Office sector briefing

Transcription

1 Singapore November 13, 20 "It is becoming increasingly clear that the slowing global economy over the last 12 to 18 months is beginning to have a negative impact on the office market." Singapore slips into technical recession for the fi rst time since 2002 Ban on conversion of offi ce space in the Central Area to other uses lifted Grade A vacancy rates increase marginally as demand growth moderates Landlords more realistic in their asking rents and more willing to offer incentives After a strong run over the last several quarters, Grade A offi ce prices and rents record fi rst declines Consolidation and mergers in the fi nance industry to have implications for the offi ce market. Government Land Sales Programme suspended Investment volumes decline as previously active foreign funds hold back Image: Marina Area, Singapore Savills Research

2 Market Overview Singapore slipped into technical recession in /20 for the fi rst time since 2002, after growth fell for a second successive quarter. The advance GDP forecast for /20 is for a decline of 0.5 per cent year-on-year (y-o-y). As a result, the Ministry of Trade and Industry revised its full-year growth forecast down to around 3 per cent from 4-5 per cent. The economic slowdown has also started to have an impact on the employment sector with employers exercising more caution in hiring. The latest poll by Manpower Inc, a US-based employment services fi rm, reveals that net employment outlook for the fourth quarter dipped by 12 per cent compared with the previous quarter, and was 28 per cent down from the same period last year. Despite the weak economic backdrop, demand for new offi ce space in the quarter remained healthy with a net absorption of 172,222 sq.ft. Although the leasing market was largely dominated by lease renewals, there were still a number of large pre-commitments. For example, the transitional offi ce by Sun Venture (S) Investments located at Scotts/Anthony Road has secured a tenant. The entire four-storey block with NLA of 130,000 sq.ft. will be leased to WPP, an international advertising, communications and marketing company for 14 years. The gross monthly rent was reported to be about S$8.00 per sq.ft. Meanwhile Marina Bay Financial Centre (MBFC) Phase 1 is now 65 per cent pre-committed after BHP Billiton, Macquarie Group and Murex Southeast Asia each committed to lease 142,000 sq.ft., 74,000 sq.ft. and 25,000 sq.ft. respectively. On the supply front, a total of 421,945 sq.ft. of office space was completed in /20 including the newlycompleted Merrill Lynch HarbourFront (216,354 sq.ft.) at Harbourfront Place and Scotts Spazio (150,695 sq.ft.), the fi rst transitional offi ce on Scotts Road. Both have been fully pre-committed. The uncertain economic environment and the lacklustre responses to the Government Land Sales (GLS) programme in the recent months have prompted the following actions from the government: The Confirmed List for the 1H/2009 GLS programme will be suspended. Most of the sites on the Confirmed List will be transferred to the Reserve List, including the transitional offi ce site located at Mountbatten Road, the white site located at Rochor Road/Ophir Road and the commercial site at North Bridge Road/Stamford Road. The ban on conversion of office space in the Central Area to other uses, which was imposed in May 20 to help alleviate the supply crunch, will be lifted. Vacancy Rate Average Grade A vacancy rates rose marginally from 0.6 per cent in Q2/20 to 0.8 per cent this quarter. It is expected that the low vacancy rates enjoyed in last few quarters are likely to be reversed as absorption slows, while at the same time more space enters the market. Vacancy by Location, January 2004 September Beach Road City Hall & Marina Orchard Road Raffles Place River Valley Shenton Way Tanjong Pagar % 10 Government Land Sales Although supply remains relatively tight, the thinning volume of leasing enquiries coupled with substantial supply in the pipeline continued to weigh down developers confi dence. The transitional office site located along Mohamed Sultan Road, which was launched for sale by the Urban Redevelopment Authority (URA) in July, attracted only one bid of S$4.65 million or about S$46.70 per sq.ft. per plot ratio. This was deemed too low and consequently rejected by URA At the end of /20, an additional 8.7 million sq.ft. of CBD offi ce space will be completed over the next four years. At least 80 per cent of the supply will be of Grade 'A' quality, which include the three major offi ce developments in the vicinity of Raffles Place - Marina Bay Financial Centre Phases 1 & 2 (3.0 million sq.ft.), Marina View Parcel A & B (2.0 million sq.ft.) and Ocean Financial Towers (0.9 million sq.ft.). Over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. 2

