Office vacancy rate hits 16 percent

December 23, 2002
Singapore Democrats

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Agence France Presse
December 20, 2002
SINGAPORE

ABOUT 16 percent of office space in Singapore is now vacant, property reports said Friday, Dec 20, with the situation worsening as companies make drastic cuts or quit the city-state to escape its weak economy.
“The outlook for the office property market continues to be weak in 2003,” industry consultants Jones Lang LaSalle said.

Commercial real estate services company CB Richard Ellis said an estimated 11 million square feet “or an estimated 16 percent of the total stock” in Singapore is empty.

“Based on our records, this is the worst it’s been,” the company said.

Several multinational companies have packed up and left Singapore in the past 12 months as the economy floundered and China particularly offered an attractive alternative with its expanding market and lower cost base.

Although Singapore emerged from a year-long recession in July, the recovery has been weak and unemployment is continuing to rise.

The office market is historically linked to Singapore’s economic health, and “continued to perform poorly in the final quarter of 2002 in view of the slowing down in Singapore’s economy and the uncertain external political and economic environment,” Jones Lang LaSalle said.

But for the companies which have persevered and stayed, there are bargains as rents tumble given the huge oversupply in the tiny Southeast Asian republic.

Average office rents declined 15.7 percent in 2001 and a further 16.5 percent this year, and are continuing to fall.

For prime office space in the deluxe Raffles Place area, rents now average S$5.45 (US$3.10) per square foot per month, 12.1 percent below the previous trough in 1999 during the regional financial crisis.

“The demand for office space is unlikely to improve over the next three to six months in view of the uncertain regional and domestic economic environment,” Jones Lang LaSalle said.

Although the government has postponed development of the New Downtown Business Financial Centre site, bringing relief to supply concerns, the current excess space is unlikely to be soaked up in the near term.

“Rents are, therefore, expected to trend further downwards in the coming months, albeit at a slower rate of fall as the future uncertainties in the economic front have already been reflected in current rentals.”

About 590,000 square foot of new office space is expected to be completed in 2003, a fraction of the 3.7 million square foot of new supply this year, the report said.

The outlook for office sales transactions is also dire as investors, particularly foreign funds who are more yield-driven, “are still looking for lower capital values to improve resultant office yields”, Jones Lang LaSalle said.

“However, in the absence of any dire financial pressures, landlords are unwilling to sell their office space at lower prices