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Tenant retention becoming challenging in Singapore office market: Colliers
Landlords say tenant retention is becoming a challenge in the rising Singapore office property market, Colliers said in its inaugural Landlord Sentiment Survey published Thursday (24 January).
The poll of landlords, whose properties represent more than half of the premium and Grade A stock in the central business district, was conducted in the second and third quarter of 2018.
About 75 per cent of landlords polled say tenant retention is a challenge due to the more competitive pricing, changing economic factors, and new commercial developments.
About 90 per cent of the respondents say they have a flexible workspace provider within their buildings and believe they add value to their tenants.
Flexible workspace operators take up a combined 2.7 million square feet of space within the CBD, representing about 5 per cent of the total office stock in the city centre, Colliers said.
“The impact of the flexible workspace sector on the Singapore office market has been significant and we expect it will continue to represent a growing proportion of office stock as more corporations take up ‘flexible components as part of the leading strategy’, Duncan White, head of office services at Colliers, said.
However, the survey found that eight in 10 respondents aren’t in favour of offering contractual exclusivity to a flexible workspace player, likely a reflection of landlords’ preference to keep their options open due to the healthy demand for and tight supply of space.
Colliers projects that the flexible workspace footprint in Singapore could rise by a further 20 per cent, or about 580,000 square feet, year-on-year in 2019, after growing by an estimated 30 to 35 per cent, or 670,000 sq ft in 2018.
The landlords in the CBD said banking and finance sector, technology, media & telecom and professional services, are among the top ideal target tenant mix.
The rent growth for prime office space in Singapore will likely slow to 8 per cent due to higher base for comparison and new office space outside the central business district.
Office Market Outlook
Healthy demand and a tight supply of space helped to push last year’s average Grade A office rent up by 15 per cent year-on-year to S$9.43 per square foot per month, Colliers said.
Office vacancy fell below 6 per cent last year and will continue to trend below that until 2022. The vacancy rate is likely to rise up to 7 per cent in 2023.
“With a lower but benign real GDP growth forecast of 2.5 per cent for Singapore in 2019, we think office demand will stay relatively firm. In addition, the government’s push to promote technology, innovation and R&D will continue to help feed growth in the market, Tricia Song, head of research for Singapore at Colliers, said.
Colliers expects less new CBD Grade A office supply over 2019 to 2021, with an annual expansion averaging 2 per cent and the continued tightening of vacancy, to support rental growth, Song said.
CBD Grade A office supply completion this year is likely to remain similar to 2018’s level at about 0.7 million sq ft. Office properties that are expected to be completed this year include 18 Robinson, 9 Penang Road and Funan.
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