Tight supply keeps office and prime retail rental steady

Demand for office space continued to be anchored by co-working and technology in the third quarter.ST PHOTO: KUA CHEE SIONG

Market confidence might have been dented due to weaker economic growth and the escalation of the trade war but landlords have been able to hold rents steady due to tight vacancies and limited upcoming supply.

In fact, Grade A Central Business District (CBD) rent increased marginally by 0.4 per cent to $10.65 per square foot per month in the third quarter after remaining flat in the preceding quarter, due partly to landlords of less premium spaces playing catch-up with better quality buildings.

Overall office demand has slowed amid a sluggish economy, but emerging sectors within the technology space like artificial intelligence (AI) and data analytics are starting to fuel demand. For instance, AI start-up SenseTime is planning to triple its Singapore staff to 300 in three years.

Demand for office space continued to be anchored by co-working and technology in the third quarter. Although there is some concern over the longer-term sustainability of the co-working sector, firms cutting costs may find co-working spaces more attractive as they would not need to spend on fitting out a traditional office.

The flexibility to increase or decrease the membership on a monthly basis is also a big draw to firms facing an uncertain outlook.

Demand from the financial sector held steady. American Express leased three floors at One Marina Boulevard, helping to fill space left behind by Microsoft, which had moved to Frasers Tower.

Event risks like the United States-China trade war and Brexit have raised uncertainties for corporate occupiers, who could put expansion plans on hold and wait for greater clarity in the near term.

If the global economy continues in low gear, corporate office demand may slow down and spur right-sizing, going into 2020.

Rents are still holding up at many buildings due to the lack of CBD supply to 2021, but competition for tenants is likely to intensify.

Occupiers could also expand their search to city fringe or suburban locations with good infrastructure connections and local amenities, increasing their options.

Despite structural shifts in spending habits towards online and more experiences, Orchard prime rents bucked the trend and continued to rise by 1.2 per cent in the third quarter, driven by low supply and higher footfalls arising from more tourist arrivals.

Although the macro challenges for bricks-and-mortar retail remain, Singapore continues to be the destination for international brands to maintain a physical presence, given its status as a pre-eminent financial and business hub.

The Formula One grand prix in September attracted a total of 268,000 fans, the second highest attendance since the inaugural race in 2008. This could possibly have given retail sales a boost.

Although the deterioration in the economy and the threat of a recession on the horizon have not resulted in a collapse in retail demand so far, many retailers are grappling with high operating costs and declining revenue.

Retail landlords should offer greater flexibility in terms of effective rental rates and shorter lease terms to minimise vacancy risks. The pace of retail leasing cannot be sustained if expectations between landlords and retailers widen further.

• The writer is the head of research for Singapore and South-east Asia at global property consultancy Cushman & Wakefield.

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