Singapore office rents to decline amid Covid-19 pandemic


Market watchers are expecting office rents in Singapore to decline in the coming months, amid the coronavirus pandemic that is showing no signs of abating.

“The office market has peaked, with Grade A central business district (CBD) rents falling by 0.5 percent to S$10.61 per square foot per month (psf pm) during the first three months of 2020 over the last quarter of 2019,” Cushman & Wakefield said in a press statement on Tuesday.

Likewise, Colliers International on Tuesday also noted that the negative impact of the pandemic on office rents could start rearing its head in the second quarter this year. As corporate occupiers put the brakes on expansion plans, office leasing demand weakened significantly quarter-on-quarter (q-o-q), Cushman & Wakefield noted.

Christine Li, head of research for Singapore and South-east Asia at Cushman & Wakefield said: “Comparing the first quarter of 2020 and Q4 2019, firms are increasingly taking a wait-and-see approach, channelling resources to activate business continuity plans instead. The rising prevalence of remote working and staggered work hours has also reduced the immediate demand for new space.”

Cushman & Wakefield believes that the outbreak will lead to a global recession, resulting in Grade A CBD rents moderating by about 10 per cent in 2020, with a further decline in 2021.

As the government closes all non-essential workplaces between April 7 and May 4, occupiers are expected to delay their decision-making in new leases up until the end of Q2.

Cushman & Wakefield noted that office leasing demand could take a further hit if the US and Europe-headquartered multinational corporations reduce their appetite for expansion space due to the lockdowns in their respective countries, which in turn could slow down business activities significantly. Nonetheless, with Covid-19 cases easing in China, the global real estate services firm noted that it is beginning to see renewed inquiry by Chinese firms.

Separately, Colliers on Tuesday noted that the impact of the Covid-19 outbreak on Singapore’s CBD Grade A office rents was not yet apparent in the first quarter this year, as rents and capital values remained flat, while vacancy tightened. On average, CBD Grade A rent was unchanged q-o-q at S$10.09 psf pm in Q1, and rose 4.7 per cent year on year.

While Colliers expects the market effects from Covid-19 to be more evident in Q2, it is of the view that the pandemic may not jolt the office market as significantly as past crises.

Tricia Song, head of research for Singapore at Colliers said: “In the 2003 Sars episode, the effect was noticeable after a one-quarter lag. While the Covid-19 pandemic could last longer than Sars, we observe that the current office market has lower vacancy and supply than it did in 2003.

“Rental levels are also not at ‘bubble’ levels seen in the run-up to the Global Financial Crisis in 2008. However, the odds of a global recession have risen and pose downside risk to demand and rents.”

In light of slower demand and higher forward supply, Colliers expects a 4 per cent rent decline in 2021. Demand drivers in Q1 continued to be the technology, media and telecommunications (TMT) and flexible workspace sectors. New space take-up at 18 Robinson in Q1 helped to push its occupancy to 95.3 per cent from 67.3 per cent. This in turn led to further tightening of CBD Grade A vacancy to 3.1 per cent, from 3.4 per cent in the previous quarter.

Said Rick Thomas, head of occupier services in Singapore at Colliers: “We believe the Covid-19 outbreak will profoundly change the way people work and could fast track the adoption of new technologies… At this juncture, we recommend occupiers to invest in technology and review their real estate space requirements amid shifting market dynamics.”

On the supply side, Colliers expects that CBD Grade A supply will be muted through 2021, with the next major supply hike due in 2022. Transaction volumes, however, were subdued as investors stayed on the sidelines, Colliers noted. With fewer transactions in the quarter, the average imputed capital value of CBD Grade A office properties stayed flat q-o-q at S$2,518 psf.

Meanwhile, total office or mixed office developments investment volumes fell 32 per cent q-o-q to S$746 million in Q1 2020.

In the near-term, Colliers expects that concerns about the economic fallout from the virus outbreak will “cloud market sentiment considerably”. Over the next few years, however, real estate investment sales prospects remain optimistic, on a favourable interest rate outlook and capital allocation to Asia.

Said Jerome Wright, senior director of capital markets in Singapore at Colliers: “Singapore’s strong policy response to Covid-19 should instil confidence in occupiers, talent and investors, reinforcing Singapore’s safe- haven status. When the situation gets back to normal, the real estate market will be among the first to recover. There will be real estate opportunities, as businesses affected by Covid-19 will have to reassess their options.”

The Business Times,  08 Apr 2020

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