GLOOM has settled over the office market with analysts turning negative and pulling back their rental estimates by as much as 25 per cent over the next year.

This slide is on the back of deteriorating global economic conditions and a large amount of new office space that is due to become available soon.

Citi property analysts Wendy Koh and Tan Chun Keong said in a research note on Monday that the firm is cautious on the office outlook, given that 1 million sq ft of new space due for completion this year is still without tenants.

This means just 65 per cent of the

2.8 million sq ft of office space due for completion this year has so far attracted tenants, and the analysts expect rents to come under pressure in the coming months.

The uncertain economic outlook has led to a significant dip in demand for office space as businesses suspend or abort expansionary plans. — ST FILE PHOTO

Prior to this, Grade A office rentals in the Raffles Place area had risen sharply – by 19.7 per cent – in the first nine months of the year, according to Colliers International estimates.

Inquiries on office space have also slowed and estimates for rentals and office values are now expected to be 20 per cent lower, the Citi analysts added.

Standard Chartered property analysts have slashed their office rental forecasts by 25 per cent.

‘Our… checks with office landlords and leasing agents suggest that tenants have scaled back expansion plans and recent pre-commitments have been secured (about) 10 per cent below our expectations,’ they said in a note last month.

UOB Kay Hian property analyst Vikrant Pandey said the demand slowdown is due to the weakening hiring pace and cost-cutting exercises at banks.

‘Banks in Singapore were aggressively hiring in the first nine months of the year, but we anticipate that the pace will slow with the more uncertain economic environment,’ he said.

An average of 2.1 million sq ft of office space a year will be completed over the next three years. These include the redevelopment of the Market Street carpark and suburban commercial space in Jurong and Paya Lebar, Mr Pandey noted.

Kim Eng Research agreed that the uncertain economic outlook has led to a significant dip in demand as businesses suspend or abort expansionary plans.

‘Coupled with the increased supply of both primary and secondary space going forward, rents are likely to be kept further in check,’ it said.

CB Richard Ellis said Grade A office rents rose 4.3 per cent in the three months ended Sept 30, while Colliers’ data found office rents inching up by just

2 per cent, its lowest quarterly growth since the second quarter of last year.

Experts noted that the tender for a recent commercial site in the Central Business District in Robinson Road drew a subdued three bids and a top bid of just $882 per sq ft per plot ratio.

This fell short of market expectations and points to developers possibly turning cautious on the office sector, they added.

Source: Straits Times, 5th Oct 2011