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The office sector posted the highest quarterly rental drop in Q2 2015, according to the latest report from Credit Suisse, citing the latest government statistics.
In the second quarter, the fringe areas saw a rental contraction of 2.4 percent, while the central region recorded the heftiest decline of 2.6 percent. The latter represents the largest fall since 2009 and came on the heels of a slowing pace of growth in the previous three quarters: +2.6 percent in Q3 2014, +1.7 percent in Q3 2014 and +0.6 percent in Q1 2015.
However, island-wide occupancy rate for office space rose by 0.6 percentage point to 89.5 percent in Q2 2015, while net demand reached 333,681 sq ft as tenants moved into South Beach and CapitaGreen. These two projects injected 1.5 million sq ft into the market after their completion in the last quarter of 2014.
According to landlord Capitaland Commercial Trust (CCT), 50 percent of the tenants that moved into CapitaGreen were for expansion, 25 percent consolidated space for operational efficiency, 12 percent relocated from other developments, while 13 percent were attracted by the building’s specifications and new concepts or set-up.
Moving forward, office rents are expected to be affected negatively by large supply pipeline, said the Swiss financial institution.
“We understand that pre-leasing activity of incoming office buildings has started and concerns about the sizeable oncoming supply is likely to be pushing the negotiating power further in favour of tenants.”
In the retail segment, overall retail rents slipped by 0.6 percent quarter-on-quarter in Q2 2015, dragged down by the 0.4 percent and 0.6 percent rental drop in the fringe and central areas respectively.
Similarly, median rents in the central area receded by 0.3 percent. That in Orchard Road tumbled by 0.4 percent, while the rest of the city area registered the largest contraction of 0.6 percent
Additionally, island-wide vacancy level climbed by 0.3 percentage point to 8.6 percent in Q2 2015. Vacancy rate in Orchard Road rose by 1.2 percentage point to 8.6 percent, while that in Downtown core increased by 1.4 percentage point to 15.5 percent.
In comparison, “there was more stability outside the central region (OCR) as fringe vacancies fell 0.7 percentage point and OCR occupancies only fell 0.4 percentage point. Occupancy is currently highest for OCR at 95.8 percent, while downtown core is the lowest at 83.5 percent,” noted Credit Suisse.
With this, rents at suburban malls are expected to more resilient than those in other areas in the future.
Meanwhile, industrial rents in Singapore softened by 0.7 percent in Q2 2015 mainly due to the 1.2 percent rental drop in multi-user factories, while warehouses posted a marginal drop of 0.1 percent.
Although the vacancy level for factories rose by 0.2 percentage point, business parks and warehouses saw better occupancy as their vacancy rate declined by 0.9 and 1.7 percentage point respectively.
However, Credit Suisse projected that occupancy levels for warehouses could subsequently come under pressure due to the expected non-renewal of leases for some tenants of single-user industrial properties.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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