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JLL predicts up to 4.5% dip in typical prime district rents

RENTS and resale prices of housing in the central and prime districts could be hit this year and next depending on the crunch in the US market, says Jones Lang LaSalle (JLL).

In the worst case scenario, the real estate consultancy firm projects a 3.5 to 4.5 per cent drop in rents in the typical prime districts by year-end. ‘Compared to recent rental rises, this remains a relatively small decline,’ said JLL’s managing director in South-east Asia and Singapore, Chris Fossick. The central districts could experience a bigger 5 to 7 per cent drop in rents in 2009.

The anticipated completion of some 15,000 units between 2008 and 2009 is likely to cause rents to ease, as new islandwide supply is likely to surpass the average 10-year take up of 6,600-6,800 units, JLL said in a statement yesterday. Most completed supply could appear in the central districts.

Average resale prices in the central districts could ease about one per cent by 2009, while prices in the luxury prime districts could dive 11-13 per cent.

Mr Fossick referred to the forecasts as ‘more of a worst-case scenario’ should the US market not pick up soon. He said that sentiment will improve once US housing shows signs of recovery. Singapore’s fundamentals are attractive to investors and demand will return when uncertainty clears, he added.

Investors might then realise that ‘there is less supply now than we thought there was’ - and prices may rise again.

Taking a medium to longer-term view, Mr Fossick said: ‘We are seeing a dramatic fall in potential future supply in Singapore due to a stall in collective sales.’

JLL said that there were only two transactions worth $55.3 million in the first half of this year, compared with 51 deals worth $9.33 billion in the same period last year.

Mr Fossick said that there is also less supply from the confirmed list of the Government Land Sales Programme for the second half of the year.

Prime districts are already seeing slightly weaker rents as expatriates with lower housing budgets move to non-prime areas. JLL data showed that in the first half of the year, luxury prime rents fell one per cent and typical prime rents dropped 2 per cent.

Properties in the central districts in turn became more popular for leasing. Average rents there rose 11 per cent and surpassed those of typical prime properties for the first time in H1 this year.

JLL data also showed average resale prices softening in some areas. Luxury prime property prices eased 4.9 per cent to $2,595 per square foot (psf) in the first half of the year, while central district prices eased 0.5 per cent to $1,020 psf.

The shift of rental demand from the prime to central districts has sustained investor interest in central district property, according to JLL.

The mass market stood out with 3 per cent growth in resale prices to around $690 psf in H1, and JLL projected that prices could stay at this level in 2009.

Source : Business Times - 18 Jul 2008

THE former Ministry of Home Affairs complex at Phoenix Park, off Tanglin Road, has been awarded to LHN Group for $368,888 a month - a huge 124 per cent more than the guide rent of $165,000 a month.

The site, with a gross floor area of 143,195.4 sq ft, is managed by the Singapore Land Authority (SLA). The tender attracted 11 bids - 10 of them at or above the guide rent.

Bidders included United Engineers Developments (UE) which put in the second-highest offer of $315,033 per month.

Teo Cher Hian, director of land lease (private) with SLA’s land operations group, said LHN offered the ‘best value for the state’ based on allowable uses, business concept, track record and corporate financial health.

LHN plans to configure the site into separate tenant clusters, he said. The adjacent former Education Ministry headquarters now houses the Youth Olympic Games headquarters. And with more office set-ups pending, Phoenix Park ‘completes the area as an office hub’, said Mr Teo.

LHN is the master tenant for other state properties, including the former Gan Eng Seng School and CID Training Centre.

LHN managing director Kelvin Lim said the investment cost at Phoenix Park is expected to be about $4 million. He estimates that rents could be around $6 psf per month when it opens at the year-end.

Rising office rents are forcing more businesses to consider alternative office space like Phoenix Park. UE, for instance, had intended to use most of the space to house its own engineering operations, and to lease the rest to other tenants. ‘The existing structures and layout would also allow rather quick occupation with minimal works,’ a UE spokesman said.

