Clipped office rents may herald structural change in demand

THE Business Times reported last week that several property consultants are lowering their forecasts for CBD Grade A office rental growth this year. This was triggered by weaker-than-expected leasing demand for office space in the central business district since late last year, resulting in weak rental growth in the first quarter of this year.

No significant improvement in demand is expected in the short term. Given slow economic growth, most financial institutions are taking a conservative stand on their office space commitments. In fact, several multinational banks could shed office space in Singapore - either by returning some space to landlords when their leases come up for renewal, or by disposing of excess space on an ongoing lease by finding sub-tenants or replacement tenants.

Since the end of last year, real estate investment trusts (Reits) with substantial Singapore CBD office stock have been sold down. CapitaLand Commercial Trust (CCT) and Suntec Reit have eased 7.4 per cent and 11.7 per cent respectively from the end of last year to last Friday. Although the Keppel Reit price has been weak for some time, it has still dipped 1.6 per cent year to date.