3 Office Supply in the CBD Area, E 3,000 2,500 2,000 1,500 1, '000 sq.ft. Grade A E 2009E 2010E 2011E 2012E Furthermore, available supply in the pipeline could potentially increase if the financial services industry releases excess space back to the market for sub-lease. The fi nancial upheaval in the US and Europe will inevitably lead to some consolidation in the fi nance services industry and this may in turn see companies shedding excess space. Savills estimates that the space may amount to about 3.5 per cent of the current Grade A offi ce stock or approximately 450,000 sq.ft. Rents and Capital Values Others Grade A Rental Growth, /20 /20 Micro Markets / Q4/ / Q2/ / % Raffl es Place City Hall and Marina Bay Shenton Way Tanjong Pagar Orchard Beach Road/ Middle Road Overall In anticipation of the new supply coming on stream, asking rents have already begun to falter. The average Grade A asking rent declined quarter-on-quarter (q-o-q) for the fi rst time in four years after reaching a high of S$15.1 per sq.ft. in the second quarter. The average rent slid by 1.2 per cent q-o-q to S$14.9 per sq.ft. per month at end of /20. Many landlords have become more realistic in their asking rents and are more open to incentives (e.g. longer rent-free periods, free car parking) to attract and retain quality tenants. On the investment front, sales of en-bloc offi ce space declined dramatically. The availability and cost of debt was the primary issue at the outset of the quarter as investors are fi nding it increasingly diffi cult to get funding for large investment deals. Foreign funds which have dominated the scene in the last few quarters are also staying on the sidelines with many preoccupied by events at home. As a result, only three small offi ce buildings changed hands this quarter. Wisma Sugnomal, located on High Street Road was sold for S$16.8 million (S$1,349 per sq.ft.) while two other offi ce buildings in the Beach Road area, namely, 33 Middle Road and NTUC Income Beach Junction fetched S$16.8 million (S$1,324 per sq.ft.) and S$21.5 million (S$1,132 per sq.ft.), respectively. Rental & Price Indices, 2000 /20 Prices Rents /1992= The average Grade A capital value in /20 decreased by 4.3 per cent q-o-q to S$2,680 per sq.ft., the fi rst decline after holding steady for the last three years. Outlook Looking ahead, the office market is set to face many challenges. The local economy is likely to continue to slow in the next few quarters as the global fi nancial crisis deepens, making it more diffi cult for businesses. Consequently, the demand for office space is expected to remain subdued, with companies holding back on expansion plans or becoming more prudent when committing to new offi ce leases. The weakening demand coupled with elevated supply levels will continue to put downward pressure on rents which are likely to decline by 5 to 10 per cent in the last quarter and another 15 to 20 per cent in 2009 when supply in the pipeline comes to market. Over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. 3

4 Similarly, the investment market is also expected to be slow. The diminishing availability of credit and the possibility of further declines in rental income will cause investors to hold back in the short to medium term. For more well capitalized investors who are able to fund their acquisitions largely with equity, however, this may provide a bargain hunting opportunity. For further information, please contact: singapore Michael Ng Managing Director mng@savills.com.sg commercial, singapore June Chua Director jchua@savills.com.sg research & consultancy, singapore Jessie Yeo Director jyeo@savills.com.sg research & consultancy, asia pacific Simon Smith Senior Director ssmith@savills.com.hk address Savills (Singapore) Pte Ltd. 2 Shenton Way #17-01 SGX Centre 1 Singapore 8804 T: F: corporate website This document is prepared by Savills for information only. Whilst reasonable care has been exercised in preparing this document, it is subject to change and these particulars do not constitute, nor constitute part of, an offer or contract; interested parties should not rely on the statements or representations of fact but must satisfy themselves by inspection or otherwise as to the accuracy. No person in the employment of the agent or the agent's principal has any authority to make any representations or warranties whatsoever in relation to these particulars and Savills cannot be held responsible for any liability whatsoever or for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills. Savills (Hong Kong) Limited. 20. Savills Research