Marine engineering firm Allbest Equipments, which was awarded the former Monk’s Hill Secondary School site by SLA, also expects to relocate its corporate offices there.

Allbest put in the highest bid of $211,328 per month for the site, which has a GFA of 83,889.5 sq ft.

Seven bids were received, with Allbest’s 43 per cent higher than the guide rent of $147,300.

Allbest general manager Chan Cheong Hoy said it will lease the remaining space at $7.50-$10 psf a month and expects to complete the first phase of renovations within four months.

Cushman and Wakefield managing director Donald Han said that as well as getting such properties ready to let as quickly as possible, developers have to keep construction costs under tight control to ensure their projects are feasible.

Mr Han says that in the Newton area transitional office space is going for $7.50-$8 psf a month, while the former Gan Eng Seng School could achieve $4.50-$5 psf a month.

Source : Business Times - 18 Jul 2008

RESIDENTIAL rents in Singapore’s prime districts could drop by 4.5 per cent by year end, amid fears of a longer-than-expected downturn in the United States.

Property consultant Jones Lang LaSalle (JLL) said the high rentals seen in the Republic’s prime districts last year are now facing downward pressure.

Prime properties are typically located in districts nine to 11 with units ranging in size from 500 to 2,000 sq ft.

JLL South-east Asia and Singapore managing director Chris Fossick said in a press conference yesterday: ‘Expatriates with lower housing budgets are moving out to the non-prime market, causing typical prime rentals to ease marginally in the first half of this year.’

According to JLL, luxury prime property rentals softened by 1 per cent in the year-to-date while typical prime rents weakened by 2 per cent.

Said JLL: ‘With the US economy facing the potential of a longer downturn than expected due to the sub-prime woes, credit crunch and rising inflation, market sentiments continue to weaken in Singapore.

‘The level of residential collective sales has dropped to only two transactions worth $55.3 million in the first half of the year compared with51 transactions worth some $9.33 billion over the same period last year.’

JLL forecasts that average resale prices in the central district are expected to ease about 1 per cent year-on-year by next year while mass-market resale prices will most likely maintain current levels.

Meanwhile, prices in the luxury prime market are expected to contract the most, falling some 11 to 13 per cent year-on-year next year.

However, Mr Fossick believes that once the US housing crisis passes, a recovery in this region will be swift given the sentiment-driven nature of the industry.

‘The uncertainty in the US is unlikely to clear up in the next six months, but if things begin to look up after that, we could see a rapid turnaround here as soon as early next year.’
 
Source : Straits Times - 18 Jul 2008

JLL sees more falls over next half year but rest of market should stay stable

The surging rents in prime areas that have had expatriates screaming for the best part of a year look to be easing, with some condos already registering falls of up to 12 per cent.
The declines are expected to intensify over the next three to six months, reversing a trend that saw some rents double or treble during the property peak last year.

Consultant Jones Lang LaSalle (JLL) said increased supply from newly built condominiums and a weakening economy are behind the projected prime rent slide, although rents in other parts of Singapore should stay largely stable.

Expats have also been voting with their feet and abandoning pricey prime areas and moving to fringe locations - and nudging rents there up a little in the process, said Dr Chua Yang Liang, the firm’s head of research (South-East Asia).

Rents in the East Coast area, for example, rose 1.4 per cent in the first quarter but are now tipped to grow at a slower pace or even stay unchanged.

This is in contrast to prime areas, where landlords are feeling the chill of the new economic headwinds.

For instance, at Cuscaden Residences in the Tanglin area, rentals have fallen 12 per cent, from $6.20 per sq ft (psf) a month in the fourth quarter of last year to $5.46 psf in the first quarter of this year, said JLL.

A 1,485 sq ft unit will now fetch about $8,100, down from $9,200 at the end of last year.

