Are office spaces turning into ghost towns?

There is seen a continued drop in overall average occupancy rate for Grade A office space in the CBD, and supply just keeps coming.

“The current office market is experiencing a rising supply of space stemmed from the gradual completion of new office developments, as well as the impending secondary office space that would re-enter the market when tenants relocate to their pre-committed new premises,” said Mr Calvin Yeo, Executive Director of Office Services at Colliers International.

He added, “Meanwhile, the mushrooming of new office and business park developments outside the CBD, which offers office-like specifications at comparatively-lower rents, has widened the option for qualifying office tenants and consequently, adds to the rising supply of space in the market.”

Colliers International noted:

The overall average occupancy rate for Grade A office space in the CBD continued to dip to 93.5 per cent in 2Q 2011, following its first correction in 1Q 2011 when it slipped 0.1 percentage point to 94.2 per cent.

The slip in occupancy rate was more pronounced in the Raffles Place/New Downtown and Beach Road micro-markets, where it fell 1.5 and 3.2 percentage points to 94.2 per cent and 90.6 per cent, respectively in 2Q 2011.

The relief in occupancy rates came about as occupiers’ initial enthusiasm for office space in response to Singapore’s strong economic turnaround from the global financial crisis subsided, and leasing activities returned to a more moderate level in 2Q 2011.

While flight to quality continued in 2Q 2011 – driven mainly by businesses in the financial services sector, such as Citic Bank International’s intended move to Asia Square Tower 1, it was taking place at a slower pace, which is also in line with the stabilization of expansion and consolidation plans of major large space users.

Furthermore, the widening gap in rental expectations – as a result of landlords continuing to raise asking rents to leverage the up-cycle in the office property market – has started to meet with some resistance from tenants, which, in turn, contributed to a moderation in the leasing exuberance.

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