Growth in office occupancy costs tapers off in Q2

August 5, 2008
Growth in office occupancy costs tapers off in Q2
Prime Raffles Place space up only 1.1% quarter on quarter: DTZ report
By UMA SHANKARI

GROWTH in office occupancy costs in Singapore has started to taper
off after the meteoric rise last year, reflecting the increased
resistance to higher occupancy costs, according to a new report.

'Apart from Raffles Place, Shenton Way/ Robinson Road/Cecil Street
and decentralised areas, growth in occupancy costs in other areas
like Marina Centre and Orchard Road was flat in 2Q 2008,' said DTZ in
its second-quarter office market brief.

Average occupancy cost of prime office space in Raffles Place grew
only 1.1 per cent quarter on quarter to $19 per square foot per month
(psf pm) in the second quarter of 2008.

In the Shenton Way/Robinson Road/Cecil Street area, the average
office occupancy cost rose by 2.6 per cent quarter on quarter to
$11.80 psf pm, while office buildings in HarbourFront enjoyed a
higher growth of 5.3 per cent to $10 psf pm.

By contrast, in the first quarter of 2008, occupancy costs continued
to rise amid a dearth of supply. Prime occupancy cost in Raffles
Place gained 13.9 per cent quarter on quarter to $18.80 psf pm in the
first quarter of 2008, for example.

'As more new supply come on stream, office occupancy is likely to
ease and limit growth in occupancy costs in the CBD for the rest of
2008,' said DTZ, referring to the Central Business District.

However, the report also said that the cautious business outlook and
companies gravitating towards cheaper premises like decentralised
office buildings, industrial properties, business parks and disused
state properties are putting a downward pressure on office
occupancies.

Islandwide, average occupancy eased by 0.2 percentage point quarter
on quarter to 96.9 per cent in Q2 2008.

As a result of occupiers moving out to cheaper locations after lease
expiration, office occupancies in Raffles Place and Marina Centre
dropped by 0.3 percentage point to 97.4 per cent and 1.2 percentage
points to 98.6 per cent respectively.

But over in decentralised areas like Novena and HarbourFront,
occupancy levels rose by 0.4 percentage point to 99.0 per cent and
1.1 percentage points to 98.7 per cent respectively, supported by
lower occupancy costs.

DTZ also released its Q2 2008 office report for Kuala Lumpur
yesterday.

Gross occupancy costs for prime buildings in the Malaysian city rose
3.9 per cent quarter on quarter to RM6.32 (S$2.65) psf pm in the
second quarter of this year, the property firm said.

But despite this, financial institutions with presence in Singapore
are considering locating call centres in Kuala Lumpur because of cost
differential and special tax breaks, DTZ said in response to a query
from BT.