Year begins on subdued note for Singapore market

The office building market in neighboring Singapore slowed down during the first quarter of this year as the sector still continued to bear the brunt of the recession.

The leasing market became more competitive because firstly, completions of new buildings in 2002 have become more imminent compared to three months ago.

A total of 3.73 million sq feet of new space are expected to come on stream, more than the 1.22 million sq feet completed last year, the Singapore office of research and consulting company CB Richard Ellis reported in its first quarter market review.

Secondly, space for sub-let increased in the quarter, as tenants 'space requirements diminished further. Landlords of new completions have become more realistic in their asking rents, hoping to achieve a reasonably high occupancy rate for their buildings in relation to older buildings in the same vicinity.

Occupancy rates of office buildings decreased across the board in the first quarter. "We estimate islandwide occupancy rate to be 87.1 percent, down from 88.7 percent a quarter ago," the property research and consulting company in first quarter market review posted in its website www.cushwakeasia.com.

However, if the sub-let space were factored in, then the average islandwide occupancy rate would be at an even lower 86.9 percent. The government 's islandwide occupancy figure will probably be closer to our higher estimate, as spaces for sub-let are still considered as occupied because they are technically leased space from the landlords 'standpoint, it added.

Prime office rents averaged at S$5.66 per sq feet per month in the first quarter, representing a 10.1 percent decline from the previous quarter.Given the soft market,we believe there is further downside and rents are likely to dip below S$$5.50 per sq feet in the coming months. At the height of the Asian crisis in 1999, prime rents averaged at S$5.50 per sq feet at the lowest point.

In the first quarter, there was a dearth of office sales transactions. Only nine caveats were lodged, based on SISV records. This was much lower than the 20 caveats lodged in the fourth quarter and 21 caveats in the first quarter last year.

"We expect sales activity to improve in line with the pace of economic recovery, which is projected to pick up towards the latter part of 2002," it added.

There was no prime office building sale in the quarter, but valuation-based prime capital values dipped by 3.2 percent to an average of S$1,200 per sq feet at end-March, from S$1,240 per sq feet at end of last year.

The downward revision was due to the sale of non-prime DBS Finance Building to Ho Bee Investment for S$38.00 million or S$579 psf in February and also the government 's release of a reserve 'white ' site in the New Downtown for tender in March,based on the minimum price of S$220 per sq feet/plot ratio.

Prime office yield fell to 4.19 percent by the end of the first quarter from 4.62 percent in the preceding quarter.

The current office market correction is likely to extend into the second quarter.The weak demand for space has yet to recover and therefore occupancy rates will generally soften further. As such, there will be more pressure on landlords to reduce rents.

On a brighter note, there is growing consensus that the business cycle has hit the bottom. Companies are feeling more at ease and that should help to improve business sentiment. This is echoed by the latest survey by the Monetary Authority of Singapore,which cited that economists in the private sector have turned more bullish about the Singapore economy in 2002. Key reasons for the optimism include the encouraging signs of a turnaround in the US economy and in the electronics industry, which will boost Asian export orders in the second half of 2002.

Demand for office space should improve in tandem with the economic growth,as there is a strong correlation between the two.

Singapore is also better positioned for multi-national companies to set up offices here because the occupancy costs for premium office space has become more affordable in U.S. dollar terms.Our latest global report shows that the average annual occupancy cost has fallen to the 31st most expensive position at end-2001, compared to 25th in mid-2001.

Total annual average occupancy costs shrank to US$41.11 per sq feet, from US$48.11 per sq feet. The current occupancy cost is lower by 41.6 percent than that in Hong Kong (US$70.37 per sq feet), 15.4 percent compared to Seoul (US$48.60 per sq feet )and 2.6 percent mcompared to Beijing (US$42.23 per sq feet). -- The Jakarta Post.