Overall office demand has weakened

SINGAPORE — Plagued by rising vacancies and intense competition among landlords for tenants, office rents fell for the eight straight quarter in the first three months of the year, data from the Urban Redevelopment Authority (URA) showed on Friday.

Office rents plunged 3.4 per cent in the first quarter of the year from the previous three months, accelerating from the 1.8 per cent drop in the fourth quarter of last year, bringing the total decline from the peak in the first quarter of 2015 to 17.6 per cent. The overall vacancy rate rose to 11.6 per cent in the first quarter from 11.1 per cent in the fourth quarter, the URA data showed. Upcoming new launch condo include Parc Botannia and Kandis Residence while existing ones include Kingsford Waterbay, Seaside Residences and Grandeur Park Residences. Parc Botannia prices and Parc Botannia showflat will be available shortly.

Ms Christine Li, Director of Research at property consultancy Cushman and Wakefield, said: “While the premium quality buildings in the heart of the Central Business District have been well received by large occupiers, lower quality and older buildings with low efficiency in the city fringe have been coming under immense pressure to keep pace with the changing needs of the savvier occupiers, who are spoilt for choice as a result of the large incoming supply of office space.”

“As such, landlords of those buildings had to drop the rents more aggressively in order to source for tenants to backfill space vacated by companies relocating to the new projects primarily in the CBD, which contributed to the larger drop in rents in the first quarter,” she said.

Despite the better-than-expected 2.5 per cent year-on-year economic growth in the first quarter, prospects for the office market remain shaky, analysts said, in part due to the growing trend of co-working spaces, which result in better utilisation of floor area than a traditional office set-up.

“The dust has not settled, given that the overall office demand has weakened with a few key sectors such as banking and financial services, oil and gas underperforming. Even when the recent gross domestic product growth numbers have surprised on the upside, the space requirement for offices could be lagging, and also changing due to the adoption of workplace strategy. More and more corporates are adopting co-working and collaborative workplaces to accommodate additional headcount growth without the need to increase real estate needs,” Ms Li said.

Office stock increased by 333,681 sq ft in the first quarter as a result of the completion of GSH Plaza at the junction of Church Street and Cecil Street, while space absorbed decreased by 64,583 sq ft, she noted. The vacancy rate is expected to increase further in subsequent quarters once Marina One obtains its Temporary Occupation Permit in the middle of this year, she added.

As the rentals continued to tank, office prices fell 4 per cent in the first quarter from the previous three months, accelerating from the 0.6 per cent decline in the previous quarter and extending the losing streak to seven straight quarters, the URA data showed.

The gloom is similarly felt in the retail segment of the commercial property market, the URA data showed. Retail rents fell 2.9 per cent and prices plunged 4 per cent in the first quarter from the previous three months, as the overall vacancy rate rose to 7.7 per cent from 7.5 per cent over this period.

“Retailers continue to battle with challenges such as increased labour and operational costs as well as structural changes in consumer buying behaviour and habits. Demand for retail space remained weak amid the continuing shuttering of underperforming outlets as they succumbed to these challenges,” said Ms Tay Huey Ying, Head of Research & Consultancy, Singapore, at property consultancy JLL.

“The rise in the number of retailers opting to downsize their operations in Singapore and expand regionally further weakened the demand for retail space. The migration to omni-channel retailing platforms has also reduced the required footprint for brick-and-mortar space, further adding to the woes of landlords,” she added.