CBRE says fall in office rents eases in Q2

CBRE says fall in office rents eases in Q2

By Tang See Kit,

SINGAPORE : Property consultancy firm CB Richard Ellis (CBRE) has said the fall in office rents is showing signs of easing, thanks to improved sentiment and stabilisation of Singapore’s economy.

According to CBRE, monthly prime office rents averaged S$8.60 per square foot in the second quarter, representing an 18.2 per cent fall quarter-on-quarter. This was slightly lower than the 18.6 per cent quarter-on-quarter decline seen in the first quarter of the year.

Similarly, monthly Grade A rents registered a 17.5 per cent quarter-on-quarter decline to average S$10.15 per square foot. That was also lower than the 18 per cent drop recorded between January and March.

Moray Armstrong, CBRE’s Executive Director of Office Services, said: “Whilst the economy is still technically in a recession, the office leasing market was far more active in the second quarter, particularly in the month of June.

“We are seeing greater incentives - including, for instance, capital expenditure contributions to attract or retain quality tenants. Tenants that committed space this quarter included those from the insurance and healthcare sectors, as well as government-related companies.”

CBRE said occupancy levels is expected to continue its downward trend and office space take-up rate will most likely remain negative for the rest of this year.

This is largely due to the residual effect from previous downsizing exercises and an addition of at least 1.9 million square feet of office space by the end of this year.

Looking ahead, it expects islandwide vacancy rates to remain above double-digits for the next few years.

An addition of 8.3 million square feet of new office space is expected between the second quarter of 2009 to 2013, resulting in an excess supply in the market.

CBRE said Grade A office rents will face the greatest pressure, with the supply doubling its current available office space to 13.48 million square feet. - CNA/ms

Source : Channel NewsAsia - 07 July 2009

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Slide in office, industrial rents continues in Q2

Slide in office, industrial rents continues in Q2

Fall accompanied by rise in vacancies and unlikely to recover anytime soon

By Joyce Teo

LANDLORDS took a one-two punch in the second quarter, with rents continuing to decline for offices and industrial space as vacancies kept rising.

Rents were under the most pressure in the city-fringe and high-tech sites while more space was vacated, particularly in the core Central Business District (CBD) area.

Consultants DTZ said office rents in Beach Road and North Bridge Road fell 20 per cent to $6.20 per sq ft (psf) per month in the second quarter. This followed a 13 per cent fall in the first quarter.

Rents along the Alexandra Road belt fell 23 per cent to $5 psf a month in the April to June period, compounding a 13 per cent drop in the first quarter.

The decline was driven mainly by competition from a converted state property and high-tech industrial sites in the area.

Generally, rents in the office market have been falling as demand weakens in the face of rising supply. The amount of grade A space, in particular, will double in the next five years.

CBRE said monthly prime office rents fell about 18 per cent to $8.60 psf in the second quarter, after a 18.6 per cent quarter-on-quarter drop in the first quarter.

Grade A office rents are down 17.5 per cent to $10.l5 psf a month. They also fell 18 per cent in the first quarter.

DTZ said Raffles Place office rents are now close to the levels at the end of 2006 and are 49 per cent below the peak in the third quarter last year.

The rental gap between office space in the CBD and that elsewhere has narrowed. Offices in Marina Centre are now 12 per cent cheaper to rent than those of prime space in Raffles Place, compared with a rental gap of 18 per cent at the peak of the market. The gap has closed even more in the Harbourfront area - from 47 per cent at the peak to 35 per cent in the second quarter.

Some firms, particularly those driven to relocate outside the CBD during the 2006-2007 boom, are now likely to return, said DTZ.

Office leasing activity continues to be driven mainly by lease renewals as firms downsize. Take-up has been negative for the past two quarters and is likely to remain so for the rest of the year, said CBRE’s executive director (office services), Mr Moray Armstrong.

‘We are seeing greater incentives including, for instance, capital expenditure contributions to attract or retain quality tenants,’ he said.

The good news is that the rate of rental decline will ease from the dramatic falls seen since last September but demand will still be ’severely constrained’.