5 ASIA PACIFIC HEADQUARTERS 23/F Two Exchange Square, Central, Hong Kong Tel: (852) Fax: (852) Contact: Robert McKellar CEO savills.com HONG KONG SAR Savills (Hong Kong) Limited 23/F Two Exchange Square, Central, Hong Kong Tel: (852) Fax: (852) Contact: Raymond Lee EA Co. Licence: C Savills Valuation and Professional Services Limited 28/F Two Exchange Square, Central, Hong Kong Tel: (852) Fax: (852) Contact: Charles Chan EA Co. Licence: C Savills Property Management Holdings Limited , 8/F Cityplaza One, 1111 King s Road, Taikoo Shing, Hong Kong Tel: (852) Fax: (852) Contact: Kendrew Leung kleung@savills.com.hk EA Co. Licence: C Savills Guardian (Holdings) Limited 7/F Cityplaza One, 1111 King s Road, Taikoo Shing, Hong Kong Tel: (852) Fax: (852) Contact: Peter Ho peterho@savillsguardian.com.hk MACAO SAR Savills - Macao Savills (Macau) Limited Suite 1310, 13/F Macau Landmark, 555 Avenida da Amizade, Macao Tel: (853) Fax: (853) Contact: Franco Liu fl iu@savills.com.mo CHINA Savills - China Contact: Randall Hall rhall@savills-sh.com Savills - Shanghai 20/F Shanghai Central Plaza, 381 Huaihai Middle Road, Shanghai , China Tel: (86) Fax: (86) Contact: Albert Lau alau@savills-sh.com Savills - Beijing 2101 East Tower, Twin Towers, B-12 Jianguomenwai Avenue, Chaoyang District Beijing , China Tel: (86) Fax: (86) Contact: Billy Chau bchau@savills-bj.com Savills - Guangzhou Room 9, R & F Centre, No. 10 Hua Xia Road, Zhu Jiang New Town, Guangzhou, 5123, China Tel: (86) Fax: (86) Contact: Woody Lam wlam@savills.com.hk Savills - Shenzhen Unit A, 5/F, Anlian Plaza, 4018 Jintian Road, Futian District, Shenzhen , China Tel: (86) Fax: (86) Contact: Woody Lam wlam@savills.com.hk Offi ces in Chengdu, Chongqing, Dalian, Hangzhou, Shenyang, Tianjin, Xiamen ASIA Savills - Indonesia PT. Procon Indah 19/F Indonesia Stock Exchange Building, Tower 2, Jl Jenderal Sudirman Kav 52-53, Jakarta Indonesia Tel: (62) Fax: (62) Contact: Siswanto Widjaja siswanto.widjaja@procon.co.id Savills - Japan Savills Japan K.K. Aoba Roppongi Building 3F, Roppongi, Minato-ku, Tokyo , Japan Tel: (81) Fax: (81) Contact: Christian Mancini cmancini@savills.co.jp Offi ce in Osaka Savills - Korea Savills BHPK / KAA 11/F Seoul Finance Center, 84 Taepyungro-1-ga, Chung-gu, Seoul, Korea Tel: (82) Fax: (82) Contact: Hokyu Lee hklee@savills.co.kr Savills - Malaysia Savills Rahim & Co Level 17, Menara Uni. Asia, 10 Jalan Sultan Ismail, Kuala Lumpur, Malaysia Tel: (60) Fax: (60) Contact: Robert Ang robertang@savillsrahim-co.com Savills - Singapore Savills (Singapore) Pte Ltd. 2 Shenton Way, #17-01 SGX Centre 1, Singapore 8804 Tel: (65) Fax: (65) Contact: Michael Ng mng@savills.com.sg Savills - Taiwan Savills (Taiwan) Limited 12F-3, Exchange Square, No. 89, Sung Ren Road Xin-Yi District, Taipei, Taiwan Tel: (886) Fax: (886) Contact: Cynthia Chu cchu@savills.com.tw Savills - Thailand Savills (Thailand) Limited 28/F, 990 Rama IV Road, Bangkok 10500, Thailand Tel: (66) Fax: (66) Contact: Robert Collins robertc@savills.co.th Savills - Vietnam 18/F, Fideco Tower, Ham Nghi Street, District 1, Ho Chi Minh City, Vietnam Tel: (84) Fax: (84) Contact: Brett Ashton bashton@savills.com.vn Offi ce in Hanoi AUSTRALIA Savills - Australia Savills (Aust) Pty Ltd. Level 7, 50 Bridge Street, Sydney, Australia Tel: (61) Fax: (61) Contact: Paul McLean pmclean@savills.com.au Offi ces in Adelaide, Brisbane, Cairns, Canberra, Gold Coast, Ipswich, Liverpool, Melbourne, Parramatta, Perth, Sunshine Coast and Sydney. NEW ZEALAND Savills - New Zealand Barfoot & Thompson Level 5, 50 Kitchener Street, Auckland, New Zealand Tel: (64) Fax: (64) Contact: Peter Thompson peter@barfoot.co.nz MIDDLE EAST Savills - Dubai Asteco Property Management LLC (Associate) P.O. Box 1714, Level 6, Capricorn Tower, Shk. Zayed Road Dubai, United Arab Emirates Tel: (971) Fax: (971) Contact: Andrew Chambers andrewc@asteco.com NORTH AMERICA Savills - New York Savills LLC 599 Lexington Avenue, 36th Floor, New York, NY Tel: (1) Fax: (1) Contact: John D. Lyons jlyons@savills.com UNITED KINGDOM / EUROPE / SOUTH AFRICA Savills - Europe 20 Grosvenor Hill, London W1K 3HQ, U.K. Tel: (44) Fax: (44) Contact: Jeremy Helsby jhelsby@savills.com Offi ces throughout the United Kingdom, Belgium, France, Germany, Hungary, Italy, Netherlands, Poland, Spain and Sweden. Associate offi ces in Austria, Greece, Norway, Portugal, Russia, Turkey and South Africa. A real estate industry leader established over 150 years ago. Now with over 200 offices and associates worldwide. This document is prepared by Savills for information only. Whilst reasonable care has been exercised in preparing this document, it is subject to change and these particulars do not constitute, nor constitute part of, an offer or contract; interested parties should not rely on the statements or representations of fact but must satisfy themselves by inspection or otherwise as to the accuracy. No person in the employment of the agent or the agent s principal has any authority to make any representations or warranties whatsoever in relation to these particulars and Savills cannot be held responsible for any liability whatsoever or for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills. Savills (Hong Kong) Limited. 20. (XI/)