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Rentals for Singapore’s most premium office space posted their largest-ever rise in the last quarter of this year - and are expected to hit a new high within six months.

Grade A office rents in Raffles Place surged by an unprecedented 24.4 per cent in the October to December period from the previous three months, according to a new report by Colliers International.

They hit $8.61 per sq ft (psf), surpassing the last high of $7.77 psf achieved in 2001.

If this ’sweltering pace’ continues, Colliers International director of research and consultancy Tay Huey Ying predicts that Grade A rents in Raffles Place will ‘breach 1996’s all-time high of $9.77 psf by the first half of next year’.

They are also likely to reach $12 psf by the end of next year - an annual growth rate of close to 40 per cent, she said yesterday.

The jump in rents comes on the back of an acute supply crunch and a six-year high in demand for offices that reached 2.9 million sq ft this year, Colliers said.

This has also meant most other office rentals have notched up their largest quarterly rises in two years, across locations and office grades.

With a few exceptions, office rents recorded increases of up to 37.6 per cent in the last quarter of this year - the highest rises since the market bottomed out in early 2004, noted Colliers.

Rents in Grade B offices in the Tampines and Jurong regional centres rose the most, due to a spillover of demand for almost-full Grade A office buildings in the area, which recorded occupancy rates of 99.1 per cent this month.

Similarly, Grade B office rents in Beach Road jumped 31 per cent.

Offices in Shenton Way saw rents increase by an average of 29 per cent across all office types, while those in the Marina and City Hall areas rose by 20.5 per cent.

Rents across the office market will end the year ‘33 per cent to 69.5 per cent higher than last year’, said Ms Tay.

Prime rents, especially, will ‘face immense upward pressure, given the limited supply of Grade A office buildings scheduled for completion next year’, she added.

To ease the supply crunch, Ms Tay suggested that government offices located downtown ‘rationalise their office space usage and streamline their operations’.
 
 
Source : Straits Times - 28 Dec 2006

This could help alleviate office space crunch, curb rent rises: Colliers

Property consultant Colliers International yesterday suggested that government departments located in the Central Business District (CBD) rationalise their use of office space and streamline their operations wherever possible to release much-needed space for the private sector.

This could help alleviate the short-term shortage of office space and dampen rental escalation which, if unchecked, could jeopardise Singapore’s ambitions of being a global financial hub, the firm warned yesterday.

‘It is of paramount importance that the relevant authorities look into ways to alleviate the short-term shortage of good-quality office space,’ the firm’s director for research and consultancy Tay Huey Ying said in a release yesterday.

Colliers said the Singapore office market saw net new demand for 2.9 million square feet this year - the highest level in six years - and this pushed up rental rates significantly across most key micromarkets on the island.

Average gross monthly rents across the various key office micro-markets will end the year anywhere between 33 per cent and 69.5 per cent higher than a year ago. ‘Prime rents are likely to face immense upward pressure given the limited supply of Grade A office buildings scheduled for completion in year 2007,’ Ms Tay said.

Colliers predicts that the average monthly gross rent of Grade A office space in Raffles Place, which has leapt 66.5 per cent over the past 12 months - from $5.17 per square foot (psf) in 2005 to $8.61 psf this year - will breach 1996’s all-time high of $9.77 psf by the first half of next year and reach $12 psf by the end of next year. This reflects an annual escalation of nearly 40 per cent.

In the fourth quarter of this year alone, the increase was an unprecedented 24.4 per cent over the preceding quarter. In fact, in almost all micromarkets, the quarter-on-quarter gains ranging from 17 to 37.6 per cent recorded in the October-to December period of this year were the biggest increases since the office market bottomed out in Q1 2004, Colliers observed.

Booming demand for offices as international banks, MNCs and domestic companies expand their operations and a slowdown in building new office projects during the office glut a few years ago have combined to boost office rents across Singapore.

This year’s 2.9 million-sq-ft net new demand for offices is higher than the annual average of 1.3 million sq ft for the preceding 10-year period.

On the supply side, net new supply of offices this year is estimated at 1.05 million sq ft, lower than the average annual figure of 1.73 million sq ft between 1996 and 2005. New office supply is expected to nosedive over the next few years until the first phase of the Business & Financial Centre is completed in 2010.

