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Prime office rents to extend gains amid limited availability

SINGAPORE — Prime office rents, which are set to post their biggest increase in at least four years in the year just ended, may extend gains in 2015 in a supply-constrained market, despite uncertain economic growth prospects.

SINGAPORE — Prime office rents, which are set to post their biggest increase in at least four years in the year just ended, may extend gains in 2015 in a supply-constrained market, despite uncertain economic growth prospects.

The limited availability of new prime office space in Singapore has led to low vacancy levels and pushed last year’s rental growth to 14.7 per cent, real estate firm CBRE estimated yesterday. The same restricted supply will prevail this year, even while demand cools a little amid fears of slowing growth.

The office rental index for prime areas rose 8.7 per cent in the first nine months of last year, heading for its largest gain since 2010, data from the Urban Redevelopment Authority (URA) showed. The index for the fourth quarter will be released by the URA later this month.

Mr Moray Armstrong, CBRE executive director for office services, said yesterday: “The Singapore office sector performed within expectations in 2014, with rental levels advancing off low prevailing vacancy rates. Looking ahead, limited availability of office space will continue through 2015, with relief to occupiers only when the next wave of major new supply arrives in the second half of next year.

“In these circumstances, we anticipate further rental growth, particularly in the early part of the year. The pace of rental growth may slacken later this year and into 2016, as the impact of sizable future supply becomes apparent,” he said.

Singapore is ranked 14th among the world’s most expensive prime office markets at US$112.91 (S$151) per sq ft of occupancy costs a year, which include rent, local taxes and service charges, CBRE said.

London’s West End topped the list at US$273.63, Hong Kong’s Central was second at US$250.61, followed by Beijing’s Finance Street at US$197.75, CBRE’s ranking showed.

Mr Alan Cheong, a director at Savills, said landlords in Singapore are in a strong position to resist demands for lower rents because of the limited amount of new space available this year and next.

Only about 1.15 million sq ft of new office space will come on stream this year, down almost 40 per cent from 1.87 million sq ft last year, noted Ms Alice Tan, director of consultancy and research at real estate broker Knight Frank.

Some landlords are trying to use this to push tenants to accept unusually long leases, amid concerns that the large amount of new office space due to be completed two years from now will cause the market to soften.

Marina One, a development taking shape on reclaimed land in the Marina Bay area, will alone add 2.2 million sq ft of office space in 2017, boosting supply in that year to about 4.7 million sq ft, said Knight Frank.

Instead of the traditional three-year lease for office space, landlords have responded to the extra supply in 2017 by asking for five- to six-year lease agreements to lock in today’s high prices, Ms Tan said.

Tenants are asking for discounts in exchange for agreeing to the longer leases, she added.

On the other hand, prospects of slowing economic growth may cause prime office rental growth to slow to a range of 5 to 7 per cent this year, Ms Tan warned, as businesses become more cautious about taking on new space. AGENCIEs

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