Office space prices up, but retail space prices soften slightly in Q3: URA

Office space prices up, but retail space prices soften slightly in Q3: URA

In the past three months, vacancy rates for office space declined, but the opposite was true for retail space, the Urban Redevelopment Authority said on Friday (Oct 24).

SINGAPORE: Prices of office space increased by 1.6 per cent in the third quarter of the year, while rental prices of office space rose 2.6 per cent in the same period, the Urban Redevelopment Authority (URA) said on Friday (Oct 24).

In the same period, the vacancy rate of office space fell to 8.4 per cent, compared to 9.6 per cent at the end of the second quarter. The URA said that this was in part due to a 47,000sqm decrease in the stock of office space in the third quarter, compared with a 1,000sqm decrease three months prior. It was the largest quarterly decline since 1992, according to consultancy Knight Frank.

Occupancy rate remained healthy at 91.6 per cent in the third quarter. The amount of occupied office space increased by 50,000sqm (nett) in the third quarter, compared to the 22,000sqm (nett) increase in the previous quarter, the URA said.

RETAIL PRICES DIP

Prices of retail space declined by 0.2 per cent in the third quarter, following on a decline of 0.3 per cent in the previous three months. The increase of rental rates of retail space also slowed, rising by 0.1 per cent in the past three months, compared to the 0.6 per cent increase in the second quarter of the year.

The amount of occupied retail space increased by 15,000sqm (nett) in the third quarter, while the stock of retail space increased by 52,000sqm (nett) in the same period. As a result, the islandwide vacancy rate of retail space rose to 6.5 per cent at the end of third quarter, up from 5.9 per cent as of end-June.

Knight Frank said the islandwide occupancy rate of 93.5 percent in the third quarter was the lowest since the first quarter of 2011.

Analysts said retail rents could face downward pressure next year. Chestertons’ managing director, Mr Donald Han, noted: "Moving into 2015, we expect rentals to come under pressure mainly because tenants are more worried about their bottomline, more concerned about overall operating cost and labour cost, and we expect margins to be affected.

“Retailers are probably unable to pay higher rents come renewal. We probably will see rentals correcting 1, 2 per cent, but those development that are in the Grade A, prime retail malls will probably not see too much reduction in terms of rental."

OFFICE RENTS

CBRE Research said the average rent for Grade A office buildings in Singapore is S$10.95 per square foot per month, which is still some way off its record high.

Mr Desmond Sim, head of research for Southeast Asia at CBRE Research, elaborated: “The previous peak was in 2008 and we are likely 9.3 per cent off that peak. In our forecast, we do not see rents start to match that peak. At that time, GDP was doing relatively well, 6 to 8 per cent.

“What we see now is that GDP is pretty much controlled. Demand from financial institutions is also very limited."

NON-FINANCIAL SECTORS TO DRIVE DEMAND FOR OFFICE SPACE

Looking ahead, analysts expect non-financial sectors to continue to drive demand for office space. But they said some banks may be looking for room to grow, especially if they see substantial growth in the wealth management and renminbi clearing business.

Office rents have already gone up by over 7 per cent in the first three quarters of this year. For the whole of 2014, office rents are likely to increase 10 per cent, and analysts expect a similar pace of growth in 2015, with most of the rental growth seen in the first half of next year.

Meanwhile, office supply will remain tight next year, before new buildings like Marina One are completed in 2016.

INDUSTRIAL SPACE SEGMENT MOST CHALLENGING

Analysts said the industrial space segment will probably be most challenging - when compared with retail and office. Latest numbers from JTC showed growing weakness in multiple-user factory space, with prices falling 1.8 per cent on-quarter in the third quarter.

Knight Frank said: "Going forward, price depreciation for factory space is likely to continue in the coming quarters with the high supply of both factory and warehouse spaces. Demand for strata-titled factory units is likely to be reduced in the short-term, with the market's general expectation of further price moderations in light of the cautious manufacturing sentiment.

“We view that the rents would continue its decline in the coming quarters well into early next year. While this trend would pose greater challenges for the landlords, this would potentially benefit SMEs (small and medium enterprises) who are eager to have find industrial space at more available locations."

- CNA/es/ms

- wong chee tat :)