Internet firms drive growth in Grade A space rentals

2014 seen as another healthy year, with steady, sustainable rental growth

GROWING demand for Grade A space from consumer Internet companies is setting a new trend in the central business district (CBD), an area traditionally monopolised by financial institutions. These firms are taking up large spaces in prime Grade A buildings at market rates, even as rents inched up this quarter due to healthy demand and no new supply.

Rents at the top-performing sub-market, Marina Bay, were $11.80 per square foot (psf) per month, after inching up 0.85 per cent from Q3's $11.70 psf per month. Elsewhere in the CBD, Raffles Place saw rents increase 0.67 per cent quarter on quarter to $9 psf per month, while Shenton Way's rents increased 0.99 per cent to $8.20 psf per month.

Growing demand for Grade A space from consumer Internet companies is setting a new trend in the central business district (CBD), an area traditionally monopolised by financial institutions. These firms are taking up large spaces in prime Grade A buildings at market rates, even as rents inched up this quarter due to healthy demand and no new supply - PHOTO: ST

Outside of the CBD, Orchard Road's Grade A rents saw the largest increase, rising 2.2 per cent to $9.20 psf per month. This helped drive overall Grade A rents up 1.1 per cent quarter on quarter to $9.38 psf per month in Q4.

Meanwhile, the average vacancy level for the overall Grade A market fell by 58 basis points to 4.9 per cent as at end 2013. Vacancies in the CBD dropped too - the average rate at Marina Bay dipped by more than one percentage point quarter on quarter to 10.1 per cent, while Raffles Place and Shenton Way ended the year with vacancy rates of 4 per cent and 3.2 per cent respectively.

The drop in vacancies seen in the CBD was in part due to the recent trend of consumer Internet companies taking up large spaces in prime Grade A buildings. New entrant Booking.com, for instance, is set to occupy about 45,000 sq ft at Marina Bay Financial Centre Tower 3. In addition, Google is looking to increase its presence in Asia Square Tower 1, while PayPal has increased its presence at Millenia Tower.

The healthy absorption was also supported by recent transactions such as Mizuho's looking to take up over 100,000 sq ft of space in Asia Square Tower 2, and Rabobank looking to take 26,000 sq ft at South Beach.

On top of healthy absorption, it should be noted that with the delay in completion of Orchard Gateway, Asia Square Tower 2 was the only office building completed in the overall Grade A market in 2013.

Despite being the best performer in terms of absolute rental, the submarket's rental growth has been limited, mainly due to vacant space at the newly completed Asia Square Tower 2, noted Cushman & Wakefield in its latest marketbeat report.

Looking ahead, 2014 should be another healthy year, with steady and sustainable rental growth driven by healthy demand from tenants growing their business, said Toby Dodd, managing director for Cushman & Wakefield Singapore.

Already, some positive momentum has been achieved. At South Beach, over 100,000 sq ft of space is currently under negotiation. That being said, vacancies will be pushed up temporarily, although this is unlikely to pose any risk to the overall rental market recovery, said Mr Dodd.

According to Cushman and Wakefield's estimates, vacancy rates in Raffles Place and the City Hall/Marina Centre area could potentially hit 7.6 per cent in Q4 next year, from 4 per cent and 0.5 per cent currently. This however will likely subside to 4.2 per cent and 0.6 per cent respectively by Q4 2015.

Broadly speaking, rents should increase across all the subsectors in 2014, with rents in Marina Bay potentially hitting $12.30 psf per month, Raffles Place increasing to $9.38 psf per month and Shenton Way hitting $8.52 psf per month by the end of 2014.

Source: 28th November 2013 Business Times

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Internet firms drive growth in Grade A space rentals

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