By Cecilia Chow/ EdgeProp Singapore|January 23, 2020 11:37 PM SGT
SINGAPORE (EDGEPROP) – In 4Q2019, the office rental index in the Central Region registered a decrease of 3.2% q-o-q. This rental decline was steeper than the -0.6% q-o-q in 3Q2019, notes Desmond Sim, CBRE head of research for Southeast Asia. This brings the total office rental index to a 3.1% decline for the whole of 2019. “The correction in rents likely reflects some landlords becoming more realistic in their rental expectations to fill the existing vacancy,” says Sim. Meanwhile, rents of offices in the fringe area eased for the second consecutive quarter, but at a moderate 1.6% q-o-q compared to 2.8% q-o-q in 3Q2019.
Office rental index in the Central Region registered a decrease of 3.2% q-o-q in 4Q2019, steeper than the -0.6% q-o-q in 3Q2019 (Photo: Albert Chua/EdgeProp Singapore)
‘Increasingly cautious stance’
These figures show the “increasingly cautious stance” of occupiers in response to uncertainties about business prospects amid the muted domestic economic growth and the unresolved US-China trade war in 4Q2019, notes Tay Huey Ying, JLL head of research and consultancy.
“Many have held off expansion and real estate relocation plans,” adds Tay. “Resistance to rent hike has intensified, with buildings facing higher vacancy pressure increasingly succumbing to downward pressure.”As the URA rental index is transaction-based, the correction in 4Q2019 could also be attributed to the muted leasing activity seen for newer and quality office assets that command premium rents, points out Tay. The limited availability of such space diverted demand to buildings with cheaper rents, thus dragging down the overall rental index, she notes.
Vacancy of Grade-A office space tightens
Gross effective rents based on a fixed basket of Grade-A office buildings in the CBD held firm in 4Q2019 at $10.81 psf, with vacancy tightening to 4.1%, according to JLL’s research. Slowing rent growth since 2Q2019 culminated in full-year rent rising by only 5.4%, significantly slower that the 11.8% increase posted in 2018. Islandwide vacancy of office properties tracked by the URA stood at 10.5% as of end-2019, improving 0.1 ppt from 10.6% in 3Q2019 and 1.5 ppt from 12.0% in 4Q2018.
However, URA statistics show islandwide office net absorption had remained strong at 1.67 million sq ft for the full-year 2019, compared to 1.85 million sq ft in 2018. Colliers International head of research for Singapore, Tricia Song, attributes the healthy net absorption in 2018 and 2019 mainly to technology and flexible workspace sectors.
Last year was a strong year for investment sales in office and mixed office developments, which totalled $7.6 billion, a 62% increase y-o-y with heightened investor interest (Photo: Albert Chua/EdgeProp Singapore)
Price declines more subdued
Compared to rents, price declines were more subdued: URA’s office price index for the Central Region declined by 0.5% q-o-q in 4Q2019, slowing down from the sharp 3.9% decrease in 3Q2019, notes Song. Overall office prices in the Central Region fell 0.6% in 2019, compared with an increase of 5.7% in 2018, says Tricia Song, Colliers International head of research for Singapore. Last year was a strong year for investment sales in office and mixed office developments, which totalled $7.6 billion, a 62% increase y-o-y with heightened investor interest. “We remain optimistic for continuing strong capital market volumes on a favourable interest rate outlook and demand-supply dynamics,” says Song.
Tech to be main demand driver in 2020
In 2020, the demand driver is still likely to be the technology sector, adds Song, while flexible workspace operators could consolidate after building up a significant presence in the past three years. The MAS’ issuance of up to five digital licences in Singapore should also contribute to net absorption, although the impact is still unclear, notes SongColliers expects Grade-A and premium CBD office vacancy to continue to trend below the 10-year historical average of 6% until 2022, given tight CBD Grade-A office supply of 3% of stock per annum over 2020–2021 versus 6% for the last 10 years.
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