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The Singapore office market remained subdued in the third quarter of 2016, with CBD office rents falling by 3.4 percent quarter-on-quarter to $9.15 per sq ft – or its fifth consecutive quarterly decline since Q3 2015, according to an Edmund Tie & Company report.
Based on the basket of offices tracked by the agency, office rents fell by 17.4 percent since its peak in Q2 2015.
While Singapore’s office market tends to be cyclical – reflecting the various business cycles as well as the lumpy nature of the supply from office developments – the current downturn is a confluence of both cyclical and structural reasons, said Edmund Tie & Company Research. It added that such downturn tends to take about two to three years before the market recovers.
“However, the cycles are getting shorter. For example, the fall in rents during the Global Financial Crisis in 2008 lasted for about six quarters while the burst of the dot.com bubble took the office market 12 quarters to recover,” said the report.
While this year’s office rents came under pressure due to upcoming completions, the downtrend in rents was also attributed to the weak global demand for exports.
The banking and equity investments sector announced job cuts as weak business sentiments and exposure to the oil and gas sector affected them. ANZ, for instance, retrenched over 400 jobs since its cost-cutting exercise in 2015.
The firm noted that the number of non-performing loans increased while fewer new loans were taken up as firms become more cautious. With the slowing Chinese economy and Brexit, most firms opted to remain status quo than to expand.
Moreover, the banking and business services sectors are restructuring due to the “advent of disruptive technologies, which further allows firms to grow and expand its catchment of consumers without increasing their manpower and physical footprint.”
These technological disruptions allowed firms to reduce spatial requirements by employees and storage space as well as increase the number of collaborative areas and meeting rooms.
“With more efficient use of space, firms are moving to higher quality buildings while paying lower rents by utilising less space,” said Edmund Tie & Company.
However, this has put pressure on older Grade B office buildings, with landlords required to be more flexible during rental negotiations. During the third quarter of 2016, gross monthly rents of Grade B offices in Shenton Way/Robinson Road/Cecil Street/Anson Road/Tanjong Pagar fell the most, by 4.5 percent quarter-on-quarter to $6.60 per sq ft among the CBD subzones.
Looking ahead, Dr Lee Nai Jia, Regional Head (SEA) of Research at Edmund Tie & Company noted that while there are “some parallels between now and the period from 2001 to 2004, Singapore is at a stronger position than before and the infrastructure is there for Singapore to move ahead in the new economy.”
“With the government new initiatives, the time needed for firms to restructure will also be shorter.”
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