Vacancy rates across the island are tipped to be in the double digits in the next few years and leasing deals will stay highly competitive, added Mr Armstrong.

Still, office capital values held firm in the second quarter as improved buying sentiment in the residential sector spread to other sectors, DTZ said.

In the industrial market, the high-tech space segment - this includes business park space that caters to both markets - continued to be the hardest hit and is forecast to remain under pressure, it said.

High-tech industrial rent fell 12.8 per cent - the most in six years - to $3.40 psf in the second quarter. It is down 24.4 per cent from the peak of $4.50 psf in the third quarter last year, said DTZ.

First-storey industrial space slid 6.8 per cent to $2.05 psf a month.

Ms Chua Chor Hoon, DTZ’s head of South-east Asia research, said ample supply will keep the office and industrial markets soft until 2011.

Source : Straits Times - 07 July 2009

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Strong rally expected in 2nd quarter

Strong rally expected in 2nd quarter

Higher factory output may have led to a double-digit growth quarter-on-quarter

By Fiona Chan

If the pharmaceutical rebound continues and keeps driving the manufacturing improvement, there may be a growth forecast upgrade. But even if the manufacturing momentum tapers off, other sectors may help to pick up the slack, say economists. — ST PHOTO: LIM WUI LIANG

THE earlier-than-expected bounce in the manufacturing sector may have given Singapore’s economy a much-needed boost in the second quarter of this year.

Most of the eight economists polled by The Straits Times are predicting that higher factory output spurred the economy to grow by double digits between March and last month - the first quarter-on-quarter expansion in four quarters.

But in year-on-year terms, which compares the second quarter of this year to the second quarter of last year, growth would still be negative as the economy remains weaker now than last year.

Still, the strong rally expected in the second quarter has led economists to keep a close eye on their growth forecasts for the full year.

The Government’s official estimates on how the economy did in the second quarter are due this month, and the final figures will be out next month.

But at least one economist is so confident of a sharp rebound in the second quarter that he is already raising his full-year growth forecast ahead of the official data.

Citigroup’s Kit Wei Zheng believes the economy will expand by an astonishing 22.8 per cent in the second quarter over the first quarter, reversing the 14.6 per cent quarterly contraction in the first quarter. Based on this, he is predicting that the economy will shrink only 2.7 per cent for the whole year, compared to the 5 per cent decline he tipped earlier.

This is a far more optimistic view than the official forecast from the Ministry of Trade and Industry (MTI), which is predicting that the economy will shrink by 6 per cent to 9 per cent this year.

The MTI’s forecast was released before figures that showed the manufacturing sector started to grow again in April and May, with growth expected to continue last month.

Although the sector’s growth so far has been due mainly to a spike in drugs output, the electronics segment has also recently shown signs of turning the corner, said DBS economist Irvin Seah.

‘In fact, across the board, all segments of manufacturing are clearly off the bottoms we saw in January and February.’

Whether the rally in manufacturing continues into the third and fourth quarters of the year remains to be seen. The economy is unlikely to keep growing at a double-digit pace, given that there are still ‘pockets of weaknesses’ all over the world, Mr Seah said.

But if the bounce in manufacturing is indeed sustained into the second half of the year, full-year economic growth could shrink by less than 5 per cent, said OCBC economist Selena Ling.

‘If the pharmaceutical rebound continues and keeps driving the manufacturing improvement, the potential for a growth forecast upgrade is there,’ she said.

Even if the manufacturing momentum tapers off, other sectors may help to pick up the slack. Services, which makes up two-thirds of Singapore’s economy and has yet to turn around decisively, may be the deciding factor for growth in the second half of the year, economists said.

Barclays economist Leong Wai Ho noted that apart from manufacturing, sentiment-sensitive segments of the economy such as property, financial services and the stock market also helped boost growth in the second quarter.

Mr Kit believes that because Singapore’s economy is so open to external forces, it will benefit more than other countries from improvements in the American and Chinese economies.