‘If rents continue to rise unabated amidst shortage of good-quality office space, Singapore’s drive to be an international financial centre may be undermined and our competitiveness could erode to some extent, as the lack of quality office space will limit current companies’ expansion plans and potentially drive away prospective new entrants into Singapore,’ Mr Tay said in the release.

Last week, the Ministry of National Development (MND) stepped up the supply of office sites in its latest six-monthly review of the Government Land Sales (GLS) Programme.

Three confirmed list sites slated to be launched for tender in the first half of next year will help boost the supply of offices - a plot at Central Boulevard right behind City Development’s No 1 Shenton Way; the former NCO Club site at Beach Road, and a plot in Tampines Finance Park.

In addition, three reserve list sites will also boost office supply - two at Anson Rd and one above Outram Park MRT Station.

But Ms Tay argues that due to the time lag required for construction, releasing land via the GLS Programme will ‘not be a viable option in overcoming the short-term supply crunch’.

In its announcement last week, the MND also mentioned that outside the GLS programme, there will be nearly one million sq ft that can be leased in vacant state buildings catering to demand for office and commercial school space in the first half of 2007.

However, Colliers in its report yesterday noted that the ‘leasing of vacant State properties, which are suitable for interim office use by the private sector, is only practical in meeting demand to a small degree and will only cater to business operations that do not need to locate in the CBD.

‘One feasible option is for the various government departments, particularly those located in the CBD, to rationalise their office space usage and streamline their operations wherever possible; thereby, releasing the much-needed office space for the private sector. This will certainly help to relieve the current tight office supply situation,’ Ms Tay said.

Government bodies located in the CBD include the Monetary Authority of Singapore at Shenton Way, the Ministry of Manpower at Havelock Rd, the Singapore Land Authority at Temasek Tower and the Urban Redevelopment Authority and the Ministry of National Development at Maxwell Rd. Many of these ministries and state agencies are housed in their own buildings.

Source : Business Times - 28 Dec 2006

Purchase brings value of trust’s portfolio to $609m

CAMBRIDGE Industrial Trust (CIT) yesterday announced that it has agreed to buy part of an industrial building at Hillview Avenue for $72.2 million.

The trust said that it will buy 97 strata units with a total area of 35,500 sq m within the freehold Lam Soon Industrial Building - amounting to 69.4 per cent of the total share value. CIT will buy the property from current tenant Lam Soon Realty (Pte) Ltd, an investment holding company which also deals with resale properties.

The acquisition will be funded entirely by the existing debt facility, and will be accretive to CIT’s distributable income. The incremental distribution per unit (DPU) will be 0.22 cents, based on a simple annualisation of 3Q 2006 results, CIT said.

Upon completion of the sale and purchase agreement, Lam Soon will leaseback the property for seven years, with built-in rent hikes of 5 per cent each in the third and fifth years. Lam Soon will bear the cost of property tax and maintenance of the property.

The purchase is CIT’s second since its listing in July 2006, and will bring the value of CIT’s portfolio to about $609 million. Last week, CIT announced that it will buy an industrial building on Ubi Road for $18 million. The incremental DPU for that purchase will be 0.07 cents.

‘This acquisition will further enhance the overall composition of CIT’s portfolio of properties,’ said Wilson Ang, deputy chief executive of the trust’s management team. ‘We remain deeply committed to pursue and accelerate the acquisition of DPU-accretive and good investment grade industrial properties that will benefit our unitholders.’

CIT’s shares closed one cent higher at 76 cents yesterday. The trust’s stock has climbed 11.8 per cent since its listing.

Source : Business Times - 27 Dec 2006

Analysts expect rents to increase by as much as 8% next year

The upward spiral of prime retail rents will continue next year, and possibly beyond.

Property consultants and analysts said that after rising 4 to 5.3 per cent this year, prime shop space rents could surge as much as 8 per cent next year as supply remains tight.

Even mega-mall VivoCity, which officially opened its doors earlier this month with 1.1 million sq ft of lettable area, did little to cool rents.

