Office space capital values soften after 2.5 years: Colliers
by Cheryl Tay
Capital values recorded their first moderation after two and a half years, following the pressure from easing office rents in Q2 2012, according to the latest quarterly research report by Colliers International.
Over the same quarter, the office property sector also saw a slowdown in the decline of rents, as well as a stable occupancy rate.
In the Raffles Place / New Downtown micro-market, average capital values of Grade A office spaces have softened by a minimal 0.5 percent to S$2,447 psf by end-June 2012 from S$2,459 psf in Q1 2012.
"The soft leasing market and the continued easing of rents for the third consecutive quarter since Q4 2011 — on the back of an increasingly-challenging global economic environment — have resulted in increased caution and lower price expectations among investor," said the report.
As for rents, the increasingly challenging global economic environment dampened demand, resulting in another decline in Q2 2012.
"However, cushioned by a better-than-expected economic performance in Singapore, as well as the temporary relief from a hiatus of major new office completions for the rest of 2012, the rate of rental decline moderated in Q2 2012, as compared to the previous quarter."
Islandwide, rents for Grade A office space slid by 1.2 percent in Q2 2012, compared to the 4.2 percent decline witnessed in the previous quarter.
Occupancy rates remained stable during the period.
Going forward, the overall demand for office space will likely stay suppressed as the Eurozone crisis continues to hinder expansion plans for financial institutions.
Calvin Yeo, Executive Director of Office Services at Colliers International, noted, "Notwithstanding the lack of major new completions for the rest of 2012, which is estimated at about 300,000 sq ft, the threat of an impending supply overhang remains. This stems from the substantial amount of space that could be returned to the market upon lease expiry, as existing tenants moved to newer premises. It is estimated that some 150,000 sq ft of space could be relinquished in 2H 2012."
"If economic activities stay low, the quantum of shadow space available for sublease could also build up," he added.
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