Retail, office rents headed for divergent paths

Vacancy rate of office space at the end of Q1 remains flat at 10.2%, URA data show RENTAL outlook for office and retail space will take divergent paths this year, and the trend is already telling in the latest Q1 data.

Retail rents decreased by 0.3 per cent in the first quarter, after a 0.5 per cent increase in Q4 2014, while office rents rose 0.6 per cent after a 1.7 per cent increase in the fourth quarter last year. On the office front, rents in the central area held up better compared to the fringe areas (0.92 per cent quarter on quarter in the central area as compared to -0.8 per cent in the fringe area).

Noted Christine Li, head of research at Cushman and Wakefield: "Based on our research, vacancy rates for the Grade A office market contracted to 3.9 per cent in Q1 2015, a 0.3 percentage point decrease from Q4 2015.

"This is on the back of healthy leasing demand of the newly completed office building such as CapitaGreen and South Beach. With only 52,000 sq m of GFA to come on stream for the rest of the year, Grade A office rents are expected to inch up by 5-6 per cent for the full years with vacancy rates hitting around 3 per cent by year-end."

Meanwhile, Chia Siew Chuin, director of research and advisory at Colliers International, said she expects the average monthly gross rent for Premium Grade space in the Raffles Place/New Downtown micro-market to increase by about 5-10 per cent in 2015, while rents for the overall CBD Grade A and Grade B office space could rise by up to 5 per cent for the entire year.

According to the Urban Redevelopment Authority's (URA) Q1 release of real estate statistics, the island-wide vacancy rate of office space at the end of the first quarter remained unchanged at 10.2 per cent.

There was a total supply of about 880,000-square-metre gross floor area (GFA) of office space in the pipeline as at the end of Q1. The amount of occupied office space increased by a net 19,000 sq m, compared to a net 6,000-sq-m decrease in the previous quarter. The stock of office space increased by a net 22,000 sq m in the first quarter, compared to the increase of a net 145,000 sq m in the previous quarter.

Meanwhile, prices decreased by 0.1 per cent in the first quarter, compared with an increase of 2.4 per cent in the previous quarter - this is the first decline after 11 straight quarters of positive price appreciation.

Despite the low transaction volume, however, there is growing interest in office properties by institutional players, opportunistic private-equity investors, wealthy individuals and family offices that continue to provide support for prices, noted Colliers' Ms Chia.

Separately, retail rents decreased by 0.3 per cent in Q1, after a 0.5 per cent increase in Q4 last year. Prices of retail space remained unchanged in the first quarter, after an increase of 1.5 per cent in the previous quarter.

As at the end of Q1, there was a total retail space supply of 723,000 sq m in GFA from projects in the pipeline.

Ong Kah Seng, director at R'ST research, said he expects rents to decrease by up to 5 per cent as the retailing climate remains cautious and retailers increasingly set up online retail stores.

Added Cushman and Wakefield's Ms Li: "Moving forward, space consolidation is likely to continue, particularly for retailers which has expanded more aggressively during the peak of the market and have started to experience an upswing in business costs. Coupled with the less positive tourism performance, retail rents are expected to remain soft."

Source: Business Times, 25 Apr 2015