Office occupancy dips for two consecutive quarters

ISLANDWIDE office occupancy dipped in the first quarter of 2008, easing half a percentage point quarter-on-quarter to 97.1 per cent. The dip followed a 0.1 point drop in Q4 2007 from Q3.

A report by DTZ Debenham Tie Leung also shows that the average occupancy of office buildings in Raffles Place dropped half a percentage point to 97.8 per cent in Q1 this year, while that in Marina Centre increased by 0.7 percentage point to 99.8 per cent.

DTZ attributed the slight dip in occupancy in Q1 2008 partly to the completion of two office buildings. The Central and VisionCrest Commercial added 538,100 sq ft of new office space that raised islandwide office stock one per cent quarter-on-quarter to 56.6 million sq ft.

It is understood that the new buildings are not fully leased yet.

The drop in occupancy is corroborated by data from the Urban Redevelopment Authority, which shows vacancy rates in the office sector - both private and public - remained at 7.3 per cent in Q3 and Q4 2007 after falling steadily since Q4 2003, when the rate hit 17.9 per cent in the wake of the Sars crisis.

Office rents have, however, continued to increase, with fresh record highs of $20 and $21 per square foot per month (psf pm) registered at 6 Battery Road and Republic Plaza in the first quarter of this year.

For prime office space in Raffles Place, average monthly gross rent was up 13.9 per cent quarter-on-quarter to $18.80 psf pm.

DTZ executive director Cheng Siow Ying said: 'Although some occupiers are beginning to exercise caution in their medium-term leasing requirements, demand continued to be supported (in Q1) by occupiers requiring space in the immediate near future.'

But she added: 'Growth in rental values is expected to moderate this year after a record increase in 2007.'

With an estimated 615,500 sq ft of space coming on stream, DTZ says 64 per cent has been pre-committed.

It notes that potential supply between 2008 and 2012 is forecast at 10.2 million sq ft of net lettable area, with 23 per cent having been pre-committed. This excludes an estimated 484,000 sq ft of space that will be demolished for redevelopment.

The impending supply will likely have an impact on occupancy rates.

Cushman and Wakefield (C&W) said the prime office vacancy rate was 1.1 per cent at end-2007 based on its basket of properties. It projects overall occupancy rates for 2008, 2009 and 2010 of 93.5 per cent, 95 per cent and 93 per cent respectively.

C&W managing director Donald Han said he has noticed that 'take-up is not as fast'. However, he reckons that the outlook will remain positive until after the first half of 2009, with Grade A office rents rising a further 16.5 per cent this year.

After that, he believes 'there will be more anticipation with tenants signing leases at moderated rents'.