Office space prices declined 3.9% in 3rd Quarter 2019

by • October 29, 2019 • officeComments (0)339

Office space prices decreased by 3.9% in 3rd Quarter 2019, compared with the 0.9% increase in the previous quarter, said the latest data released by Urban Redevelopment Authority (URA). Rentals of office space decreased by 0.6% in 3rd Quarter 2019, compared with the 1.3% increase in the previous quarter.

As at the end of 3rd Quarter 2019, there was a total supply of about 738,000 sq m GFA of office space in the pipeline, compared with the 732,000 sq m GFA of office space in the pipeline in the previous quarter. The amount of occupied office space increased by 71,000 sq m (nett) in 3rd Quarter 2019, compared with the increase of 35,000 sq m (nett) in the previous quarter.

The stock of office space decreased by 4,000 sq m (nett) in 3rd Quarter 2019, compared with the increase of 7,000 sq m (nett) in the previous quarter. As a result, the island-wide vacancy rate of office space declined to 10.6% as at the end of 3rd Quarter 2019, from 11.5% as at the end of the previous quarter.

office space pricesColliers International which reported on the data released by the URA said the office space prices was dragged by the Fringe Area which reported a 2.8% QOQ decline.

Colliers noted that rental growth at Central Area continued to show an improvement of 0.4% QOQ. Currently, URA’s Office Rental Index for the Central Region is 8.0% below the most recent peak in Q1 2015. Office space prices showed a different trend.

While URA’s Office Price Index for the Central Region declined 3.9% QOQ in Q3 2019, the drag came from the Central Area instead, which fell 4.4% QOQ. In contrast, office space prices at the Fringe Area continued its momentum with a strong showing of 5.1% QOQ growth.

“Nonetheless, Q3 2019 saw robust transactions within the CBD, with a few major deals including the sale of DUO Tower, 71 Robinson Road, and Anson House. Going forward in Q4 2019, a few more transactions could contribute to a positive year for commercial deals.

Islandwide vacancy of office properties tracked by the URA continued to recover to 10.6% from 11.5% in Q3 2019. The healthy net absorption was driven by a reduction in islandwide stock with net withdrawals, as well as healthy demand mainly driven by the flexible workspace sector.”

Ms Tricia Song, Collier International’s Head of Research for Singapore, said, “CBD Premium and Grade A gross effective rents grew at a slower rate of 1.5% QOQ in Q3 2019 versus an increase of 3.0% in the previous quarter, bringing rents to SGD10.08 psf per month.”

She added, “With tenants showing resistance to further rent hikes, the market is increasingly seeing a flight-to-value. Vacancy increased to 3.3% from 2.9% as a result.”

“2019 YTD rental growth of 7.0% is on track to meet Collier’s full year projection of an 8% growth. We expect rental growth to continue to slow, and forecast a 5% rental growth in 2020, in line with slower economic growth. Some sectors may have already felt the pressure, and we may see some shadow space emerge from large occupiers such as financial institutions.

Meanwhile, Grade A and Premium CBD office vacancy is expected to continue to trend below 6% until 2022 given tight CBD Grade A office supply of 3% of stock per annum over 2019–2021 versus 5% for the last five years. This should provide support for further rental growth from 2019-2021.”

Demand for office space continued to be anchored by coworking and technology in the third quarter of 2019. In July, WeWork leased the entire 200,000 sf in 21 Collyer Quay, with plans to open in 2021 after current tenant HSBC vacates the building. Although there is currently some concern over the longer-term sustainability of the sector, companies cutting costs may actually find coworking spaces more attractive as they would not need to spend capital expenditure upfront to fit-out a traditional office.

The flexibility to increase or decrease the number of members on a monthly basis is also a big draw to companies who are facing an uncertain outlook. New coworking operator One&Co by JR East Singapore just opened a 13,000 sf coworking centre in Twenty Anson to help connect the Japanese and Singapore companies. Demand from the financial sector held steady. For instance, American Express leased three floors at One Marina Boulevard and helped to back fill the space left behind by Microsoft, which had earlier made the move to Frasers Tower.

An earlier report by Cushman & Wakefield (C&W) suggested that should the economy weaken, it expects some landlords to start offering subsidies to office space prices.

Christine Li, Head of Research, Singapore and Southeast at Cushman & Wakefield said, “Event risks such as US-China trade war and Brexit have increased uncertainties for corporate occupiers, who could put expansion plans on hold and wait for greater clarity in the near term.”

“Should the global economy continue to run in low gear, office demand from corporates may slow down and spur more right-sizing amongst corporate occupiers going into 2020. Rents are still holding up at the current level at for many buildings due to the lack of CBD supply through 2021, but competition for potential tenants is likely to intensify, especially with more flexible office operators joining the fray. Occupiers could also expand their search to city fringe or even suburban locations with good infrastructural connections and local amenities. This would increase their range of leasing options.”

Singapore’s economic growth fell to 0.1 per cent year-on-year in 2Q2019. On a quarter-on-quarter basis, the economy contracted by 3.3 per cent, stoking fears of a technical recession if anaemic growth continues into the fourth quarter.  Overall office demand has slowed, but emerging sectors within the technology space such as artificial intelligence (AI) and data analytics are increasingly starting to fuel the demand for office space.

Pin It

Related Posts

Simple Share Buttons