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Singapore’s slowing economy continued to weigh on office demand as reflected in the negative island-wide net absorption level of -421,860 sq ft in Q3 2015, a CBRE report revealed.
Notably, vacancy rates for all sub-markets marginally increased quarter-on-quarter in Q3 2015.
Office rents witnessed continued corrections in the third quarter while a further downward pressure is expected considering the relatively sluggish demand and high level of impending supply over the next 15 months.
Nonetheless, leasing activity showed signs of a slight increase from several sectors including e-commerce firms, insurance, pharmaceutical and some Asian financial institutions.
CBRE also noted some transactions within the secondary office space segment as well as a reduction in the volume of such available space during the quarter.
Meanwhile, landlords and occupiers with excess space have been taking a pragmatic and pro-active stance in rental policies to attract replacement tenants, the report said.
“It is evident that some occupiers have been holding off premises planning as they anticipate that the market may move in their favour and allow them to take advantage of more competitive lease terms,” it said.
With this, CBRE expects growing interest in upcoming developments while pre-lease commitments may emerge with the conclusion of some key anchor tenant deals within the first half of 2016.
The business park sector, on the other hand, was relatively subdued in Q3 2015, on the back of a challenging office market.
“Occupier activity, for the most part, was muted, involving smaller sized transactions and driven mainly by the IT and IT-related services sector. Demand remained concentrated on the City Fringe sub-market, and a total net absorption of 21,000 sq ft was recorded,” said CBRE.
While leasing enquiries was slow in Q3 2015, occupancy levels remained stable, with vacancy dipping marginally by 0.1 percentage points to 9.0 percent.
Rents within the city fringe area fell over the quarter possible due to downward pressure that resulted from a softening office rental market. Rents in the rest of island sub-markets held firm as landlords resisted adjusting them since they have already been lowered and are now at a more competitive rate.
“So long as office rents continue to be under pressure, there is little room for growth in business parks rents,” it said.
However, business parks rents are unlikely to fall at the same pace as its office counterpart due to differences in product.
“As such, rents in the near term are expected to hold largely steady with marginal downward pressure due to support from a core pool of qualifying tenants,” said CBRE.
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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