SINGAPORE, Apr. 7, 2016 – According to DTZ Southeast Asia, monthly office rents in the CBD declined for the third consecutive quarter, falling by 3.9% q-o-q to $9.90 per sq ft in Q1 2016. The decrease in rents coincided with concerns over a slowing global economy. The devaluation of the Chinese yuan in January 2016 suggested that the Chinese economy is weaker than anticipated. The slowdown there has a broad-based impact on Singapore, as a dimmer growth outlook here meant that firms are less willing to expand. This not only led to a cutback in office demand for the business services sector, a major office user, but also a contraction of the financial services sector, which saw less demand for corporate loans. The volatile oil prices further exerted downward pressure on the financial institutions’ demand for office space, given their considerable loan-book exposure to the energy and offshore marine industries.
By the end of 2015, the number of workers made redundant in the financial services sector rose by 33% y-o-y to 1,710 from 1,290 in 2014. Financial institutions that reported job cuts included Royal Bank of Scotland, Barclays, Standard Chartered, CIMB and Goldman Sachs. Other companies such as Credit Suisse and Deutsche Bank have initiated job cuts globally and Singapore is unlikely to be immune to the structural headwinds.
Within the CBD, monthly gross rents of Grade A offices in Raffles Place remained the most resilient, with a 2.3% fall q-o-q to $10.50 per sq ft in Q1 2016. The office rents were supported by the high occupancy rate in Raffles Place, which rose by 0.4 percentage-points q-o-q to 97.4% in Q1. Additionally, the lack of notable pipeline supply helped mitigate the downward pressure.
Rents in Marina Bay declined the most by 5.0% q-o-q to $11.90 per sq ft per month in Q1 2016, with office occupancy of Marina Bay easing from 94.3% in Q4 2015 to 93.9% in Q1. The steeper decline was largely attributed to increased vacancy due to the movement of tenants out of Marina Bay and the pending completion of 1.9 million sq ft of office space from Marina One by end-2016/early-2017.
Separately, there was a 4.0% q-o-q decline in rents of Grade B offices in the Shenton Way/Robinson Road/Cecil Street/Anson Road/Tanjong Pagar subzone to $7.30 per sq ft in Q1 2016, as landlords were more flexible in stemming the outflow of occupiers to better alternatives in a softened market.
Moving forward, it is anticipated that office rents are expected to decrease further in subsequent quarters due to pressures from a further decline in demand and the large pending supply. Although oil prices have rallied towards the end of Q1 2016 and China’s official Purchasing Manager Index came in above 50 in March, business sentiments are still weak. According to the Q1 2016 Survey of Business Expectations (Services Sector) by Department of Statistics Singapore, a net weighted balance of 18% of firms expects less favourable business conditions for 1H 2016. Business sentiments were weaker as compared to the survey in Q4 2015, when a net weighted balance of 6% expected weaker business conditions from October 2015 to March 2016.
Dr Lee Nai Jia, Regional Head (SEA) of Research at DTZ, noted: “While the global economy shows signs of recovering, most firms are still cautious as the recovery may be temporary. Additionally, many sectors are adopting disruptive technologies to expand without increasing their footprints.”
On the supply front, some 3.1 million sq ft of office space in the CBD will complete in 2016 and 2017. Based on the ten-year annual average net absorption (from 2006 to 2015), this will take about four years for the market to absorb. To compound the problem, the current shadow space of 158,000 sq ft and future shadow space of 249,000 sq ft in the CBD will exert additional downward pressure on office rents upon lease expiry of the shadow spaces.
As the office sector continues to soften, office demand will be supported by firms in insurance, technology, social media and serviced office providers for the rest of 2016. Ms Cheng Siow Ying, DTZ Executive Director of Business Space, added: “More start-up companies will be formed as they leverage on the mobile and internet platform, and take advantage of government schemes and initiatives. These start-up companies prefer to locate in the CBD or established business clusters to attract and retain talent as well as to be close to their clients. Such co-working space becomes a viable option as it provides them flexibility in structuring service agreements attuned to their business needs.”
With the increase in demand for co-working space, serviced office providers are expanding their footprints in Singapore. A case in point was JustGroup, which launched JustCo, the largest co-working space in Singapore, with 30,000 sq ft across four floors at 120 Robinson Road and a new location at 6 Raffles Quay. Additionally, JustGroup plans to more than double its size within the next two to three years. Similarly, Regus, a global workspace provider, was equally proactive as it has committed to lease space in the upcoming Guoco Tower and Duo Tower which will provide both private and co-working space.
Source: DTZ Singapore, 5 May 2016