Demand for office better than expected in 2Q12.
Despite the volatile global economy during 2Q12, the demand for office space in Singapore beat expectations with strong leasing performance and positive net absorption reaching 473,200 sf.
During 1H12, net absorption of office space in Singapore reached 1.06m sf; lowering vacancy rate to 8.4% and 6.4% for core CBD and island-wide respectively.
Although the demand for office space has remained strong during 2Q12, Grade A and Grade B rents declined by 4.7% (8.2% YTD) and 0.6% (2.1% YTD) respectively during this period, on the back of a highly competitive leasing market.
These corrections in office rental rates fall within our expectations, where we have previously forecasted a drop in Grade A office rents by 10-15% during 2012.
Going forward, on the back of limited new supply of Grade A office space for the rest of the year, we expect the downward adjustment of these office rents to stabilize.
On the other hand, due to additional second hand space (c.1.2m sf according to CBRE) to be released in the next 18 months, Grade B office rents is expected to remain weak in the coming months.
Source: DMG