Slide in top grade office rent slows: JLL

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(SINGAPORE) The average monthly prime Grade A office rental fell 11 per cent
quarter on quarter to $9.50 per square foot (psf) in the second quarter, slower
than the 28 per cent quarter-on-quarter slide in Q1 2009, according to property
consulting group Jones Lang LaSalle (JLL).

The latest drop translates to
an overall slide of 48 per cent from the peak of $18.40 psf in Q3 last year.

The vacancy level of Grade A space rose to 6.1 per cent as at end-Q2
2009, up from 5.4 per cent at end-Q1 and 2 per cent at end-2008. JLL's prime
Grade A office basket covers the best properties in the Raffles Place area, and
includes One Raffles Quay and One Marina Boulevard.

JLL expects office
rents to continue falling for the rest of this year and into the middle of next
year, albeit at a more moderated pace, as substantial physical supply and weak
global demand continue to overshadow the market.

Property consultants
point out that net demand remains in negative territory. And with around eight
million square feet of new offices slated for completion between now and 2013,
the office market isn't out of the woods yet.

But the silver lining is
that Singapore will become more cost-competitive and regain its attraction as a
hub for global banks and MNCs when they stabilise their headcounts, says JLL's
head of markets, Singapore, Chris Archibold.

For now, the bright spot
for the office market is a significant pick-up in leasing volumes lately.
'There has been a marked increase in the volume of leasing and inspection
enquiries recently. A significant number of these tenants are looking at
remaining within the CBD core area,' said Mr Archibold.

Said DTZ
executive director (business space) Cheng Siow Ying: 'At least now, corporates
are more willing to talk about their future real estate needs. There's
recognition that a lot of good-quality office space is becoming available at
competitive rents, presenting attractive leasing opportunities. Six months
ago, most corporates were not even reviewing their space needs.'

CB
Richard Ellis executive director (office services) Moray Armstrong, too, has
seen a 'strong resurgence' of leasing activity in the past couple of months.
'But in truth, it's not representative of positive office demand. Rather what
we appear to be seeing is the welcome transition to a phase of greater
stability, which is allowing occupiers to re-visit premises planning. For the
most part, the tenants that are active are chasing lower cost and better value
- in some cases by relocating to newer buildings at the fringe of the CBD,' he
added.

Giving some examples, Mr Armstrong noted that office developments
such as 78 Shenton Way Tower 2 and Mapletree's The Anson - both of which are
completing in the next two to three months - are attracting keen
interest.

According to JLL, lease renewals continue to dominate deals in
the current market where occupiers have generally cancelled if not deferred
their expansion plans.

'While there has been more positive news of late,
our domestic economic growth remains weak and this will likely continue to cast
a shadow over the Singapore office property market over the next six to nine
months,' says JLL's head of SEA research Chua Yang Liang.

Office leasing
consultants say it's too early to declare a recovery. Projections of negative
office take-up this year range from 500,000 sq ft to 1.5 million sq ft. Demand
is expected to fall short of new supply in the next few years.

And
that's not counting shadow space or excess space that companies try to sublet.
In addition to some 400,000 sq ft of shadow space immediately available for
occupation, JLL estimates there is a further 400,000 sq ft in the
pipeline.

Summing things up, Mr Armstrong said: 'We can't really call a
recovery in the office market until demand turns positive and vacancy rates
reduce significantly. It's hard to imagine that will occur in the next 12-18
months, but there is a stronger case for the market turning 2011 onwards.'

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