Friday, October 23, 2015

Bigger drop in office, retail rents in Q3

Bigger drop in office, retail rents in Q3

Consultants blame grim economic outlook for crimping demand from businesses

Singapore
COMMERCIAL leasing was dealt a bigger blow from economic headwinds in the third quarter, as businesses become increasingly cautious when it comes to buying or renting space.
The third-quarter statistics from the Urban Redevelopment Authority (URA) showed an acceleration in the fall of office and retail rents compared to a quarter ago, prompting consultants to project further softening of rents into next year.
Marking a second straight quarter of decline, office rents in the Central Region slumped 2.9 per cent quarter on quarter in the third quarter, after slipping 2.6 per cent in the second quarter.
In terms of capital values, prices of office space took a turn in the third quarter, slipping 0.1 per cent quarter on quarter after climbing up 0.3 per cent in the preceding quarter.
Retail rents in the Central Region also dropped by a larger 2 per cent quarter on quarter in the third quarter, following a 0.5 per cent decline in the second quarter. This marked the third straight quarter of decline for retail rents.
Prices of retail space also slid a further 0.3 per cent in the third quarter after a 0.5 per cent fall in the preceding quarter.
JLL national director for research and consultancy Ong Teck Hui noted that the weak data is a reflection of the current state of the commercial leasing market, hurt by prevailing caution among businesses in face of economic uncertainties.
Businesses are trimming operating costs, which directly cuts into rental affordability, he said. Demand for retail space has also eased with the slowing economy as retailers cope with rising costs, shortage of manpower and challenges in maintaining service standards.
The Central Region covers 22 planning areas that include the central area and fringe area, which extends to Queenstown, Geylang, Bishan and Sentosa.
Office rents in the central area took a bigger fall of 3.1 per cent compared to the 1.1 per cent drop seen in the fringe area. But weakness in retail rents in the third quarter was more pronounced in the fringe area where there was a 2.1 per cent quarter-on-quarter drop.
Cushman & Wakefield research director Christine Li flagged that more sectors are buckling under the the challenging global and regional macro-environment.
"Banks are continuing to downsize their space requirements in the CBD by shifting more back-office staff to cheaper business parks. The legal sector, a significant occupier of CBD prime space, is also starting to feel cost pressures, with the Big Four law firms reportedly cutting base pay and bonuses," she observed.
"The growth of the insurance sector, which has been tipped to prop up the flaccid leasing market, could also be slowed by regulatory requirements."
According to her, some retailers have expressed their intention to terminate their leases, but they are holding back for now due to premature termination penalties and the difficulty of finding replacement tenants.
With market sentiment unlikely to improve in the near future as weakness in the global economy persists, further rental declines are expected in subsequent quarters, Ms Li said.
The URA data also showed islandwide vacancies of office and retail space slipping marginally in the third quarter, but consultants felt that these do not indicate any significant market trends.
Vacancy rate of office space island-wide at end-Q3 stood at 9.6 per cent, down from 9.8 per cent at end-Q2. This was attributed to a net 3,000 sqm decrease in office stock in the third quarter (after a net 8,000 sq m increase in Q2), amid a net increase of 15,000 sq m in occupied office space in the third quarter (after a net 38,000 sq m increase in Q2).
As at the end of the third quarter, there was a total office supply of about 908,000 sq m in gross floor area in the pipeline.
Ms Li said she expects overall office vacancy rate to surge to double digits next year on the back of the record supply of close to four million sq ft.
As for retail space, islandwide vacancy rate stood at 7 per cent as at end-Q3, down from 7.2 per cent as at end-Q2. According to URA, there is another retail space supply of 786,000 sq m in GFA from projects in the pipeline as at end-Q3.
Given the grim economic outlook, Knight Frank head of research and consultancy Alice Tan stressed the need for the government to identify new growth drivers to aid retailers and enterprises, such as bolstering tourist arrivals and population growth.
"The decline in retail rents is an encouraging sign for retailers but not sufficient to address their major challenges, especially labour," she said.

No comments:

Post a Comment

728 X 90

336 x 280

300 X 250

320 X 100

300 X600