This means a gradual recovery in trade-related services as trade slowly picks up, as well as improvements in the tourism and retail industries.

Property sales and construction should also continue to grow, which may offset a slowdown in manufacturing growth after the second quarter, he said.

Another positive sign emerging in the second quarter is fewer layoffs, said Mr Leong. Better-than-expected job numbers could set the stage for a swifter recovery when it starts.

Source : Straits Times - 07 July 2009

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140 dead in Xinjiang violence

140 dead in Xinjiang violence

Authorities rounding up protesters involved in bloody ethnic unrest

By Peh Shing Huei, China Bureau Chief

More than 800 others were injured after the bloody clash between the police and ethnic minority Uighurs broke out on Sunday in the region’s capital, Urumqi.

The authorities said there were 300 to 500 protesters, but other sources put the number at as high as 3,000.

The death toll was still rising, said the state-run Xinhua news agency.

Reports quoting witnesses said yesterday the unrest had spread to Kashgar, another Xinjiang city, where more than 300 people protested outside a mosque. No casualties were reported.

The unrest comes just 18 months after riots left at least 22 people dead in Tibet, another sensitive region in China.

The rioting is likely to alarm Beijing, coming just three months before events to mark the 60th anniversary of the founding of the People’s Republic of China.

The riots were believed to have erupted following a protest by Uighurs demanding a probe into a clash between Han Chinese and Uighur factory workers in southern Guangdong province late last month which left two Uighurs dead.

Some accounts said the police turned violent when the assembly, which began peacefully, refused to disperse.

The Chinese government blamed the exiled World Uighur Congress (WUC) led by businesswoman Rebiya Kadeer, living in exile in the United States, for instigating the riots. But the Sweden-based Congress rubbished the accusation.

Dramatic images of the violence broadcast by China’s state television showed people being attacked, cars being smashed and smoke billowing from burning vehicles.

Footage showed a woman being kicked by two people as she lay on the ground. Others, who appeared to be Han Chinese, sat dazed and bloodied.

Local television showed graphic photographs of people killed in the riots, with the faces of some victims beaten into a bloody pulp, reported AFP. One man had his throat slit.

Xinhua did not specify the ethnic identities of those killed, or whether they were civilians or police.

But it said the People’s Hospitals in Urumqi treated 291 people, of whom 17 died. Among them, 233 were Han Chinese, 39 were Uighurs, while the rest were from other ethnic minorities.

‘This is the worst unrest I have seen since coming to Urumqi 12 years ago,’ a Han Chinese motel employee told The Straits Times. ‘It was sudden and I don’t really know what happened. I’m quite scared.’

Chinese media quoted Xinjiang governor Nur Bekri describing the situation as ’still seriously complicated’.

Thousands of riot police officers and paramilitary policemen have locked down Urumqi and set up checkpoints to catch fleeing rioters, said Xinhua.

Several hundred suspected rioters were arrested, with police still searching for another 90 people.

Yesterday, United Nations Secretary-General Ban Ki Moon led international calls for restraint in China.

Analysts say the violence highlighted the deeper problem of the Uighurs’ resentment of the growing Han Chinese dominance in Xinjiang. The eight million Uighurs make up the largest ethnic group in Xinjiang, but not in Urumqi, which has attracted large numbers of Han Chinese migrants.

‘The riots probably resulted from three sources of grievances,’ said Professor Barry Sautman of the Hong Kong University of Science and Technology.

‘One, the failure of the authorities to satisfactorily resolve the killing of Uighurs in the Guangdong factory. Two, economic disparities between Han migrants and Uighurs.

‘Third, restrictions on religious practices, like forbidding Muslim university students to fast during Ramadan.’

Source : Straits Times - 07 July 2009

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Barclays: economy to recover by Q4

Barclays: economy to recover by Q4

By CHEW XIANG

THE Singapore economy should recover in year-on-year terms by the fourth quarter and grow 5.5 per cent in 2010, according to economists at Barclays Capital.

