Here are depressing illustrations of a bearish office sector by 2013

Rents in Raffles Place falling by 1.2% QoQ is just the start of a worse to come.

According to Jones Lang LaSalle, demand remained muted, with activity dominated by renewals and relocations but with limited expansions in 3Q12. New demand continued to be thin under the current market conditions, although positive net absorption was recorded during the quarter due to relocation demand.

Moving forward, Jones Lang LaSalle expects rental decline is likely to continue at a moderate pace for the rest of the year while en-bloc capital values are likely to stay flat, leading to further yield compression.

Here's more from Jones Lang LaSalle:

In Raffles Place, net absorption was 19,600 sqm as vacant space in investment-grade properties continued to be preferred by the market.

Leasing transactions were mainly supported by smaller office tenants (about 180–1,000 sqm), although some larger office tenants are currently looking for ways to decentralise their business operations in order to save costs.

Supply
Without any new completions, vacancy rates fell on the back of positive net absorption. In Raffles Place, the vacancy rate eased by 140 bps to 10.3% in 3Q12.
Asset Performance Rental decline slowed in 3Q12 as rents in office buildings generally held up on the back of stable occupancy. Average net effective rents in Raffles Place fell marginally by 1.2% q-o-q to SGD 930 per sqm per annum in 3Q12, similar to the rate in the previous quarter. Again, there was more downward pressure on rents in buildings with higher vacancies.

While strata-title office sales remained healthy, en bloc activity was rather quiet in 3Q12. The only known major transaction was 78 Shenton Way, located in Tanjong Pagar district, which involved the sale of a 50% stake for SGD 608 million or SGD 18,148 per sqm on an NLA basis. Strata-title capital values continued to provide some support for en-bloc capital values even as a gap remains between the expectations of buyers and sellers. En-bloc capital values thus remained stable for another quarter in 3Q12 and, as a result, yields continued to compress.

In Raffles Place, market yields compressed marginally by four bps to 3.6%, on the back of softening rents.

12-Month Outlook
Companies are likely to postpone their corporate plans as they await more positive economic data. As the financial year comes to a close, many major corporate decisions are likely to be delayed until early next year. As such, office activity is expected to remain fairly slow.