S’pore office rents tumble more than half

S’pore office rents tumble more than half

Slide set to continue but at slower rate as office leasing activities pick up

By Joyce Teo, Property Correspondent

GREAT news for office tenants in Singapore but far leaner times for landlords: Office rents have plummeted by more than half in the past 12 months.

On average, they fell a whopping 53.4 per cent from their peak in the third quarter of last year to Sept 30 this year - the second-fastest rate of fall in the world. Only rents in Kiev, Ukraine, fell more quickly, by 64.6 per cent.

That meant the Republic fell from 9th spot to No.32 in the latest Top 50 most expensive markets list, according to a half-yearly global survey done by US-based consultancy CB Richard Ellis.

The occupancy cost here - rent plus local taxes and service charges - is now US$63.89 (S$88.25) per square foot (psf) a year, down 23 per cent from six months ago when it was in 15th place. That is down more than half from US$135.13 psf a year ago.

‘We’ve seen a dramatic correction in rents but in a way, it is helping businesses secure far more competitive business costs,’ said CBRE’s executive director, office services, Mr Moray Armstrong.

‘The market is now roughly where it was three years back.’ Just two years ago, Singapore was No. 1 in terms of the highest 12-month rise in occupancy costs across the globe. This threw many tenant companies into a frenzied search for cheaper digs.

CBRE said third-quarter prime office rents hit $7.50 psf on average, after falling nearly 13 per cent from the second.

The vacancy rate for Grade A space rose to 4.2 per cent, from 3.6 per cent in the second quarter and a mere 1.2 per cent a year ago.

Overall, a net 223,397 sq ft of Grade A space was left unoccupied in the first nine months of this year, taking into account new space, CBRE said. And more supply is coming.

Still, nervous office landlords can take heart from a significant pick-up in leasing activity, to a level Mr Armstrong described as ‘frenetic’.

‘It’s a phenomenon of many occupiers getting on with projects that they had to put off in the past 18 months,’ he said.

‘Right now, we’re seeing a very strong resurgence in leasing activities. There’s some evidence of upgrading… of occupiers taking advantage of more competitive rentals of quality space.’

Now that business confidence is improving, the rate of fall in office rents is set to slow, with a slight drop expected in the fourth quarter, said Mr Armstrong. ‘We are cautiously optimistic.’

In an earlier report, Colliers International had predicted a 5 per cent slide in office rents in the fourth quarter due to sustained demand weakness and growing new supply.

Indeed, office rents are not likely to head up any time soon because there is ample supply on the way, experts said.

Worldwide, London’s West End is again the world’s most expensive office market, with an occupancy cost of nearly US$185 psf. Inner central Tokyo is second at US$171.64 psf, with Tokyo’s outer central area in third place at US$139.09 psf.

Hong Kong’s central business district, which registered the fourth largest fall of 40.7 per cent worldwide, took the fourth spot with a rate of US$137.61 psf.

Source : Straits Times - 02 December 2009

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$100m for first collective sale this year

$100m for first collective sale this year

Dragon Mansion deal is ’sign of confidence’ in mid-tier homes market

By Joyce Teo

Owners of each Dragon Mansion unit will get $1.4 million, well above the estate’s highest transacted price of $880,000, said the broker of the sale.

OWNERS at the Dragon Mansion have completed the first collective sale of the year with a $100.8 million deal to sell their 72-unit condominium.

The price for the Spottiswoode Park estate near Outram was below the reserve price but the deal with boutique developer Roxy-Pacific was sealed anyway yesterday.

Owners of each of the 1,399 sq ft units will pick up $1.4 million - well above the estate’s highest transacted price of $880,000 achieved in May last year, according to the deal’s broker.

The sale of the freehold estate is a ‘positive sign’, said Credo Real Estate managing director Karamjit Singh.

‘The market has quietened down quite a bit recently but this shows there is still confidence in the market.’

