Take-up of office space in Singapore has contracted for the first time since March 2017, according to government figures released on Friday.
Absorption of office space across Southeast Asia’s wealthiest city fell by 75,347 square feet (7,000 square metres) during the first three months of 2020, according to statistics released by Singapore’s Urban Renewal Authority, with the opening of a number of high profile projects during the quarter further adding to the amount of empty workplaces in the city.
The slide in occupier and investor demand came before Singapore’s government put in place the “circuit breaker” stay at home orders this month that have left offices vacant across the island nation, with analyst warning that the current quarter to show occupancy falling further.
The lack of occupier interest in office space helped to push vacancy island-wide to 11 percent by the end of the quarter, up from 10.5 percent during the preceding three months.
The rise in vacancy varied by location, however, with the percentage of empty workplaces in top grade buildings in the central part of the city, which includes the downtown core and Orchard Road area, declining by 0.5 percentage points to 7.2 percent by the end of March, after finishing 2019 at 7.7 percent.
Lower grade properties, or those in peripheral locations, saw vacancy jump 0.8 percentage points from 11.6 percent at the end of December to 12.4 percent by the close of March.
The occupancy level was further depressed by the completion of a number of new projects in the city, including Far East Organisation’s Woods Square development in the northern part of the city, AEW’s 30 Raffles Place (formerly Chevron House), and HD 139 as the newly re-christened 139 Cecil Street is known.
Also adding to the amount of empty space is 55 Market Street, a 16-storey office block near Raffles Place which AEW has recently finished refurbishing.
“The trend of weak absorption is likely to continue during subsequent quarters even if the circuit breaker is lifted in June, as the government will likely to continue imposing strict requirements on remote working for non-essential firms,” said Christine Li, head of research for Singapore and Southeast Asia at Cushman & Wakefield. Li predicted that the measures would continue to widen vacancy rates as the crisis drags on.
Rental Rates Hold for Now
Despite the rising vacancy rates, landlords appear to be holding tight to their rental demands, with the URA’s rental index for top grade offices in the central region slipping by just 0.8 percent compared to the preceding quarter, although outlying areas saw the leasing price indicator fall by 1.3 percent.
In the fourth quarter, the rental index for central Singapore had slid by 3.2 percent.
Median rents in the central region, as recorded by the URA, actually climbed by 0.5 percent to S$10.59 per square foot per month during the first quarter, after ending 2019 at S$10.54. In peripheral areas, leasing rates slid by 0.4 percent to end March at S$5.49 per square foot per month – down from S$5.51 in the three months previous.
Some analysts, however, predict that landlords may start to ease rates more quickly as the COVID-19 crisis wears on.
“We expect the impact on office rents to be more evident in Q2 2020, said Tricia Song, head of research for Singapore at Colliers International. “In the 2003 SARS episode, the effect was noticeable after a one-quarter lag.”
Song noted, however that while her team expects the COVID-19 pandemic to last longer than SARS, Singapore’s office market currently has lower vacancy than during that earlier crisis, with fewer new projects coming through the pipeline than in 2003.