Office vacancy on the rise: CBRE

by Cheryl Tay The Asia Pacific office market saw declining vacancy rates in Q1 2012 but new supply and slow demand will likely put an end to this trend in Q2, according to the Asia Pacific Office MarketView by CBRE.

Almost half the Asia Pacific office markets recorded a decline in vacancy, slightly offsetting those which saw increases. Overall vacancies slid in Hong Kong, Beijing and Shanghai, while Singapore, Tokyo, New Delhi and Kuala Lumpur experienced an increase.

Singapore's island-wide vacancy reached 7.3 percent in Q1, marking an increase of 57 basis points quarter-on-quarter and 162 basis points year-on-year. The core CBD saw vacancy rate grow to 9.30 percent from Q4 2011's 8.80 percent.

Moreover, vacancy rates are likely to rise further across all grades and micro markets before peaking next year.

As for Grade A rents, Q1 2012's figures reflect a 3.6 percent quarter-on-quarter decline to S$10.60 psf per month. Quarterly net absorption, the main demand indicator, increased to 587,000 sq ft, buoyed by the 70 percent pre-commitment level at Marina Bay Financial Centre (MBFC) Tower 3 (pictured).

"Our projects for the remainder of the year, however, suggest weakening demand and declining net absorption levels. The office stock reached 52.8 million sq ft in Q1 2012 on account of the 1.3 million sq ft MBFC Tower 3 completion," said CBRE.

Moray Armstrong, Executive Director, Office Services at CBRE, noted, "Whilst the banking sector is not in the market, overall occupier demand is holding up fairly well. We are seeing strong leasing interest from the energy/commodities, professional and legal sectors."

Unlike the previous cycles, there will be no rental correction while rents are expected to trend slightly downwards.

"Occupiers can, however, expect to benefit from more generous rent-free periods and other incentives. Our medium to long-term outlook is that Singapore is ideally placed to capitalize on the shift of economic power to Asia. The lower office cost base that will emerge from this cycle is likely to further improve Singapore's competitive edge."

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