RENTALS and prices of office and retail space fell more steeply in the second quarter than in the first, data released by the Urban Redevelopment Authority (URA) on Friday showed.
Rentals of office space fell 3.5 per cent, after a 2.1 per cent decline in Q1; prices fell 1.5 per cent in Q2, after a 0.3 per cent decline in the previous quarter.
This is the fifth straight quarter-on-quarter (q-o-q) decline in office rents.
Anthea To, head of research and advisory at Colliers, noted that this is the largest q-o-q decrease since Q4 2009.
But property consultants said the office leasing market is by no means quiet; in fact, it has been busy with occupiers seizing opportunities in the low-rent environment by moving to better-quality offices.
Cushman and Wakefield research director Christine Li said leasing demand has improved greatly, with the island-wide net absorption of office space increasing by about 323,000 square feet (sq ft) in Q2; in Q1, the increase was just 11,000 sq ft.
Landlords' downward adjustments in asking rents have lowered the island-wide vacancy rate to 9.1 per cent, from 9.2 per cent at the end of Q1.
Calvin Yeo, executive director and head of office at Knight Frank, observed that occupancies are rising at premium-grade buildings and falling at older ones.
Ms To added that landlords at Grade-B office buildings seem to be offering better rentals and incentive packages to retain existing tenants and attract new ones.
JLL's research also showed vacancy rates in the Marina Bay micro-market tightening to 5.4 per cent in Q2, from 5.7 per cent in the previous quarter. Its head of research and consultancy Tay Huey Ying added that rents there seem to be nearing support level.
Meanwhile, plenty of leasing action is happening outside the Central Business District (CBD).
The URA's statistics show that in Q2, offices in fringe areas such as Toa Payoh, Novena, Kallang, Bukit Merah recorded a higher absorption of 20,000 square metres (sq m), compared to the 7,000 sq m in the downtown core. This could be because rentals fell a sharper 3.8 per cent in these areas.
JLL's Ms Tay said: "This shows that given mounting uncertainties in the macro environment, businesses are still cost-sensitive and are not all jumping at the opportunity to upgrade to a more central location despite the availability of supply at competitive rents."
On the retail front, rentals fell 3.9 per cent, following a 1.9 per cent decline in Q1.
Prices fell 3.1 per cent - also a steeper fall than the 1.9 per cent dip in the previous quarter.
Lee Nai Jia, head of South-east Asia research at Edmund Tie & Company, noted that this was the largest q-o-q decline in the last four consecutive quarters of decline.
Overall retail vacancy levels rose by 0.5 percentage points to 7.8 per cent in Q2; it is even higher in Orchard Road, at 9.1 per cent, up from 8.8 per cent a quarter ago.
The same trend of retailers taking advantage of a low-rent environment is evident, consultants noted, even though there are also retailers succumbing to the difficult operating environment and bowing out of the market even before the expiry of their leases, resulting in more pre-terminations.
Some retailers are consolidating their businesses. Among chains that have done so are City Chain, Wing Tai, Marks & Spencer, Cold Storage, John Little, Isetan and Metro, Cushman and Wakefield's Ms Li noted.
Furniture seller iwannagohome closed its outlets at Tanglin Mall and Great World City in May 2016; New Look and Celio will exit Singapore by the second half of 2016.
On the flip side, some retailers are taking advantage of lower rents to reinforce their brand presence here through flagship stores.
Recently opened ones include jeweller Choo Yilin at Mandarin Gallery, HP at Marina Square, and Japanese label Christian Dada at 268 Orchard.
Among the flagship stores opening later this year are Victoria's Secret at Mandarin Gallery, Uniqlo at Orchard Central, and Michael Kors at Mandarin Gallery.
Looking ahead, it is possible that both office and retail vacancy levels may reach past 10 per cent as more supply enters the market, consultants agreed.
But Desmond Sim, head of CBRE research, Singapore, said: "These effects, however, are largely cyclical and offers markets an opportunity to re-boot."
Source: Business Times, 23 Jul 2016