(C) The performance of non-residential property segment

[C.1] Prime office rents slide – vacancies up

For the first time since Q4 2003, prime office rents in Raffles Place have come down.

In the final quarter (Q4) of 2008, these rents dropped a whopping 15.8% on a quarterly basis. The average prime office rent now stands at $16 psf per month.

Office rents in the Marina Centre micro market also fell by a big percentage of 12.9% on a quarterly basis to $13.50 psf per month.

Likewise, office vacancies edged up further in Q4 2008 as demand slowed in tandem with the global economic downturn.

In Raffles Place, the average office occupancy fell 1.3% compared with Q3 2008 to 95.6% in Q4 2008. Island-wide, office occupancies slid 0.8% to 95.6%. Only Tampines Finance Park bucked the trend with 96.8% occupancy.

Major developers have reacted to the situation by delaying the development of new office buildings, for example, City Developments (CDL) has delayed the South Beach project. Plans to extend office buildings by other developers were also shelved, for example, Tampines Mall and Funan DigitaLife Mall and the redevelopment of Marina House. As such, potential office supply from 2009 to 2013 would be at 11.3 million sq ft, instead of the earlier estimate of 12.1 million sq ft.

Occupancy rates and rents are expected to decline further in 2009.

[C.2] Shop space rents getting cheaper

Prime Orchard Road shop rents have fallen 1.9% quarter-on-quarter to an average of $36.10 per sq ft per month (psf pm) in the final quarter of 2008 (Q4). This is the first time in five years these rents have fallen.

Measured year-on-year, prime retail rents in the Orchard Road area fell by 0.8%, reversing their 5.4% growth in the same quarter in 2007.

Outside of Orchard Road, prime suburban rents also dropped, though by a moderate 1% quarter-on-quarter to an average of $29 psf pm in Q4 2008. This is the first time in nine years since these rents fall.

In the next few years, there will be ample supply of about six over million square feet of retail space with the completion of new malls, shops within the integrated resorts, and refurbished shopping centres. As such, prime Orchard Road rents could contract another five to 10% in the first half of 2009; while prime suburban malls another two to three per cent.

[C.3] Industrial rents and capital value almost reached ‘tipping point’

The industrial property sector may have reached its tipping point in the final quarter of 2008 as manufacturing activity dips and relocations from offices slow to a crawl. Besides, sub-letting of excess space may start with more redundancies appearing in the manufacturing sector, thereby bringing down rents.

There are lots of glooms over the horizon beginning with the expected slowdown in GDP growth and the poor reading of the Purchasing Managers' Index (PMI) which fell to the record low of 44.3 in November 2008. The demand for industrial space is likely to moderate, to say the least.

According to the latest DTZ study, average rents of first-storey and upper-storey private industrial space could each drop by more than 2% in the fourth quarter of 2008 (Q4) from the previous quarter to $2.30 and $2.00 psf pm respectively. The average rent of high-tech and business park space could drop to $4.30 psf pm in Q4.

Likewise, JTC Corporation has been taking back more space as manufacturing and related companies consolidated their operations. JTC had reported that termination at its ready-built facilities surged 25.7% quarter-on-quarter and 45% year-on-year in the third quarter.

Economic uncertainty has already spurred the Trade and Industry Ministry to suspend sales of state-owned industrial land on the Confirmed List for the first half of 2009.

(D) The performance of collective sales

[D.1] En bloc sale news: Laguna Park condominium

The owners of Laguna Park condominium along Marine Parade Road have the second bite of the cherry after a majority of more than 80% of them voted in favour to try their luck for collective sale again.

The 667,000 sq ft project was first put up for collective sale in 2007, but in vain. That year, a total of 111 collective sale transactions worth $12.4 billion were sealed, but Laguna Park missed the boat due to a very high asking price of $3 million per unit.

This time around, the 528 apartment owners are asking for $1.2 billion for the former HUDC project – or $1.8 million to $2.3 million per unit.

Laguna Park is one of the rare offerings for collective sale in 2008 where only seven collective sales worth a total of $371 million were successfully transacted.

(E) Foreign interest in Singapore real estate

[E.1] Another ‘Runaway bride’ in property joint venture

US-based El-Ad Properties, owned by Israeli billionaire Yitzhak Tshuva, is seeking to find a buyer to buy out its stake in the high-profile South Beach development in Singapore.

The group clinched the 99-year leasehold South Beach site jointly with City Developments Ltd (CDL) and Dubai World unit Istithmar in September last year for $1.69 billion or $1,069 psf per plot ratio (psf ppr).

El-Ad Properties owns one-third stake in the South Beach project and also has half-share with CDL in the Futura condo site at Leonie Hill Road. The total worth of El-Ad’s stakes in both the project in Singapore is estimated to be around $707 million.

El-Ad has also had some problems with its investment in the US. It would delay the construction for a casino project in Las Vegas in the US to 2010, due to financing difficulties and high construction costs.

Read the latest updates on other property segments:

Part 1:The economy at large

Part 2:Taking a look at the private residential property segment

Part 4:Updates on the GLS Programme and HDB resale market