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While prices and rents both fell in Q4 2020, vacancy rates remained relatively stable, falling by just 0.2% percentage points to 11.8%.
Singapore registered a 3.1% decrease in office space prices during the fourth quarter of 2020, reversing the 0.2% increase seen in Q3 2020. Rents for office space also fell 3.5% quarter-on-quarter in Q4 2020.
For the whole of 2020, office prices and rents dropped 10.7% and 8.5%, respectively.
“Due to the circuit breaker where most businesses had to work remotely, many office occupiers are reviewing their workspace strategy and contemplating the role of the office,” noted Wong Xian Yang, Associate Director of Research for Singapore and Southeast Asia at Cushman & Wakefield.
“Many occupiers are recalibrating their office space requirements, and some given up space due to lower office utilization. Some landlords are cognizant of this trend and are more open to slightly lower rents to maintain occupancy.”
But while prices and rents both fell in Q4 2020, vacancy rates remained relatively stable, falling by just 0.2% percentage points to 11.8%.
This comes as “office stock was taken off the market as some landlords undertake asset enhancement initiatives given the market lull”, said Wong.
Islandwide net absorption was slightly positive in Q4 2020 at 21,500 sq ft
“Most areas saw small gains in net absorption except for the downtown core which saw a contraction of 172,200 sq ft,” said Wong. “This means that there were more tenants giving up space than new take-ups.”
Office leasing in 2020, which was mainly driven by relocations and renewals amid business slowdown, “will not bode well for the rents and vacancies to recoup in the near term”.
Nonetheless, he expects rents to bottom out in 2021.
“The long-term outlook for Singapore’s office market is positive, underpinned by the increasing demand from technology and investment companies as well as the country’s growing appeal as a regional headquarters location given regional geo-political tensions and the growth of the Southeast Asia market.”
ByteDance, for instance, continued to expand in Singapore, leasing about 58,000 sq ft at Guoco Tower. It has also taken up about 100,000 sq ft of space in One Raffles Quay.
Over at the retail front, prices and rents of retail space both fell in Q4 2020. Retail space prices dropped 2.1% quarter-on-quarter, while rents declined by 5.2% quarter-on-quarter.
For the whole of 2020, retail prices and rents dropped 4.5% and 14.7% from the previous year.
Wong said the large fall in rents is expected and mirrors the “drastic decline in tourist arrivals due to travel restrictions and accelerated changes in consumer behaviour due to higher adoption of e-commerce”.
As of November 2020, tourist arrivals plunged 84.4%. Online retail sales now stands at about 11% of total sales on average post circuit breaker, up from 6% pre-circuit breaker.
“Also, as safe management measures largely remain in place, activity-based retailers who were the main drivers of retail spaces in recent year are still unable to operate at maximum capacity,” said Wong.
“As such, some retail trades unviable and claimed numerous causalities, as seen from the closure of Robinson stores at Heeren and Raffles City and the reported temporary closure Teo Heng KTV, a popular family karaoke chain.”
Wong, however, noted some bright spots in the market, pointing to the expansion by some industries such as home furnishing and athleisure sectors.
Courts, for instance, will be taking over the space vacated by Robinson at Heeren.
Looking ahead, Wong expects retail rents to continue its decline this year, considering that safe management measures remain in place and mass air travel will unlikely recover anytime soon.
“Nonetheless, the decline in rents is expected to slow as the economy recovers and retailers adjust to the new normal,” he said.
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