Further spike in prime office rents

With the current trend of old office buildings being sold for redevelopment, an estimated 1.73 million square feet of space might be taken out of the Central Business District (CBD) supply by the end of this year.

This will likely drive up office rentals and the capital values of those buildings, analysts said.

At the 33-year-old Ocean Building owned by Keppel Land, about half of the tenants have already moved out to make way for a new office block.

That alone will take more than 400,000 square feet worth of space out of the market in the CBD.

This is in addition to old offices such as Asia Insurance Building, Straits Trading Building and Natwest Centre, all of which were sold for redevelopment last year.

“All in all, if you look at the total amount of office space that used to be in the market, close to about 900,000 square feet of space has been taken out of the supply, just over the last 12 or 24 months,” said Cushman & Wakefield’s managing director Donald Han.

“And as the collective sale market gains momentum, some of these strata title office buildings might be taken out of the supply equation as well.”

United Industrial Corporation, which owns 78.8 per cent of UIC Building, has announced plans to acquire the 400,000-square-foot property.

Analysts are also predicting that other buildings in the vicinity, such as Dapenso Building, Shenton House and Afro Asia Building, will be put up for collective sale.

“It only means that there will be higher rentals. I think the balance of power will continue to be controlled by the owners and landlords. At the same time, we expect capital values to grow in tandem with the increase in rentals,” said Mr Han.

Prime CBD office rentals are forecast to rise by some 56 per cent to $18.50 per square foot by the end of next year, up from the current $11.80, Citigroup estimated.