Office and retail rents dipped 2% in 1Q2016

Rents of office space dipped 2.1% q-o-q in 1Q2016, after a 1.8% decline in the previous quarter, according to the latest statistics by the URA.

Vacancy rates improved slightly to 9.2%, up from 9.5% in 4Q2015, owing to a contraction in the stock of office space from 81.4 million sq ft to 81.1 million sq ft

Median rents for Category 1 office space, defined as better quality projects, fell 3.6% q-o-q to $9.50 psf. Meanwhile, those for Category 2 office space, slipped 1.9% q-o-q to $5.74 psf.

Pipeline supply of office space totalled 11.5 million sq ft. These come mainly from Marina One (2.24 million sq ft), Tanjong Pagar Centre (1.02 million sq ft), office/retail development at Paya Lebar/Sims Avenue (983,175 sq ft), Frasers Tower (799,650 sq ft), and Vision Exchange (625,490 sq ft).

CBRE does not view the volume as a concern but the scheduling of the completion of supply which will complete in the next six months. At this point in the cycle, relocation is primarily being driven by “flight to quality” and efficiency gains rather than expansion.

Global headwinds have intensified in the last three months, further dampening business sentiment and resulting in businesses becoming increasingly cautious over their real estate plans. Coupled with the large impending supply, landlords are facing greater pressure to lower rents in this tenant-favourable market in order to maintain occupancy. Some have also been observed to be renewing tenants ahead of normal schedule and offering longer fitting-out periods to entice new tenants, according to JLL.

Separately, retail rents fell by 1.9% q-o-q in 1Q2016, compared to a 1.3% fall in the previous quarter. Vacancy rates edged up from 7.2% in 4Q2015 to 7.3% in 1Q2016.

The stock of retail space increased 205,000 sq ft to 64.5 million sq ft in 1Q2016. Major completions in the quarter include Macpherson Mall (61,354 sq ft), retail component of Ascent at Science Park (59,201 sq ft) and retail space at Raffles Holland V (44,132 sq ft).

The retail rental index declined for five consecutive quarters, on the back of labour constraints and weak retail performance, which has impacted retail space demand. This is exacerbated by the impending volume of supply, notes Desmond Sim, Head, CBRE Research, Singapore and South East Asia.

Cushman & Wakefield (C&W) sees higher vacancies setting in, particularly for the newer shopping malls. Besides spaces which have yet to fill up, spaces which tenants have pre-terminated also add to rising vacancy levels. The proliferation of pop-up spaces, which are often signed at below market rental also brought down the overall rents.

However, CBRE believes Singapore is still attractive to new retailers although they are opening fewer stores.

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