Office segment shines in property scene

URA data shows rises in third-quarter rents and prices

Published on Oct 25, 2014 12:56 AM

By Rennie Whang

THE office segment was the sole bright spark in an otherwise lacklustre property market in the third quarter, new figures show.

Selling prices and rents for office space stood alone in recording growth, Urban Redevelopment Authority data indicates.

But consultants said the "exuberance" in rental growth could be fuelled not by firms expanding, but by the tight supply of space.

Office prices rose by 1.6 per cent in the third quarter, after staying flat in the second quarter, while office rents rose 2.6 per cent for the quarter, having previously added 2.8 per cent.

The office rental index has been trending upwards since the first quarter of last year, noted Mr Ong Teck Hui, JLL national research director. Over the quarter, office supply fell by 506,000 sq ft to 79,739,000 sq ft amid a mix of change of use and addition and alteration works. Two buildings that underwent such work were the former NOL Building and Havelock II.

Office supply fell across the island, but the Downtown Core saw the highest drop of 194,000 sq ft.

Islandwide demand for office space rose by 538,000 sq ft to 73 million sq ft in the quarter. As a result, islandwide occupancy rates were 91.6 per cent, its highest level since the third quarter of 2008, said Ms Alice Tan, head of consultancy and research at Knight Frank Singapore.

Occupiers have made a "flight to quality" over the last few quarters, with rents of Grade A office spaces, typically in the central region, moving faster than rents elsewhere, said Mr Desmond Sim, head of research for CBRE Singapore and South-east Asia.

This was again true in the third quarter, as rents in the central area grew by 2.8 per cent. Those on the city fringe rose 1.9 per cent.

But Mr Sim said demand for office space by businesses has been modest, with limited demand from financial institutions, traditionally the key driver of demand in this market. Most demand is now from the business services sector, he said.

Consultants pegged the annual growth of office rents this year to about 10 per cent. Some downward pressure could come in 2016, with a large supply of about 5.4 million sq ft of new office space coming onstream, said Mr Nicholas Mak, executive director of SLP International.

In the retail sector, islandwide occupancy levels slid for the third straight quarter to 93.5 per cent. This is also the lowest level since the first quarter of 2011, said Ms Tan of Knight Frank. Retail prices fell 0.2 per cent for the quarter after a 0.3 per cent fall in the second quarter, while rents rose marginally by 0.1 per cent, following a 0.6 per cent rise previously.

Mr Ong Kah Seng, director of R'ST Research, said that while average retail rents rose, it should not be taken as an absolute gauge of whether retail rents are rising or falling. "A typical retail lease has the variable of turnover rents (which hinge on a tenant's sales volume)," he said.

The fall in occupancy is largely due to retailers' thinning margins, given higher operating costs, said Ms Tan.

Average rents are expected to come under more pressure, if vacancies expand with no further improvements in the retail sales index, said Mr Sim. "The latter is likely as the strength of the Singapore dollar has been pushing consumer spending away from the local market, and as online shopping takes off."

With a further 9.5 million sq ft of retail space in the pipeline, retailers will be presented with even more options over the next two to three quarters, consultants said.

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