Signs of turnaround in office property market

There may be light at the end of the tunnel for the office property market this year, but retail is still in the doldrums.

Conditions for retail and office spaces continued to be challenging, although declines in prices and rents appear to be easing, according to Urban Redevelopment Authority data.

Overall office prices fell 1.4 per cent in the second quarter from the previous three months. This was a slower decline than the 4 per cent fall in the first quarter from the final three months of last year.

Office rents fell 1.1 per cent from the first quarter to the second. This followed a decrease of 3.4 per cent in the first three months of the year from the last quarter of last year.

The stock of office space increased by 76,000 sq m in the second quarter, edging up the overall vacancy rate to 12.4 per cent, up from 11.6 per cent in the first three months of this year.

While the figures paint an uncertain picture of the office market, analysts are still optimistic.

Ms Christine Li, director of research at Cushman & Wakefield, said that despite a long run of nine quarters of decline, "there are signs that the office market is starting to turn the corner".

She noted that the net employment increase of 3,300 workers for the financial and insurance sectors in the first quarter was more than the increase of 2,800 workers for all of last year.

Price recovery will be led by premium buildings, such as new developments in Marina Bay.

"Taking into account these factors and the improvement in local and global economic growth, the office rental index is likely to reach an inflexion point and rebound in the second half of this year," Ms Li added.

The retail space continued to post sluggish numbers.

Property prices fell 3.2 per cent in the second quarter from the previous three months and followed a quarter-on-quarter dip of 4 per cent in the first three months of the year. Rents declined 1.2 per cent, a slower slide compared with a 2.9 per cent dip in the previous quarter.

Overall vacancy rates rose 8.1 per cent, up from 7.7 per cent for the previous quarter.

Ms Tay Huey Ying, JLL's head of research and consultancy, said retail rents have declined for 10 straight quarters. However, she singled out suburban malls for "bringing cheer" to the retail sector, noting that demand in the suburbs of 15,000 sq m in the first half of the year exceeded the net new supply of 13,000 sq m.

"This is in line with the continually strong interest for retail space in suburban malls, proving their resilient nature despite the persistently weak consumer sentiments," Ms Tay said.

She noted that suburban malls have attracted the expansion of beauty shops such as Innisfree in Bedok Mall and Sulwhasoo in Westgate.

Dr Lee Nai Jia, head of research at Edmund Tie & Company, said: "While the entry of Amazon Prime into Singapore may exert downward pressure on retail sales, the impact may not be immediate on bricks-and-mortar malls.

"We see more online shops entering malls as the e-commerce scene becomes more crowded."

Source: 29 Jul 2017, Straits Times