Singapore’s office property market cooled in 2011, weighed down by concerns over the anemic growth in the US and the eurozone debt crisis.
Analysts said vacancies are likely to rise next year as a result of economic slowdown and weaker business.
There may also be some downward pressure on rentals.
Several financial institutions have moved to bigger and shinier offices this year.
Standard Chartered Bank, for instance leased over 500,000 square feet of space at the new downtown Marina Bay Financial Centre.
But experts said transactions for big-scale relocations by large companies have practically dried up for most part of 2011.
Mr Chris Archibold, international director, head of markets, at Jones Lang LaSalle, said: “2010 saw 10 transactions of over 100,000 square feet in the CBD, whereas 2011 has only seen one. That said, there have been another five major transactions of over 100,000 square feet outside of the CBD. What that reflects is basically, occupiers are looking to save cost.”
Cost cutting aside, some analysts said companies are rationalising their operations, moving some back-end functions outside of the Central Business District.
The uncertain economic conditions may also force some tenants to scale back.
Mr Donald Han, vice chairman of Cushman & Wakefield, said companies that have expanded a bit too much might be required to release space – something that could potentially happen by the second or third quarter next year.
“I think there could be price pressure in trying to get tenants for these spaces that have been vacated,” he added.
Still, market watchers do not expect Grade A office rents to fall drastically next year.
Rents plunged by 58 per cent to about S$8 per square foot after the last Global Finance Crisis.
They’ve since recovered to about S$10 to S$11 per square foot this year.
In 2012, some analysts expect office rents to drop about 5 per cent and some landlords may have to provide incentives to keep tenants.
Ong Teck Hui, head of research and consultancy, at Credo Real Estate said: “Rent-free periods typically happen when the markets soften and landlords compete for tenants. Given the situation next year, I think there’s likely to be a slowing down of demand and greater competition among landlords for tenants. Most landlords will work on tenant retention, reduce vacancies and rental loss as a result of that.”
Currently, the vacancy rate is at about 8 per cent.
And experts said this could go up to some 12 per cent next year.
Still, an oversupply of office space is unlikely next year as most of the premises have already been pre-committed.
Analysts said Singapore’s office sector will remain strong and cost competitive among cities like Hong Kong and Tokyo.
Source : Channel NewsAsia – 15 Dec 2011