SINGAPORE (EDGEPROP) - Net absorption of office space in the central region recorded its largest quarterly decline of 538,200 sq ft in 2Q2020, since 1Q2003 over the SARS period.
This corresponds to a higher vacancy rate of 11.4% in 2Q2020, rising from 10.2% in 1Q2020.
Although office rents in the central region held steady and remained unchanged in 2Q2020, property consultants expect rents to fall in 2H2020 as more tenants give up space and vacancies rise.
In particular, Knight Frank expects prime office rents to fall by 10% to 15% this year, given the correlation between office space demand and GDP growth in previous recessions, it says. In 2Q2020, Singapore reported a 12.6% contraction of its economy based on advanced estimates.
For the rest of the year, overall occupancy levels are expected to come under increasing pressure and could decline by 5% or more, says Leonard Tay, head of research, at Knight Frank Singapore.
Looking ahead, Cushman & Wakefield (C&W) expects higher levels of renewals rather than new leases for office space. Rental rates for renewals are currently more resilient, while rents for new leases have experienced a larger decrease.
However, it expects disparity between the two to narrow in the future, “especially if landlords start offering incentives for new leases in the form of fit-out subsidies”, says Wong Xian Yang, associate director of research, Singapore and Southeast Asia, at C&W.
Meanwhile, office prices continued to decline in 2Q2020, marking the fourth consecutive fall in office prices since 3Q2019. Prices in the central region fell by 4.3% q-o-q, the sharpest quarterly decline since 1Q2009, when prices fell 12.9% q-o-q.
“The steep fall in prices is a reflection of short-term risks to the office market such as recession concerns and social distancing measures which has led to lower utilisation of office spaces,” says Wong.
Only 19 caveats were lodged for central region offices in 2Q2020 versus 81 transactions in 2Q2019. The fall in sales was attributed largely to “circuit breaker” measures over the period.
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