www.shaproperty.com

THE occupancy rate for prime office space island-wide rose in the first quarter of this year.

 

According to a report by DTZ Debenham Tie Leung (DTZ), the Raffles Place area registered the highest percentage point gain of 2.8, to hit 91.6 per cent. This area also had a quarter-on-quarter rental increase of 8.6 per cent, with rents reaching an average of $6.10 per square foot (psf) per month.

This is 23 per cent off the last peak of $7.90 psf per month in 2001.

Rents asked for One Raffles Quay and Republic Plaza I are higher at $8.50 psf per month.

 

DTZ executive director Ong Choon Fah says demand is driven by financial institutions, with some even looking to expand their existing offices. 'When these companies first come here, they don't set up a big office immediately,' she notes.

The office space market is, however, volatile as there is little supply to meet demand. DTZ says rents will continue to soar over the next four years with an average new supply of 1.1 million sq ft per annum versus average annual demand of 1.9 million sq ft in the past decade.

 

This could change when the new Business & Financial Centre opens in 2010. But Ms Ong believes older properties will be rejuvenated and the market 'should take care of itself'.

 

Interestingly, the highest quarter-on-quarter rental increase was for property on the city-fringe.

 

The Novena Belt registered an increase of 17 per cent to $5.50 psf per month, while HarbourFront rents increased 11.7 per cent to $4.30 psf per month. 'Offices that don't need to be in the financial centre have moved to these areas,' says Ms Ong.

 

This trend is also noted by CB Richard Ellis (CBRE) executive director (office services) Moray Armstrong, who says: 'The decentralised office markets have proven to be an attractive alternative to the CBD, particularly for companies or operations that are more sensitive to real estate costs.'

 

He says examples of these tenants include the back-office or infrastructure operations of banks, IT support centres and some tenants in the energy sector.

 

Noting the popularity of HarbourFront, he adds: 'Improved access following the opening of North-East Line has helped, but the related developments of quality retail at VivoCity and entertainment space has also been an important factor in attracting tenants.'

 

CBRE figures show that in some decentralised areas - such as Tampines Regional Centre, Jurong East Regional Centre and Thomson/Novena - vacancies hovered around 2 per cent in Q1 2006.

 

The trend to split office operations is a regional one. Jones Lang LaSalle head of research (Asia-Pacific) Jane Murray say: 'As vacancy rates in most Asian cities continued to fall, some corporate occupiers were opting for secondary locations to support their expansion and defray costs.

 

'However, this trend is unlikely to impact on CBD rents given the prominence of such choice locations.'