Dragon Mansion owners initially wanted $120 million, or $1,020 per sq ft (psf) per plot ratio, which is significantly above collective sale prices racked up in the recent boom.

Their sale tender closed on Aug 11 with no firm bids. There were a few expressions of interest from developers keen to buy the land but clearly not prepared to pay the asking price.

Roxy’s offer came in at the end of October, when it entered into a conditional agreement to acquire the site. Its offer of $100.8 million works out to $863 per sq ft per plot ratio and includes a development charge.

Because its offer was below the owners’ reserve, a fresh set of signatures was needed. CKS Property Consultants, which brokered the deal, said it took five weeks to get just over 80 per cent of the owners to agree to the new price.

Ms Chia Mein Mein, CKS’ investment manager, said some of those who opposed the sale did not want to sell for sentimental reasons.

Dragon Mansion has a land area of 41,874 sq ft. A new development on the site could potentially yield a maximum gross floor area of about 117,000 sq ft - or about 120 apartments of 1,000 sq ft each.

Its sale price, said CKS in a statement, ’sets a new benchmark for the Spottiswoode Park area and reflects the limited availability of such freehold residential land near the central business district’.

Mr Singh said: ‘This is a vote of confidence in the mid-tier of the market’, as most of the activities in the private homes market this year have been in the mass market.

Roxy-Pacific would likely need to sell the new homes on the Dragon Mansion site for $1,400 psf to $1,500 psf.

The collective sale market, will see more activity next year with experts expecting a number of launches from as early as the first quarter.

DTZ’s senior director for investment advisory services, Mr Shaun Poh, said many estates are now keen to start the sale process.

‘We are starting some new ones and restarting some of the old ones which did not take off,’ he added.

Experts said that while some estates are keen to restart their sale at the same 2007 boom prices or higher, others may be more realistic.

Mr Singh said the collective sale sites hitting the market next year will be those that started the process recently and are priced more realistically, unlike those that were launched for sale in the third quarter.

Those estates had prices that were decided during the previous boom so price expectations were much higher, he said.

For instance, owners at the 528-unit Laguna Park in Marine Parade failed to conclude their collective sale at the price they wanted and chose to let their collective sale agreement lapse.

Later this month, CKS will launch the 124-unit Mayfair Gardens in the Bukit Timah area for collective sale.

The estate started the process early last year and obtained 80 per cent approval in March.

‘Recently, we have been getting a lot of inquiries from owners. There may be some short-term uncertainty in the property market, but owners are looking further ahead,’ said Ms Chia.

Under the new - and stricter - rules that came into force in late 2007, it will take quite some time, possibly at least nine to 12 months, to prepare a collective sale. This includes appointing the marketing agent and gathering enough signatures in order to launch the sale, she said.

Bedok Court, Pine Grove and Tulip Garden are some of the other estates that have a group of pro-collective sale owners looking to restart the process.

Source : Straits Times - 02 December 2009

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Asset bubbles not a risk yet for Asia: OCBC

Asset bubbles not a risk yet for Asia: OCBC

Bank economist also does not expect a W-shape recovery

By OH BOON PING

ASSET bubbles will not be a problem in Asia until 2010 and beyond, even though policymakers appear well aware of the risks of excess liquidity in the system, say OCBC analysts.

Stock watch: Asian markets are still early in the recovery cycle, and attempts to address an overheated market should come much later, says OCBC economist Selena Ling
At a briefing yesterday, economist Selena Ling explained that Asian markets are still early in the recovery cycle, and that attempts to address an overheated market should come much later.

However, she says, the days of ‘easy money’ under the Greenspan era are definitely over, and the central banks in the region are cognizant of the asset bubble risks. This can be seen from the rate hikes in Australia, while the others keep a close watch on the situation.

Yesterday, Ms Ling also downplayed the likelihood of a W-shape recovery, citing factors such as the cycle of upgrades to GDP growth, corporate earnings forecasts and ratings which are expected to continue into the first half of 2010.

