Landlords are lowering their rental expectations in anticipation of more vacated stocks, says one analyst. 

Given the softer demand conditions, rental increases for Grade A office space within the central business district (CBD) stalled, even as vacancy rate hit an almost three-year low in the third quarter of 2019, reported Singapore Business Review citing Savills Singapore.

In Q3 2019, the average monthly rents for CBD Grade A offices within Savills’ basket remained flat at $10.08 per square foot (psf), following eight consecutive quarters’ of increase.

“In the coming four quarters, the market is expected to see a substantial amount of remaining space in new projects and possible secondary stock being vacated. Landlords are lowering their rental expectations to adapt to the situation,” said Marcus Loo, chief executive officer of Savills Singapore.

The net demand for CBD Grade A office buildings monitored by Savills amounted to around 338,000 sq ft for Q3 2019, with majority of the take-up coming from tenants relocating to newer projects like Duo Tower, Frasers Tower and Marina One.

“As these deals were secured in 2018, this again suggests that new demand for CBD Grade A offices in the last few months has been quite limited,” noted Savills Singapore.

The net demand, along with the 136,200 sq ft net new supply from 18 Robinson at Robinson Road, indicated that the overall vacancy rate for CBD Grade A office space continued to improve as it fell 0.7 percentage points quarter-on-quarter to 4.9% in Q3.

However, the sluggish economy’s impact is starting to show on the office leasing market. Savills revealed that leasing demand has waned, compared to six months ago, as most office tenants took on a cautious stance for their hiring and business prospects and held back on their expansion or relocation plans.

Urban Redevelopment Authority’s (URA) data showed that the number of leasing transactions signed fell 16.1% quarter-on-quarter to 1,283 in Q3 2019.

While Savills has expected the lack of demand from traditional office occupiers, it noted that flexible workplace operators and tech companies, who have been the key demand drivers in the last two years, also slowed down their expansion pace.

“Weakening demand for office space has also affected leasing activity in some upcoming CBD office projects, resulting in relatively low pre-commitment levels compared with those newer projects completed in the last couple of years,” added Loo.

Nonetheless, Q3 still saw the opening of some new co-working facilities within the CBD. These include The Great Room at Raffles Hotel’s shopping arcade, Spaces at One Raffles Place Shopping Centre, WeWork at MYP Centre, Trehaus at Funan North Tower and One&Co by East Japan Railway Company at Twenty Anson. Overall, these co-working centres occupied around 195,000 sq ft of space.

Source: CommercialGuru, 18 November 2019