Demand has been so strong that additional space from new shopping centres and extensions to existing malls had also been soaked up. Retail complexes which increased their space included Centrepoint, which added a new wing comprising 58,000 sq ft.

CB Richard Ellis (CBRE) said its islandwide prime rental index is expected to end 4.3 per cent up in 2006, the biggest increase in five years. ‘Average prime rent in Orchard Road in the first quarter of 2006 was $33.30 per sq ft per month (psfpm). It is now $34.50 psfpm,’ said Mavis Seow, director for retail services at CBRE.

And looking ahead, retail rents are expected to grow at an even faster clip as there will hardly be any new supply of retail space coming up until 2009 - when Orchard Turn is expected to be completed, followed by the completion of two other developments in Orchard Road by developers Far East Organisation and Land Lease.

This means rental increase next year could outstrip this year’s, with estimates for 2007 ranging from 4-8 per cent.

‘For the whole of 2007, supported by the Singapore Tourism Board’s (STB) positive outlook, rental growth should remain in the region of 4-4.5 per cent,’ said Chua Yang Liang, Jones Lang LaSalle’s (JLL) head of research. Rentals should also be boosted by increased retail takings next year, as most landlords take a percentage cut of their tenants’ gross turnover, Dr Chua said. Retail sales are expected to climb next year on the back of an improving economy.

The good news for landlords - and probably not so good news for tenants - is that rents are expected to climb even past 2007. Macquarie Research, for one, expects increases of 5-8 per cent a year until 2009.

But it expects growth to slow down thereafter with new space coming onstream along Orchard Road, and when retail space in the two upcoming integrated resorts kick in. The two resorts alone will add about 1.3 million sq ft of retail space.

Other than a slowdown in rental growth, landlords will face increasing competition once all the new developments are up, said market observers. JLL’s Dr Chua said: ‘New malls will have to continually differentiate themselves from the herd. We have seen the emergence of specialised malls and this trend is set to continue.’

Other new trends to emerge would include mall owners’ increasing preference for smaller outfits over large anchor tenants, the addition of push carts and kiosks in malls, an increased food and beverage (F&B) component in shopping centres and the development of more niche F&B enclaves all over the island, said Tay Huey Ying, director for research and consultancy at Colliers International. Just in the past one year, places such as Dempsey Road, Rochester Park and Upper Thompson Road have become F&B havens.

As for shoppers, further variety can be expected, with more local and international brands making their way to Singapore.

This year, Gap, Ted Baker, Pull and Bear and a few other Spanish retailers set up shop here. Next year, besides new entrants, existing international retailers are also expected to continue extending their presence through more standalone, flagship or concept stores.

Said Macquarie property analysts Tuck Yin Soong and Elaine Cheong. ‘Given the lower retail space per capita in Singapore relative to other mature markets, we believe there is enough room for these new brands in Singapore.’

Source : Business Times - 25 Dec 2006

JTC Corporation yesterday offered a 20,122 square metre land parcel at L1 Enterprise Road for sale by tender.

The site, located off Jalan Boon Lay, was originally on the reserve list of the Government Land Sales programme for this year.

It was released for sale after a developer committed to put in a minimum bid of at least $4.6 million.

A JTC press statement yesterday said the site has a maximum permissible gross plot ratio of 1.4, which translates into gross floor area of 28,171 square metres.

It is zoned for Business 2 development, which means it is suitable for light industry, general industry, warehousing, utilities or telecommunications.

Any such development is subject to compliance with requirements of the relevant authorities including the National Environment Agency.

The tender closing date for the 30-year leasehold site is set for Feb 1.

Three other industrial sites have so far been released for sale under the Government Land Sales confirmed list in the second half of 2006.

Two sites - on Changi North Street 1 and Serangoon North Ave 4 - were launched by JTC in September and November respectively.

The third site at Woodlands Industrial Park E5 was released by the Urban Redevelopment Authority last month.

Developer’s packets for the L1 Enterprise Road site are available at $105 each from The Contact Centre, Level 1, The JTC Summit, 8 Jurong Town Hall Road, Singapore 609434.

Source : Business Times - 22 Dec 2006