‘So, while growth may tail off in the second half of 2010, we don’t expect a sharp correction to the same magnitude from Q4 last year to Q1 this year,’ she said.

Turning to foreign exchange, OCBC thinks that the immediate outlook for the US dollar continues to be negative, as the economic recovery story plays out in the near-term, says FX strategist Emmanuel Ng.

Pointing to the Baltic Dry Index, which moves inversely with the US dollar and the production numbers in the OECD, Mr Ng explained that both indicators have posted sharp rebounds - an indication of higher economic activity.

Moreover, the forex markets are poised to see higher volatility if global exit strategies are not synchronised.

Under such situations, there could be a shake-up in the markets that will see the US dollar briefly ‘gaining traction against the majors’.

As for Asian currencies, OCBC said that broad dollar direction coupled with equity market performance will continue to provide underlying impetus for those units.

In particular, the pick-up in the foreign purchases of Asian currencies is expected to be sustained going into the new year.

As for ratings on local stocks, OCBC is ‘overweight’ on telecommunications, oil & gas, commodities and infrastructure.

Top picks include the three telcos, Noble, Ezra, Wilmar, Midas and Tat Hong, said investment research head Carmen Lee.

Source : Business Times - 02 December 2009

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Rich bank clients more open to risk mgt strategies

Rich bank clients more open to risk mgt strategies

By CONRAD TAN

(SINGAPORE) The damage wrought by the financial crisis has reminded private banks and their wealthy customers of the need for careful risk management, and triggered subtle shifts in the industry and clients’ attitudes, says the head of private banking at Deutsche Bank.

In Asia, rich clients are now more receptive to diversified asset-allocation strategies rather than taking concentrated bets on favoured investments, said Pierre de Weck, head of Deutsche Bank’s private wealth management division, which caters to rich individuals worldwide.

‘Over the years, I think the industry has increasingly moved from a trading and wealth management industry to become a risk management industry, and I think that trend will accelerate after the financial crisis, which had a very significant impact on clients’ portfolios and wealth,’ he told BT in a recent interview.

‘Our responsibility is not only to create investment opportunities with upside for our clients; our responsibility is just as much to manage the downside for our clients and make them aware of the risks involved in their investment portfolios.

‘We always have had an approach covering that, but we probably now put even more emphasis on training and implementation of risk management solutions for our clients.’

‘After this crisis, we see an increased desire among clients to talk about asset allocation and risk management in the portfolios.’

- Pierre de Weck,
Deutsche Bank’s head of private wealth management

Another impact of the crisis, he said, is that clients in Asia are now more open to the need to spread their investments more widely.

‘I run a global business with about 200 billion euros (S$417 billion) in client business volumes, and client behaviour is very different,’ Mr de Weck said. ‘In the US, it’s mostly discretionary asset management at the forefront. In Europe, it’s a mixture, with a strong asset-allocation approach.

‘In Asia, over the past few years, although we were attempting to introduce more of an asset-allocation approach, it was not always welcomed by clients.

‘It had all to do with the great opportunities for capital gains and the rapid cycles. But the great opportunities for capital gains and the rapid cycles also create great opportunities for losses.

‘After this crisis, we see an increased desire among clients to talk about asset allocation and risk management in the portfolios.’

In some cases, there has been ‘a total withdrawal from risk-taking’, he said.

The bank’s private wealth management business in the Asia-Pacific had some 23 billion euros in client assets under management as at end-September, up 28 per cent from at end-2008. It employs about 700 people across the region and has its regional base in Singapore, which also serves as its main booking centre for clients in South-east Asia.

It has a smaller booking centre in Hong Kong, which manages its business in Greater China. It also has a South Asia business that is managed partly out of Singapore and partly out of Europe, as well as onshore operations in India and mainland China.

