(C) The performance of Non-Residential Property segment

[C.1] Prime office rents lower and trend to continue

The latest data released by the URA showed office rents lower by 0.8% in Q3 2008.

In October 2008, prime office rents slide by 5% from the previous month to reach $14.05 psf per month, as more corporations are down-sizing their operations here. But the fall in net effective prime office rents was even more pronounced, with landlords giving rent–free periods before the actual commencement of the leases.

Average office rents are now back to the 2007 level and may go down another 10% to 20% if the economic situation does not improve quickly.

[C.2] More office tenants expected to ‘break lease’

More tenants will ‘break lease’ in the next year as the full impact of the global financial tsunami hits the Singapore shore. It is estimated that about 3.5% of existing Grade A office space, amounting to about 450,000 sq ft, could be returned by tenants in the next 12 months as corporations in general consolidate their operations here.

As the way things go, the downward pressure has already sliced 1.2% off the average Grade A asking monthly rent in Singapore in Q3 2008, when compared with the previous quarter. The average rents fell to $14.92 psf in Q3, from the height of $15.10 psf in Q2 2008.

Bucking the downtrend, office space at Raffles Place, City Hall/Marina Bay, Beach Road/Middle Road, and Shenton Way actually became dearer by 2.2%. However, outside the prime Golden Shoe areas, average asking rents for offices fell by 3.3% in Tanjong Pagar; and by 0.91% in the Orchard area.

In the pipeline, there will be almost nine million sq ft of new office space supply in and around the Central Business District over the next four years; and at least 80% of them will be of Grade A standard.

[C.3] Fear for recession leads to more leases surrendering

Another telling sign of a weakening economy is showing up in the industrial sector. In Q3 2008, more Ready-built facilities (RBF) leased by JTC Corporation were returned. The rate of surrendering of JTC leases jumped 25.7% quarter-on-quarter and 45% year-on-year.

More leases surrendering occurred in manufacturing and related businesses as many tenants have started to consolidate their operations, following the drastic fall in demand from abroad.

In total, termination of leases of flatted factories, standard factories and business parks amounted to 30,300 sq m from lessees who were from the services and precision engineering sectors. They each accounted for 30% of the termination.

Another 18% of the terminations were from the electronic sector. And around 67% of termination in Q3 was the result of consolidation of operations, and about 12% was due to poor business.

 (D) Foreign Interest in Singapore Real Estate

[D.1] Australian fund pulled out from Singapore property deals

An Australian private property fund manager, Blaxland, has pulled out from industrial property deals worth some $200 million in Singapore.

Blaxland Funds Group is a joint venture between its executive staff and The Myer Family Company. It set up a representative office in Singapore earlier this year and had planned to build up an industrial property portfolio worth over $300 million, including eSys Technologies' building in Changi North and SH Cogent Logistics' warehouse building at Penjuru Close in Jurong.

[D.2] US buyer backed out of Ho Bee deal

American buyer of Ho Bee Group's Frontech Centre backed out of the deal in November 2008. The agreed sale price of the eight-storey high-tech industrial building was $30 million. Ho Bee had earlier planned to use the sale proceeds to pare down borrowing and increase working capital. The purchaser is understood to be a US-based property fund.

[D.3] Foreign Funds eying cheaper Asian properties

In November 2008, Merrill Lynch reportedly raised some US$2.65 billion for its Asian Real Estate Opportunity Fund, which is intended for direct acquisition of real estate assets and companies in Asia.

Likewise, it was also reported that an Australian fund, AMP Capital Investors, was in the process of raising up to S$2.9 billion for direct property investments in Asia, including malls in Japan, and offices in Singapore.

According to KPMG, pension funds, hedge funds and private equity funds are showing keenness in Asian real estate due to the structural shortage of commercial properties in the growing economies, including Australia, Singapore and China.

[D.4] Foreign home buyers made up 22% of home purchases in Q3

In Q3, a total of 903 private homes were sold to foreign buyers, based on the caveats lodged with the Singapore Land Authority (SLA).

Malaysians accounted for 22% of the total transactions by foreigners. Among the other nationals, Indonesians accounted for 19% of the total caveats lodged, while PRC Chinese took up 13%, Indian 12%, and UK citizens 6%.

Among the most popular projects that attracted the highest numbers of foreign buyers in Q3 2008 were Clover by the Park (40 units), Livia (30 units) and Kovan Residences (20).

In terms of the total private home transactions, foreign buyers (including PRs) made up 22% of total private home transactions in Q3 – down 3% from the previous quarter of 25% of total sales.

Among the foreigner buyers, PRs contributed the lion shares of 53% or 476 of the total 903 private homes bought by foreigners in Q3. Non-PR foreigners accounted for the remaining 47%.

Read the latest updates on other property segments:

Part 1: The impact of the US crisis on the Singapore property market

Part 2: Performance of the private residential property segment

Part 4: HDB resale market & Government Land Sale programme