According to property consultant DTZ, islandwide office occupancies retreated 2.1% points qoq to 93.6%, the steepest decline since 3Q97. In the Raffles Place micro market, occupancies fell by a greater 2.7% points to 92.9% while those located in the fringe CBD area such as Tanjong Pagar saw larger occupation declines of 3.6% points.

In terms of rentals, office rents experienced an average 18% drop qoq in 1Q09, bringing the total decline from the recent peak to 25%.

The sharp qoq movement in rents and occupancy levels was due to a collapse in new demand and the emergence of shadow leasing as companies review their cost structures and space requirements.

The latest numbers show that we are midway through our expected 50% peak/trough correction in this cycle. Given the weak economic outlook in the near term and the close correlation of office rents to economic performance, we anticipate further rental weakness in coming months.

In the industrial sub-segment, industrial rents fell by an average of 7% qoq after a 3% decline in the previous quarter. Hi-tech industrial space experienced the most downward pressure, dipping by 9.3% qoq. Leasing activity remained quiet as manufacturers continue to focus on cost containment.

We expect rental pressure to remain in the near term, as global slowdown would mean further deterioration in manufacturing activity. Our current projections are for up to a 20% decline in industrial rents in this cycle.

Our preference for exposure to the suburban retail remains, as we believe this segment should be the most resilient within the various property sectors due to the need for basic necessities and non-discretionary spending. While we expect rents across all the sub-sectors to show weakness, we expect the least decline in suburban retail rents. Our rental estimates remain unchanged: -10% for suburan retail, -20% for Orchard Rd retail, -20% for industrial and -50% for office. Our top picks remain Frasers Centrepoint Trust, Ascendas Reit and Parkway Life Reit.