About 3 million square feet of new office space are expected to enter the market in 2016 and 2017, and this new supply could put pressure on rentals, say industry players. Office rentals have been pushing higher in 2014, with tight supply pushing rentals up by more than 10 per cent.
Consultancy Jones Lang LaSalle (JLL) projects that rentals at office buildings in the Central Business District (CBD) – including Marina Bay, Shenton Way and Raffles Place – could grow by some 16 per cent, driven primarily by the tight supply of new office space in Singapore.
Looking into 2015, they said rental growth is expected to moderate in the first half of the year, in anticipation of new office projects. JLL said about 3 million square feet of office space will come on-stream in 2016 and 2017, including Marina One at Marina Bay, Duo in Bugis, V on Shenton, and Tanjong Pagar Centre. This new supply could put pressure on rentals, as it is twice the absorption rate of 1.2 to 1.5 million square feet.
On Dec 4, four sites with commercial components were placed on the Reserve List under the Government Land Sales programme for the first half of next year. They included plots in Holland Road, Beach Road, Woodlands Square and Marina View/Union Street. But some industry players said there is room for the Government to release more sites in the CBD.
Mr Warren Bishop, CEO of Raffles Quay Asset Management, said: “When you are talking about a site being released in 2015, it is unlikely to come to market until 2019-2020. We would probably see there is certainly room for the release of more land within the Marina Bay area. Looking at the longer term beyond 2018-2019, there will be consistent demand, what has been released is probably not going to be enough to meet that demand.”
Mr Bishop added that the demand for office space in the years to come will need to be met. Otherwise, “you end up with situations where perhaps you see office rentals rise”, he said. “We had a situation in 2007-2008 where there was an imbalance between demand and supply.”
Looking to future Government Land Sales programmes, analysts expect the urban planners to roll out more commercial sites in the suburban areas for sale under the Confirmed List. These include locations like Jurong East, Paya Lebar and Woodlands. Meanwhile, to meet demand for office space in the CBD, market watchers suggested that the Government could put some sites for sale on the Reserve List, which can be triggered for sale by developers.
Analysts said they have observed a new trend in the leasing market, with some deals going beyond the typical ‘three plus three years’ lease terms.
Dr Chua Yang Liang, head of research for Southeast Asia at JLL Singapore, said: “We are hearing some cases where landlords are chasing bigger occupiers and offering them slightly longer leases, such as ‘five plus five’ or ‘six plus six’. They are locking them in for a longer period. Likewise, from the tenants’ perspective, a longer lease in such instances helps them in terms of amortising their overhead cost – like their fit-out costs for example.”
Overall, analysts said sentiment in the industrial property market remains mixed as Singapore shifts towards higher value-added manufacturing and service-oriented sectors.
Mr Nicholas Mak, executive director of research and consultancy at SLP International Property Consultants, said: “One of the challenges facing Singapore going forward is the changing nature of our economy, as it becomes a more service-oriented one.
“I think the Government needs to re-define the type of uses and trades and businesses that are allowed to use industrial space. As e-commerce within our economy expands, there will be more demand for storage space. The authorities could also re-look how they could allow more e-commerce companies to use industrial space.”
Industrial rents are seen falling by 3 per cent this year and SLP International said they could continue to decline in 2015 – by about three to five per cent – if supply continues to outpace demand.