Over at Tanglin Park, rentals have fallen 3.1 per cent from $5.21 psf to $5.05 psf.

Islandwide, supply started creeping up from the third quarter of last year, said Dr Chua.

But not all owners are yet willing to lower their expectations, said market watchers.

‘The rental market is a lot slower than last year,’ said Ms Kavita Borglin, an agent with Premiere Realty, who said rents in prime areas will be hit by new supply, particularly smaller units.

‘The availability of one- to three-bedroom apartments has increased so rents have softened,’ she said.

At Robertson 100 in Robertson Quay, at least 10 two-bedroom flats are on the market but the owners were all reluctant to lower their asking rents of $5,000 to $6,000, she said.

Ms Borglin’s client, an expat with a rental budget of $4,500, eventually settled for a Newton area apartment.

She added that owners with large apartments of four bedrooms or more could still keep the same rents, as such large flats are still hard to come by.

JLL said Singapore’s rating as the 13th most expensive Asian city for expats, coupled with a slower hiring pace in the coming months, may lead to fewer leasing deals over the remainder of the year.

A lacklustre collective sale market and weakening housing prices will continue to hit sentiment in the non-landed rental home market, said Dr Chua.

Meanwhile, JLL said in a statement yesterday that it has put Goldhill Centre near Novena MRT station up for sale. The indicative price for the freehold commercial site is $315 million.

Source : Straits Times - 10 Jul 2008

Positive consumer sentiment and the Great Singapore Sale have provided some support for the retail property market in Singapore, according to property consultants DTZ.

It said given the general uncertain global outlook, tenants have resisted committing to higher rents, and this has kept the retail sector stable during the second quarter.

Going forward, analysts said they see at most a marginal increase of 2 to 3 per cent in rents for the rest of this year.

313@Somerset is part of the new wave of malls making a splash in Orchard Road. All together, some 5.4 million square feet of new retail space will be available by 2012.

Analysts said these new malls will lead the retail property rental market, while older ones will see rents stabilise at current levels, with little upside.

Donald Han, Managing Director, Cushman & Wakefield, said: “The new malls are looking at rentals higher than existing malls at Orchard Road. They’re looking at anything from 20-30 per cent higher. Prime retail space is always in demand.”

Cushman & Wakefield noted that there is little risk of oversupply as international retailers clamour for a piece of the Singapore market.

And although inflation may dampen domestic consumer spending, analysts said external demand from strong tourist arrivals is likely to offset that.

Mr Han said: “Into the next six months with the F1 arriving in September, we’ll only see a higher number of tourists on shore, which will effectively see higher tourism receipts, (a) positive spillover in spite of high inflation numbers over the next six months or so.”

With more malls fighting over the same tourism dollar, analysts said malls are starting to work harder to attract customers.

Turner Canning, Associate Director, Retail Consulting, Cushman & Wakefield, said: “(There is) a lot of criticism (that)… a lot of malls are cookie cutter, (with) similar shops, just in different configurations. You’re going to see that changing. It’s a global trend that malls are becoming more themed.”

Bringing in new retail choices is also another trend.

Chua Chor Hoon, Senior Director, Research, DTZ, said: “We notice that there are more new second-line brands coming, like Just Cavalli, which is a second line to Robert Cavalli. Emporio Armani is also coming. There are also more luxury brands from Europe coming here.”

This is in line with efforts by the Singapore Tourism Board to rejuvenate Orchard Road, turning it into one of the world’s premier shopping belts.

Analysts also said there is no fear that the Orchard belt will cannibalise suburban malls, as they serve different markets.

Ms Chua said: “The suburban malls… are in the heartlands, near residents. (They are) easily accessible. They serve residents’ daily needs, like groceries, daily wear necessities, personal services. These are complementary. In fact, the rentals in suburban malls can be as high as those in Orchard.” - CNA/ms

Source : Channel NewsAsia - 4 Jul 2008