Commercial property landlords may be recalibrating rents and occupancy levels

SINGAPORE (EDGEPROP) – Sales prices and rents of office properties continuing to recover in Q2 2018 should be good news to commercial property landlords. The continued recovery is driven by stronger demand for space from a broad range of sectors, as well as improved investment sales, and more positive business sentiment and upbeat economic outlook.


Noting the office properties continued recovery, Colliers International said, “in Q2 2018, URA’s Office Rental Index for the Central Region rose for the fourth consecutive quarter. Rents grew 1.6% QOQ, marking a slight deceleration from the two preceding upticks of 2.6% QOQ recorded in Q4 2017 and Q1 2018, as the market recovery momentarily slowed following the rapid rise since Q2 2017.”

Commercial property landlords

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Colliers added: “Overall the statistics allude to a strong cumulative rental recovery of nearly 10% (+9.4% YOY) for office space in the Central Region, a year since the market bottom in Q2 2017. In tandem, island-wide vacancy as tracked by URA declined by 0.3ppt QOQ to 12.2% during Q2 2018, as leasing transactions picked up pace amid expectations of escalating market rents.”

Mr Duncan White, Head of Office Services at Colliers International said: “Office sales prices registered healthy growth on the back of the twinned improving sentiment in both the office leasing and investment markets. URA’s Office Price Index for the Central Region rose at an accelerated clip of 1.9% QOQ as compared to 1.3% QOQ in the preceding period and surpassing the 1.6% QOQ rental increment in the same quarter.”

Several CBD office developments were transacted en-bloc at robust pricing levels during Q2 2018, signalling bullish sentiment amongst commercial property landlords and investors.

Mr White said, “recent punitive ABSD measures on the residential sector may also continue to fuel a shift in investor interest towards the commercial sector.”


Given the fast pace of recovery, Colliers reaffirm that Singapore’s firm economic momentum, bolstered by synchronized growth across the office sectors should elevate office rents rapidly over the remainder of 2018 and continue into 2019. It expects vacancy to continue tightening as the supply pipeline remains muted over the rest of 2018 and 2019, and hence advise occupiers to conduct early portfolio planning and bring forward impending lease reviews.

Mr White said: “Notably, the front-loaded recovery sentiment is being felt most keenly in the CBD, where we expect prime office rents to transact approximately 20% higher than 2017’s market bottom rates by the end of 2019. We expect the rest of the market to follow in the same recovery fashion, as long as the demand growth continues at the same or increased pace.”


URA’s retail real estate indices for Q2 2018 spelt an overall trend of commercial property landlords maximizing store occupancy, with reduced rental rates being conceded. URA’s Retail Rental Index for the Central Region fell by 1.1% QOQ, undoing the sector’s first uptick in three years (+0.1% QOQ) seen during the preceding quarter (Q1 2018). URA’s Retail Price Index for the Central Region also fell in tandem, declining by 1.3% QOQ; more than reversing the previous quarter’s marginal growth of 0.1% QOQ.

Meanwhile, island-wide retail vacancy decreased by 0.2ppt QOQ to 7.3% in Q2 2018. On a YOY basis, vacancy has fallen by 0.8ppt since Q2 2017.

Ms Tricia Song, Head of Research for Singapore at Colliers International said, “the retail sector appears to be steadily trending down towards sub-7% vacancy levels from the market tops exceeding 8% during 2016-2017.”

The retail vacancy contraction in tandem with a sustained rental decline is telling of the sector’s re-balancing act as retail landlords trade-off historically high rents for more stabilized occupancy amidst challenging market conditions. As of Q2 2018, Central Region retail rents as tracked by URA’s Rental Index have recorded a total running decline of 17.1% since the most recent rental peak in Q4 2014.


Commercial property landlords may still be recalibrating rents and occupancy levels in the quarters ahead to find the right balance with their tenant mix.

Colliers believe this market transition is a structurally efficient dynamic fully aligned with the interests of both landlords and retailers, as ‘bricks and mortar’ retail pivots towards a new normal of integrated online-offline shopping lifestyles.

Overall, Colliers expects the overall retail property market to stabilise over 2018 and 2019 as rental declines have edged down each year over the past two years. For the whole of 2017, rentals of retail space in the Central Region fell by 4.7%, a substantial drawdown from the decrease of 8.3% recorded in 2016.

Ms Song said: “Ground floor retail rents in prime shopping centres along Orchard Road should lead the recovery, rising 1% to 3% YOY in 2018. For the Regional Centres, select shopping malls should outperform, particularly those in suburban locations with significant catchment areas.”

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