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Office sector to finish 2007 as property’s star performer

Prime office rents grew 92% this year; premium office rents have done even better – up 96%

RESIDENTIAL property may have been red hot, but office rents – with their phenomenal growth amid a severe supply crunch – will finish up as the year’s star performer.

Latest figures from property consultancy CB Richard Ellis (CBRE) confirm the trend.

CBRE executive director of office services Moray Armstrong told The Straits Times yesterday prime office rents grew 92 per cent this year from last year. Premium, or grade A, office rents did even better – up 96 per cent.

He said, however, this growth ‘won’t be sustainable next year’.

‘We’re likely to see it moderating at 15 per cent to 20 per cent’.

One trend seen this year, which is likely to accelerate next year, is the number of companies moving out of the Central Business District into non-prime areas, he said.

‘The costs are too high in prime areas. In the short term, there’s still a critical shortage of office space, and this will remain a favourable market for landlords and investors.’

Singapore’s monthly prime office rents shot up 82.6 per cent to $12.60 per sq ft (psf) in the year ended Sept 30, CBRE said previously.

Current levels have already exceeded the historical high reached in the early 1990s of $11.50 psf.

At a separate event yesterday, LaSalle Investment Management also predicted a 15 per cent to 20 per cent growth in office rents next year.

LaSalle, a unit of real estate broker Jones Lang LaSalle, placed the growth rate for grade A office rents at 70 per cent this year. ‘This is the fastest growth rate in the region,’ said the firm’s regional investment strategist for Asia-Pacific, Mr David Edwards.

‘In comparison, rents in the private residential market rose at a healthy, but milder, 25 per cent,’ he said.

The Urban Redevelopment Authority said office space rentals rose an overall 40.7 per cent for the nine months ended Sept 30 based on its official office rental index. Its figures for the year are due next month.

The Government has released transitional office sites – where buildings can be constructed quickly – to relieve the short-term supply crunch.

Two of these – at Scotts Road and Tampines – have been awarded, while two more at Mountbatten and Aljunied Road are now being tendered.

A more permanent supply is expected by 2010, and Mr Armstrong believes this will ‘deliver a great balance between supply and demand’.

Some analysts, such as Citigroup, however, recently warned of a supply glut to come. ‘We see no reason to conclude it will be an oversupply situation,’ countered Mr Armstrong.

‘With Singapore’s diversified economy boom, mass market residential and retail properties will also perform well,’ said Mr Edwards.

LaSalle plans to invest $20 billion in Asia-Pacific properties over the next three to four years, half of which will be in Japan. Demand is rising for modern logistics offices and shopping malls, said Mr Edwards.

The firm also recommends South Korea, for moderate-risk investors, and emerging markets such as China, India and Southeast Asia, for investors with a bigger appetite for risks.

LaSalle said it would also integrate sustainability concerns into its investment strategies.

‘Where environmental concerns was previously ‘interesting’, it is now necessary,’ said Mr Edwards. Given the soaring prices of crude oil, energy- efficient buildings have become very attractive investments.

‘Tenants are also increasingly demanding green buildings. In the long term, if investors don’t take this sustainable approach, it will have a negative impact on their portfolio,’ added Mr Edwards.


Source: The Straits Times 15 Dec 07

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