Grade A office rents drop

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Mounting uncertainty and volatility due to the Eurozone debt crisis has affected Singapore’s office leasing market, causing average monthly gross rents for Grade A office space in the Raffles Place/New Downtown micro-market to fall in Q4 2011 for the first time since the market bottomed out in Q4 2009.

As of end-December 2011, average monthly rents in the market had fallen 4.3 percent quarter-on-quarter to S$10.31 psf per month, bringing the entire year’s gain to 14.6 percent, significantly lower than 2010’s 31.4 percent growth rate.

At the same time, Marina/City Hall rents fell 2.3 percent and Beach Road rents fell 0.8 percent quarter-on-quarter. Overall, average CBD Grade A office rents declined 1.6 percent quarter-on-quarter in Q4 to S$8.93 psf per month by end-December 2011.

The Raffles Place/New Downtown rental decline is reflective of the decrease in the micro-market’s occupancy rate to under 90 percent for the first time since Q3 2005; the drop from 90.9 percent in Q3 to 88 percent in Q4 has been attributed to the completion of some 350,000 sq ft of office space in the quarter.

Calvin Yeo, Executive Director of Office Services at Colliers International, said, “The demand and supply equilibrium is further tipped, with more office tenants relocating or locating some of their operations out of the CBD… facilitated by the availability of compelling suburban options in the form of new office and business park developments…similar to Grade A office buildings in the CBD.”  

Meanwhile, new strata-titled office launches and continued low interest rates led to active office strata-title and en bloc investment sales markets in Q4 2011.

The biggest deal in terms of quantum price in five years was K-Reit Asia’s S$2.01 billion purchase of Keppel Land’s 87.5 percent stake for a 99-year leasehold tenure in the 885,000 sq ft Ocean Financial Centre. At S$2,600 psf, it was a new high in office investment since the global financial crisis three years ago. The previous record was held by One Finlayson Green in March 2011 at S$2,524 psf.  

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