Peter Redward and Leong Wai Ho say that Q4 GDP could increase 2.2 per cent from last year - after five quarters of declines - boosted by the opening of three new biologics plants and the anticipated opening of Shell’s US$3 billion petrochemical cracker that quarter.

‘The downside risks to GDP are decreasing,’ Mr Leong told reporters yesterday. ‘We are seeing a more lasting bounce in industrial production in Singapore.’

In quarter-on-quarter terms, the April-June quarter could show a sharp improvement, he said. Annualised seasonally adjusted growth could hit 17 per cent, compared with Q1’s 14.6 per cent fall. ‘Recent remarks by officials suggest that lay-offs were down sharply in May and June,’ he added.

GDP forecasts for 2009 remain at minus-4 per cent, but 2010 growth has been revised upwards to 5.5 per cent, Mr Leong said.

‘This revision reflects the improved outlook for Singapore’s key trading partners - most notably China and other Asian economies.’

The revised forecasts signal that the present recession could be shorter - if deeper - than that in 2001-2003. Barclays said that the output gap - the difference between actual growth and long-term trend growth - could close within 10 quarters and trough at 9.2 per cent of potential GDP, compared with 18 quarters and a trough of 6.3 per cent in 2001-2003.

As growth risks fade, the Monetary Authority of Singapore is likely to maintain its neutral policy stance at its next meeting in October. A resurgence of inflation will favour the Sing dollar, Mr Leong said.

Mr Redward said that Asian currencies in general are expected to benefit from fund flows from the West.

Interest rates in the region are above these for US-dollar deposits, which will encourage the appreciation of Asian currencies, as well as equity markets and other asset classes, he said.

Economic growth in Asia will be underpinned by re-stocking of inventory, massive fiscal and monetary stimulus programmes and recovering US manufacturing.

As a result, growth will be ‘robust’ - 4.8 per cent this year in Asia, and 7.7 per cent next year, compared with previous estimates of 3.8 per cent and 6.6 per cent in March.

Strong growth will also mean disinflation will likely prove temporary. ‘Regional inflation is likely to get back to one-3 per cent trend rate by mid-2010,’ Mr Redward said.

With recovery more rapid than anticipated, fiscal stimulus is looking more and more pro-cyclical, he noted.

Mr Leong said that in Singapore, official attention appears to be turning to mid-term ‘more fundamental competitiveness issues’, and a supplementary ‘recession’ budget here is looking less and less likely.

Source : Business Times - 07 July 2009

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Hard work ahead at Jurong cavern

Hard work ahead at Jurong cavern
Hyundai unit has its work cut out in this large and challenging project, which will ease oil storage shortage, reports EMILYN YAP

IN four years, Jurong Island will be home to Southeast Asia’s first underground oil storage facility - Jurong Rock Cavern. Marking a milestone in the project’s progress, industrial landlord JTC Corporation awarded an $890 million ‘design-and-build’ contract to South Korea’s Hyundai Engineering and Construction in April.

Jurong Rock Cavern will not only help solve the island’s space crunch but provide safe and secure storage for liquid hydrocarbons.
The contractor - which has experience with underground projects in Taiwan and South Korea, and is involved in other projects in Singapore - will design the caverns and begin construction of the first phase at the end of this year.

The facility, under the Banyan Basin, will be completed in stages. By the first half of 2013, it will have two caverns providing 480,000 cu metres of storage. And by 2014, there will be five caverns offering 1.47 million cu m of storage in all.

The project will free about 60 hectares of surface land for higher-value manufacturing operations. It will also ‘provide strategic storage for better fuel security’ and give Singapore ‘a competitive advantage to attract more investors’, a JTC spokesman said in April.

The development will be welcomed by the oil industry, which has been looking forward to more storage.

The Jurong Rock Cavern project broke ground in early 2007 but ran into delays early on because of its complexity.

Safe storage

As a major oil refining and distribution centre, Singapore has about 4.6 million cu m of independent petroleum storage, and the private sector is constructing a further 3.5 million cu m. But even then, industry feedback points to a shortage of at least 3 million cu m, which would occupy more than 100 hectares of surface land.

