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Singapore’s office market saw increases in leasing activity and enquiry levels in the third quarter of 2016, despite the weak employment numbers and subdued economic growth, according to a CBRE report.
The report attributed the increase in leasing activity to ‘flight in quality’ rather than expansion.
“Most of the relocation was concentrated on higher quality products in the CBD, and the new development projects registered increased pre-letting levels,” said CBRE.
For instance, 80 percent of Guoco Tower, which attained TOP in September, has reportedly been taken up or subject to advanced negotiations, while Marina One posted advances in pre-commitment levels.
With this, Q3 2016 recorded positive net absorption of 820,417 sq ft, reversing five consecutive quarters of contraction.
“Now that the stage of physical completion of new CBD developments is upon us, we will inevitably see a rise in vacancy rates from the current low base,” said CBRE’s managing director for Advisory & Transaction, Moray Armstrong.
“Furthermore much of the pre-lease commitment is from occupiers that will vacate older generation buildings from mid-2017 onwards, and this will serve as a drag on the market.”
“The challenge in backfilling such space may impact the prospects for the Grade B segment of the market in the mid-term. In contrast, we are increasingly looking towards the Grade A market to lead recovery when it comes,” he said.
Meanwhile, rents continued to correct in Q3 2016, albeit at a slower pace. Rents for Grade A Core CBD units fell 2.1 percent quarter-on-quarter to S$9.30 per sq ft per month.
While the market witnessed some encouraging signs including improved leasing momentum, Armstrong noted that underlying new demand remains relatively weak. In fact, he expects rents to continue its decline into next year albeit at a flattening trajectory.
“Barring any unforeseen circumstances, conditions that could support market recovery for better quality space could arrive as early as 2H 2017 by which time the supply wave will have passed” he added.
Notably, the low office rents, especially within the decentralised office sub-market, will add pressure on business park rents. Some of the older developments within International Business Park posted minor downward adjustments in rents, due to the relatively high vacancy rate within this submarket.
Looking ahead, CBRE expects business park rents to be “capped due to the narrowing premium to decentralised office rents, with some continued downward pressure on rents of older business parks located in the decentralised areas.”
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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