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News Release


Marked pick up in leasing enquiries but absorption of available space remains soft

Singapore, 22 September 2009 – Despite increased market activity, supply continues to exceed demand for CBD Core office space. Based on Jones Lang LaSalle preliminary estimates, the CBD Core office stock increased by close to 600,000 sq ft from the completions of 71 Robinson Road, Mapletree Anson and 78 Shenton Way Tower 2 during the quarter.

Even though some market activity has returned, the substantial upcoming supply continues to weigh on the market. Under pressure to secure occupancy, some landlords continue to be aggressive on rentals. Preliminary data shows that average gross effective rent of Prime Grade A properties in CBD Core fell by 12.6% q-o-q to $8.30 per sq ft per month in 3Q09. There have also been instances of landlords offering cash subsidies to attract prospective tenants in order to keep effective rentals high. Rent-free periods while negotiated on a case-by-case basis, are also becoming more widespread as landlords sought to maintain headline rents.

The average rental is now trading below the 20-year historical average of $8.40 per sq ft per month after falling by 54.9% from its peak of $18.40 per sq ft per month in the same quarter a year ago. “With no significant improvement in new demand and another 7.1 million sq ft of CBD Core office space in the pipeline, a potential supply glut continues to cast a shadow over the office market. We expect average rentals to continue to come under pressure,” Dr Chua Yang Liang, Head of Research of South East Asia at Jones Lang LaSalle, reckons.

Market activity has increased significantly albeit much of the demand is a result of a “flight to quality” rather than expansion plans. Mr Chris Archibold, Head of Commercial Leasing at Jones Lang LaSalle, notes that “the recent uplift in market activity is centred on new office buildings scheduled for completion in 2009, as well as 2010 and 2011 for some major occupiers. We expect leasing activities to pick up in these buildings over the next two quarters as companies take positions on business strategies including headcount planning”.

The improved business outlook is also reflected in shrinking shadow space, i.e. excess space in companies’ existing premises that is no longer needed, in the market. Some major financial institutions that were previously looking to sub-lease office space have aborted their plans in view of improved hiring expectations. Island-wide current and future shadow space fell to circa 700,000 sq ft from 800,000 sq ft in 3Q09.

Chart 1: Shrinking Shadow Space in 3Q09

Source: Jones Lang LaSalle Research, 2009