Sites at Jurong Island, in particular, are typically reserved for companies that carry out higher value-added activities such as oil refining and petrochemical production. It would be hard to secure land for more above-ground oil terminals.

Today, the island is home to more than 94 petroleum, petrochemical, specialty chemical and supporting companies, including big names such as Chevron Philips, ExxonMobil and Shell.

Jurong Rock Cavern will not only solve the island’s space crunch but provide safe and secure storage for liquid hydrocarbons such as crude oil, condensate, naphtha and gasoil. But the project is large and challenging, and Hyundai Engineering and Construction - which beat fellow South Korean bidder SK Engineering - will have its work cut out.

The cavern will be more than 100 metres below the seabed. Workers will have to drill and blast through layers of reclaimed sand, marine clay, residual soil, weathered rocks and fresh rocks such as sandstone, siltstone and limestone to build it.

Mega project

Phase one will involve 8km of tunnels and five caverns comprising nine storage galleries. Each gallery will be 340m long, 20m wide and 27m high. Put another way, each gallery will be about nine stories high and could hold the water from more than 64 Olympic-size pools.

Each cavern will be able to operate independently, to accommodate differing user needs concurrently.

Hyundai Engineering & Construction will also have to continue building two access shafts to the caverns. These shafts are 1.1km apart and extend 132m below ground. Their diameter ranges from 18m at the bottom to 24m at the top.

To facilitate construction, Japanese firm Sato-Kogyo built the shafts, with start-up galleries, at a cost of about $50 million.

The total investment committed to Jurong Rock Cavern is $940 million - up more than 30 per cent from an earlier estimate of $700 million.

But the price will be well worth it, as the project will be crucial to Singapore’s development as an oil hub. There are already plans for a second phase, which will add a further 1.3 million cu metres of storage.

However, the current downturn has affected the project’s momentum. Because potential users have pushed their plans back, JTC Corporation has called off its tender for an operator to run the facility. A spokeswoman said the agency will revive the tender nearer completion of the first two caverns in the first half of 2013.

Bidders to operate the project include Royal Vopak of Holland and Emirates National Oil Company, both of which run above-ground oil terminals on Jurong Island.

Delays aside, the facility will be much needed when economic recovery comes - and this is something JTC recognises.

Besides Jurong Rock Cavern, it is exploring the use of Very Large Floating Structures for storing oil products and petrochemicals. A few months back, the agency started looking for a consultant to explore and identify sites for these structures in Singapore waters.

The government has not only expressed its commitment to developing Jurong Rock Cavern, but also to exploring other creative solutions to resolve land shortage issues on Jurong Island.

Source : Business Times - 07 July 2009

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Industrial sector weakens further

Industrial sector weakens further

DEMAND for private industrial space continued to shrink in the second quarter of this year, says property firm DTZ.

And private industrial rents - in decline since Q4 2008 - registered steeper falls in Q2 2009 than in the two preceding quarters.

Average monthly gross rent fell 6.8 per cent for first-storey private industrial space and 8.1 per cent for upper-storey space in Q2 this year. This was the sharpest contraction since Q3 2003, when rents tumbled 8.3 per cent and 11.1 per cent respectively for first and upper-storey space.

Compared with the peak in Q3 2008, average rents for first-storey and upper-storey private conventional industrial space have fallen 12.8 per cent and 17.1 per cent.

Hi-tech industrial properties were again hit harder than other types of industrial properties space in Q2.

Amid lower demand in the industrial and office markets, hi-tech industrial rents posted their biggest contraction since Q2 2003, falling 12.8 per cent in Q2 2009 to 24.4 per cent below the peak in Q3 2008. Hi-tech industrial properties include business park and science park space.

New private industrial space of 30.6 million sq ft is expected to be completed between Q2 2009 and 2013. According to Urban Redevelopment Authority statistics, 24.6 million sq ft - or 80 per cent of the 30.6 million sq ft of private industrial space in the pipeline - is already under construction, with most scheduled for completion by 2011.

