Office and retail rental market: The competition between old and new

GSH PLazaIn the commercial property market, the effects of demand and supply is more strongly felt that ever as many new developments enter the market in line with the government’s efforts to grow and restructure the country’s commercial sector.

The positive outlook and sentiments in the private property market here does not seem to have rubbed off in the commercial sector as office rents fell 3.4 per cent in Q1 and retail rents fell 2.9 per cent – its 9th consecutive quarter of price declines. Prices of office spaces also fell 4 per cent in the first quarter of the year, following the 0.6 per cent fall from last year’s Q4. The numbers do not reflect the 2.5 per cent expansion of Singapore’s economy in the first quarter of the year, largely boosted by manufacturing and other trade-dependent sectors.

MarinaOneOfficeOther than Marina One which found tenants quickly, landlords of older commercial establishments are finding it increasingly difficult to compete with the newer offerings and have found themselves having to drop their prices in order to source for more tenants, even as more companies are relocating into cheaper and newer buildings outside of the core central region. Some companies are also exploring co-working options, which decreases the demand for commercial real estate on a permanent basis. New commercial buildings such as GSH Plaza and Guoco Tower will also increase the supply of prime office spaces in the Central Business District (CBD) and as these landlords are already raising their asking rents for Grade A office spaces, property analysts are expecting the country’s economic growth to fuel the commercial property market as the year moves on.

Many new office buildings pre-leased

A sense of strength is coming back into the property market this year, with the bottom of the cycle possibly closing in. And consumer interest, in both the residential and commercial fronts, are on the rise too.

FraserTOwersWith news of Facebook pre-leasing space at Marina One, the upcoming Frasers Tower in the heart of the Central Business District (CBD) has also received leasing proposals for 30 per cent of its 38-storey office building from various interest tenants. Most were from multi-national conglomerates, legal services, technology firms and a serviced-office provider, The Executive Centre who expressed interest in taking up an entire 20,000 sq ft floor space.

New office buildings are gradually filling up even before they are completed or ready for occupancy. There is however some movement from other existing buildings as tenants take the opportunity to relocate or upgrade, as seen in the mix of tenancy in Marina One and Guoco Tower. Frasers Tower has a 663,000 sq ft of total net leasable area. More new office spaces are currently being developed in the CBD, including UIC Building and the new property which will sit on the site of the previous CPF building. Though office rents have been falling, it may be a good sign after all as the market would have picked up by the time these new buildings are

Positive 2017 outlook for retail and office property sector

Despite falling rents for retail and office spaces, analysts are hopeful for a positive performance from this market segment in 2017.

MarinaOneOfficePhoto credit: www.marinaone.com.sg

The last quarter of 2016 saw office rents falling 1.8 per cent, bringing last year’s decline of rental prices to 8.2 per cent. Rents for retail spaces fell 1.2 per cent in Q4, bringing the total year’s decline to 8.3 per cent. Surprisingly, despite a weakening economy and competition from e-commerce, the demand for retail spaces have picked up. Analysts put the easing of pressure on the retail property market to the development of many flagship stores, large food and beverage clusters and gyms. New retail brands and concepts entering the market meant there were tenants willing to take up larger floor areas in prime spots. That said, almost 169,000 sq metres of retail space will become available this year, and there may still be challenges ahead for this sector.

DuoTower

Photo credit: www.duosingapore.com

In the office property front, following announcements of major tenancy deals such as Facebook taking up prime office spaces in Marina One and similarly Distrii, a co-working operator, at Republic Plaza, the market is beginning to stabilise. New and massive working spaces will however add to the inventory soon, taking Duo Tower in Bugis as an example. It was completed last month and has pushed office vacancy rates to 11.1 per cent. Moving ahead,  property players are expecting office rents to continue softening at least for the first half of the year, though newer buildings such as Guoco Tower and Marina One have enjoyed positive take-up rates last year.