Positive office market numbers, but clouds loom

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THE latest official data points to overall positive indicators for the Singapore office market, but some analysts see warning signs.

CBRE's associate director of research Catherine He said: "We have observed more cautious sentiments as firms are assessing the full impact of the trade war, with more opting for renewals rather than committing capital expenditure to expand or relocate."

There has also been some right-sizing in the banking sector, as well as consolidation and a drive towards space efficiency in the business consultancy, pharmaceutical and fast-moving consumer goods sectors, she added.

The rental index compiled by the Urban Redevelopment Authority (URA) for office space in the central region of Singapore rose 1.3 per cent in the second quarter of this year over the previous three months.

This came on the back of the continued tightening of supply, with the island-wide vacancy rate of office space falling to 11.5 per cent as at the end of Q2 2019 from 11.8 per cent at end-Q1 2019.

Island-wide net demand of office space, as reflected in the change in occupied space, was 35,000 square metres net lettable area (NLA) in the second quarter, up from 19,000 sq m in the previous quarter.

The stock of office space increased by 7,000 sq m NLA, compared with the drop of 6,000 sq m NLA in the previous quarter.

JLL's head of research and consultancy for Singapore Tay Huey Ying noted that heightened geopolitical tensions, a string of weak macro-economic data and downgrades to Singapore's 2019 economic growth moderated market sentiment and tempered exuberance in the second quarter.

Nevertheless, she argued that "there is potential for office rents to stay on the growth trajectory over the next 12 to 18 months but sporting a gentler gradient".

She cited continued steady leasing demand for the rest of this year and into 2020 from the financial and insurance, business services and technology sectors.

Meanwhile, the supply pipeline remains limited.

CBRE's Ms He was less optimistic. She said: "In the wake of heightened economic headwinds, the Singapore office market outlook looks increasingly clouded."

Although the current supply situation is relatively tight, leasing pre-commitments of pipeline projects have slowed considerably.

"These factors combined could potentially dampen rental growth prospects over the medium term."

As at end-Q2 2019, there was a total supply of about 732,000 square metres in gross floor area of office space in the pipeline, a tad lower than the 733,000 sq m of space in the pipeline as at the end of the previous quarter.

The URA's price index of office space in the central region rose 0.9 per cent in second quarter 2019, more slowly than the 3.0 per cent gain in the previous quarter.

Tricia Song, head of research for Singapore at Colliers International, noted that transactions remained robust, with two key deals during the second quarter - the sale of Chevron House and the divestment of a 50 per cent stake in Frasers Tower.

"The punitive additional buyer's stamp duty (ABSD) measures on the residential sector since July 2018 should continue to fuel a shift in investor interest towards the commercial sector."

Source: Business Times, 27 July 2019