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Thursday, January 31, 2013

Singapore office rents to rebound as supply growth abates

Singapore’s office rents are set to rebound from their first annual decline in three years as new supply shrinks and more businesses expand, according to the biggest office property trust in Asia outside of Japan.

Rents in the city are reaching a trough and demand may rise as the country positions itself as a regional business hub, said Lynette Leong, chief executive officer of CapitaCommercial Trust (CCT), Supply for the next three years will be about 0.8 million square feet a year, down from 1.3 million square feet over the past two decades, she said.

Buildings stand in the central business district in Singapore. Photographer: Munshi Ahmed/Bloomberg
The towers of the Marina Bay Financial Centre stand in the central business district in Singapore. Photographer: Munshi Ahmed/Bloomberg

“Rents are poised for a recovery,” Leong said in an interview in Singapore on Jan. 24. It’s “a no-brainer that rents are not going to go down very much further so it’s more when the rents will turn and to what extent,” she said.

Ranked by the World Bank as the easiest place to do business for a seventh year, the country that’s smaller than New York City is also emerging as Asia’s wealth management center, driving demand for banking services with an increase of millionaires. Singapore office rents are the 19th-highest globally, according to CBRE Group Inc., and are cheaper than Hong Kong, Tokyo, Beijing and New Delhi.

CapitaCommercial estimates new demand accounted for 1.5 million square feet to 1.8 million square feet annually in the past three years, Leong said, without giving a forecast for 2013.

Singapore’s office rents fell 0.3 percent in the fourth quarter, extending the decline in 2012 to 1.3 percent, the government said on Jan. 25. They climbed 8.4 percent in 2011 and 13 percent in the previous year, government data showed.

Millionaire Households

The country’s millionaire households expanded 14 percent in 2011, according to a Boston Consulting study. The proportion of millionaire homes in the city of 5.3 million people was 17 percent, the highest in the world, followed by Qatar and Kuwait.

Additional office space in the past two years came mainly from the downtown Marina Bay area, with banks including Standard Chartered Plc and Barclays (BARC) Plc taking bigger offices.

Standard Chartered relocated from 11 buildings across the city to one tower in the new office area, while Barclays moved from six to two in the district.

Average gross rents of prime office space declined 11 percent in 2012 and could fall 5 percent to 10 percent this year, Colliers International said in a Jan. 25 report. Leasing rates climbed 14.6 percent in 2011, the property brokerage said.

New tenants took up 1.9 million square feet of space last year, a 17 percent drop from the five-year high of 2.3 million square feet in 2011, Colliers said.

Too Early

“It’s still too early to pinpoint a time for a recovery,” Chia Siew Chuin, director of research & advisory at Colliers, said in a phone interview yesterday.

“Global economic headwinds are a concern and there is also a risk of secondary space that can be returned to the market should occupiers or tenants relocate to new buildings.”

Singapore’s economy expanded 1.2 percent last year, less than a quarter of the pace in 2011. Growth is expected to range between 1 percent and 3 percent this year, based on official estimates.

The city also became the first in Asia to introduce curbs on industrial properties. The government on Jan. 11 imposed as much as 15 percent in stamp duties on sellers of warehouses and logistics buildings to curb speculation after prices doubled in the past three years and outpaced the increases in rents.

Raffles Quay Asset Management Pte, which manages office towers developed jointly by billionaire Li Ka-shing’s Cheung Kong Holdings Ltd. (1), Keppel Land Ltd. (KPLD) and Hongkong Land Holdings Ltd. (HKL), said most of its buildings are fully leased. Its latest offering, the third office tower at a Marina Bay development, is about 77 percent filled, it said.

Rent Stability

“We see stability in rents in the market,” Warren Bishop, chief executive officer of Raffles Quay Asset, said in an interview. “Given the amount of supply coming online, I don’t think it’s going to go down any further. Still, with the overall economic situation, it’s hard to predict it going up, because we have to be realistic that the situation in America and Europe is affecting the world economy.”

Singapore’s office vacancy rate has been falling since it reached a five-year high of 13 percent in the third quarter of 2010, according to government data. It fell to 9.4 percent in the fourth quarter last year, the lowest since the end of 2008.

CapitaCommercial said it filled 97.2 percent of its buildings in the fourth quarter, keeping its vacancy rate lower than the industry average. The trust, partly owned by CapitaLand Ltd., Southeast Asia’s biggest developer, increased its distributable income by 7.4 percent to S$228.5 million ($184.8 million) last year.

The trust, also the biggest office REIT by market value in Asia after Nippon Building Fund Inc. and Japan Real Estate Investment Corp., climbed 22 percent in the past six months, compared with the 8.4 percent gain in the Singapore benchmark Straits Times Index. (FSSTI) The shares climbed 1.2 percent to S$1.645 in Singapore trading today, snapping a four-day decline.

“A lot of companies are not just dependent on the Singapore GDP, but more the regional economies,” said Leong, the trust’s CEO. “And the region still looks fine, so we think that will drive demand for office space.”
- Bloomberg

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