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More and more tenants are asking for leasing contracts with built-in rental review terms and longer tenures of 5+5, 6+6 or 12 years, according to Colliers International’s latest report.
“We are seeing more requests from tenants negotiating for longer lease terms, as it provides them with more stability and allows them to spread their asset depreciation over a longer period of time,” said its Executive Director for Office Services Marcus Loo, adding that the arrangement also reduces occupancy costs and capital expenditure incurred when shifting to new offices.
“However, contrary to the common belief, longer lease terms do not generally equate to lower rents. Landlords may factor in potential rental upside if they are tied to a longer period of time. Hence, tenants who prefer a longer term will have to weigh the merits of an extended period vis-à-vis a higher rent,” he said.
In Q3 2014, rental growth of premium grade office space in Raffles Place/New Downtown climbed by 6.1 percent to S$11.67 per sq ft per month compared to the previous quarter. This is also its highest quarterly growth in three years.
As for other micro-markets in the Central Business District (CBD), rents of Grade A office space rose between 0.4 percent and 2.9 percent on a quarterly basis.
According to the report, the average monthly gross rents of premium grade office space in Raffles Place/New Downtown increased by about 13.3 percent during the first three quarter of 2014, while Grade A and B office spaces posted smaller gains of 6.4 percent and 3.9 percent respectively.
Given the significant gain in rental prices, there was an increase in the number of viewings rather than lease commitments during Q3 2014, “as tenants are taking a longer time to work out their sums.” added Loo.
Moving forward, office rents are expected to rise further due to healthy demand from various sectors, while about 1.7 million sq ft of new office space is expected to enter the market in Q4 2014.
“Rents of premium grade office space in Raffles Place/New Downtown are expected to continue to increase and record a full-year ascent of close to 15 percent for the entire 2014, while the growth in rents for the overall CBD Grade A and B office space could reach up to 10 percent,” said Chia Siew Chuin, Colliers International’s Director of Research & Advisory.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this and other stories, email nikki@propertyguru.com.sg
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