The supply of new office space in the central business district (CBD) is likely to outstrip demand, giving tenants more options and forcing landlords to reduce rents amid global headwinds, according to analysts.
Property services firm Century 21 has said that Singapore, being such an open economy, will be hard hit by global economic conditions such as the slowdown in China and the turmoil in stock and commodity markets.
It added that there is eight million square feet of vacant office space in Singapore now.
One office building in the CBD, CapitaGreen, is currently 83 per cent occupied, below the average of around 95 per cent for most top grade office buildings there. The new 40-storey building, completed in December last year, is home to more than 30 multinational companies, including China Life, Lloyds Banking Group and Schroders.
The owners remain bullish about prospects.
“More than 50 per cent of the tenants have moved into CapitaGreen because they need more space, and that means growth for each of the companies,” said Ms Lynette Leong, CEO of CapitaLand Commercial Trust. “And 6 per cent of the building comprises tenants that are new to Singapore – they are brand new companies that are setting up offices in their companies for the first time. As a result of that we feel that there is still a very good vibrancy in the office market.”
The building is jointly developed by CapitaLand, CapitaLand Commercial Trust and Mitsubishi Estate Asia.
However, some analysts do not share the owners’ optimism. Property services firm Century 21 expects office rents to fall by 20 to 30 per cent in the next two years.
“We are seeing quite a lot of new supply coming on stream especially next year, and with the economy broadly heading into a lot of headwinds, as well as companies in oil and gas services sector, in the commodities sector announcing retrenchment or some companies even announcing pullouts from Singapore,” said Mr Ku Swee Yong, CEO of Century 21.
“Actually the demand for office space over the next 12 to 18 months should be pretty weak. I’m not expecting any significant net demand. Then the oncoming supply, especially in 2016, could exacerbate the current vacancy situation. So today’s vacancy rate is at about 10 per cent, with eight million square feet of vacant office space across the island … I think the crunch time will be next year when our vacancy rate will start to exceed the 12 per cent benchmark.”
Colliers International added the lack of new demand from banks is the main challenge facing landlords in the CBD. The other is the move by some companies to lower rents by shifting to outlying areas such as Jurong East, where new high-quality office space is available.
Source : Channel NewsAsia – 15 Sep 2015