportedly close to 12 per cent pre-committed. Jem and The Metropolis are located in the decentralised areas of Jurong Gateway and one-north respectively. The former is fully pre-committed by MND while the latter is close to 70 per cent pre-committed with key MNC tenants the likes of Shell, SGX, Procter & Gamble, Neptune Orient Line and Eastman Chemical.
The pre-commitment levels for these two decentralised projects indicate the market’s appetite for new quality buildings with excellent infrastructure and amenities. Supply therefore remains manageable at 2.46 million sf for 2013.
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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