‘2009 will see substantial new supply of 16.9 million sq ft private industrial space, which is 46 per cent above average annual demand of 11.6 million sq ft per annum during the past five years,’ said Chua Chor Hoon, DTZ’s head of South-east Asia research. ‘The outlook for the industrial market remains weak through 2009 to 2011 due to demand-supply imbalances and weakness in the office sector.’

The hi-tech segment is likely to be most affected, with 5.1 million sq ft of private business park space in the pipeline, on top of 8.6 million sq ft of existing stock, Ms Chua said.

Source : Business Times - 07 July 2009

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Prime office rents fall 19% in Q2

Prime office rents fall 19% in Q2

DTZ notes decline rate eased slightly after Q1’s plunge

By UMA SHANKARI

OFFICE rents in Raffles Place fell 19 per cent in the second quarter of this year, after sinking 25 per cent in Q1, according to a new report from DTZ.

Still falling: The average monthly gross rent for prime office space in Raffles Place slipped to $9.70 per sq ft per month in Q2 - 49per cent below the Q32008 peak
The average monthly gross rent for prime office space in Raffles Place slipped to $9.70 per sq ft per month (psf pm) in Q2. The figure has now fallen close to the level at end-2006 - and is 49 per cent below the Q3 2008 peak.

However, DTZ notes that the rate of decline eased slightly in Q2 2009, after a deep plunge in Q1.

Research from CB Richard Ellis (CBRE) shows the same trend. Prime office rents averaged $8.60 psf pm in Q2 - an 18.2 per cent quarter-on-quarter fall. This was a slight moderation from the 18.6 per cent drop in Q1.

‘While office rents fell for the third consecutive quarter, the rate of decline showed signs of easing as sentiment improved and the economy stabilised,’ CBRE said.

But DTZ says that office rents on the CBD fringe and in decentralised areas fell faster in Q2 than in Q1. The firm’s data shows rents in Beach Road/North Bridge Road slid 20 per cent to $6.20 psf pm in Q2, after a 13 per cent fall in Q1.

Along the Alexandra belt, competition from converted state property and hi-tech industrial property also led to a bigger decline in office rents in Q2 than in Q1. Rents there fell 23 per cent to $5 psf pm, after dropping 13 per cent in Q1.

With CBD office rents falling, the rental gap between office space in the CBD and outside it has narrowed.

In Q2, office rents in Marina Centre were 12 per cent lower than those for prime offices in Raffles Place, compared with an 18 per cent gap during the peak in Q3 2008.

In the Harbourfront area, the gap closed even more - from 47 per cent in Q3 2008 to 35 per cent in Q2 2009. As the gap in rents between CBD and CBD fringe narrows, some companies driven to relocate outside the CBD during the boom years are likely to return, DTZ reckons.

Occupancies were hit further in Q2, although at a slower rate than in Q1. DTZ says the island-wide average office occupancy rate eased 0.9 of a percentage point to 92.8 per cent, lower than the 1.9 percentage point contraction in Q1. Average occupancy in Raffles Place fell 1.1 percentage points to 91.8 per cent in Q2, lower than the 2.7 per cent drop in Q1. Among the micro markets, offices in Orchard Road saw the biggest drop in occupancy. The rate slid 2.8 percentage points to 91.5 per cent as more shadow space became available there.

But CBRE and DTZ say leasing enquiries are starting to pick up. ‘It is likely to be a busy H2 for the office leasing market,’ said CBRE’s executive director for office services Moray Armstrong.

‘New lease transaction volumes will be higher, but the focus is likely to remain on lower-cost and better-value options. The best occupier deals may well emerge in the next six to 12 months before market recovery is at hand.’

But take-up is likely to remain in negative territory for the rest of 2009 and occupancies are expected to dip further, according to CBRE and DTZ. The office market is expected to stay soft until 2011, says Chua Chor Hoon, head of DTZ’s Southeast Asia research.

‘A large supply of space overhangs the office market over the next few years, which will delay the recovery of the sector even though the economy is expected to recover by 2010,’ she said.

Source : Business Times - 07 July 2009

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