‘Asia is at the centre of our growth strategy for the group as a whole, but in particular for private wealth management, where we have set ourselves a goal to double our business over the next three years,’ Mr de Weck said.

Source : Business Times - 02 December 2009

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Office rentals slide to a competitive perch

Office rentals slide to a competitive perch

Falling occupancy costs place S’pore at 32nd spot; period of stability on the cards

By KALPANA RASHIWALA

(SINGAPORE) Following a year-long slide in prime office rentals, Singapore’s office occupancy costs have become far more competitive.

Fourteen months ago, the island was the ninth most expensive place to rent offices. By end-March this year, it had slid to 15th spot and by the end of the third quarter, many others had become relatively more expensive and Singapore stood at No 32, according to CB Richard Ellis.

The property consultancy’s latest global office rent survey covered a total of 179 markets and the rankings were in US dollar terms.

CBRE also measured in local currency terms year-on-year changes in prime office rents as at end-Q3. The 53.4 per cent drop for Singapore was surpassed only by Kiev, which suffered a 64.6 per cent decline.

For the latest semi-annual survey, prime office rents in US dollars in six Asia-Pacific markets were higher than Singapore’s - Tokyo’s Inner Central and Outer Central markets, Hong Kong (Central CBD), Mumbai (CBD), New Delhi (CBD) and Hong Kong (Citywide). However, office occupancy costs in Singapore were still higher than Seoul, Perth, Shanghai’s Pudong and Puxi districts and Sydney.

London’s West End regained its status as the world’s most expensive office market, overtaking Tokyo (Inner Central).

Almost three quarters or 131 of the 179 markets tracked posted declines in prime office occupancy costs for the 12-month period ending Sept 30, 2009. Of these, nearly 50 saw double-digit percentage decreases.

‘The office market may be on the cusp of moving from intensive care to the stabilisation stage - the first step to getting back to good health,’ says CBRE global chief economist Raymond Torto.

Forty-one markets reported year-on-year rental increases in Q3. Aberdeen and Rio de Janeiro both grew by more than 10 per cent.

According to CBRE data, Singapore’s gross average monthly rentals for prime and Grade A office space both fell about 53 per cent from their respective peaks of $16.10 per square foot and $18.80 psf in Q3 last year to $7.50 psf and $8.80 psf in Q3 this year.

The quarter-on-quarter rental declines in Q3 2009 - of 12.8 per cent for prime space and 13.3 per cent for Grade A offices - were smaller than falls in the preceding three quarters. CBRE executive director (office services) Moray Armstrong is predicting far smaller declines in the current quarter.

Cushman & Wakefield research director Ang Choon Beng says that monthly prime average rentals at Raffles Place eased 2.6 per cent in the first six weeks of this quarter from end-September. ‘We’re likely to end Q4 with a total drop of about 4-5 per cent from Q3.’

Mr Ang feels that office rents would remain soft next year in the face of considerable new supply.

Mr Armstrong points out that a strong revival in office leasing activity has ’surpassed what we could have anticipated six months ago’.

After three quarters of negative take-up, demand for office space finally turned positive, albeit modestly so, in Q3.

‘I don’t see a dramatic rebound in positive take-up in Q4 2009,’ he says. ‘However, all the leasing activity we’re seeing right now is likely to underpin a return to positive take-up in 2010.

‘We’re entering a more stable period for office rents over the next six to 12 months.’

Agreeing, Knight Frank chairman Tan Tiong Cheng says: ‘With improving business sentiment, landlords firstly will not be panicky and tenants will also give up squeezing (landlords). Hence, the short-term outlook for office rents is more positive.

‘The rest depends on government policy. The authorities believe that keeping office rents affordable will help in Singapore’s competitiveness . . . And they have a range of ammunition to ensure this - including the transitional office scheme, business parks, and considerable amount of good- quality office land set aside for development in Paya Lebar and Jurong East.’

Source : Business Times - 02 December 2009

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