As the year comes to a close, here’s a snapshot of the most important commercial property trends in Singapore in the office, retail and industrial sectors from Q4 2019.
Rental growth and vacancy rates are declining as demand for office space wanes due to a sluggish economy. Rent increases in the office sector are expected to be curtailed in coming quarters due to the weakening economic outlook. Tenants are increasingly cautious, starting a 'flight to value' trend where both high quality and low prices are prized. Rents for CBD offices remained steady, with an average increase of 8.5% across all grades. Monthly A-Grade CBD office rents being $10.08 per sqft, slowing to a 1.5% increase compared to the 3% increase in the previous quarter.
Additionally, low vacancy rates have prevailed with a 3.2% vacancy rate this quarter.The strongest year-over-year (y-o-y) growth occurred for A-Grade space on Beach Road (12.4%) and City Hall (11.1%). The most expensive areas currently are Marina Bay and Raffles Place, which average $12.35 and 10.35 per square foot, respectively.B-Grade premises in the CBD averaged $7.62/ft2 in Q4. For B-Grade rents, growth was highest in Beach Road and Surburban areas, both experiencing a 11.2% y-o-y change.
Technology and flexible work spaces remain the key drivers of Singapore office space. Co-working stock is estimated to surpass 3 million sqft by the end of 2019, particularly due to the increasing 'flight to value'. International technology companies are also increasingly choosing Singapore as their regional headquarters.
Declining retail sales and tourism receipts have seen the retail market hustle through challenging conditions in the recent quarter.Rents for prime retail space remained flat overall, with a monthly gross average rent of $25.05 per sqft across prime areas and a slight 2.3% q-o-q increase. The island-wide vancy rate also decreased by 0.2% from the previous quarter to 7.5%. Furthermore, average prime rents islandwide either declined slightly by 0.1% y-o-y.
These trends forecast a stable island-wide retail occupancy, which is currently resting at 92.3%.F&B, health, fitness and kids entertainment are key drivers in the market. F&B retailers are particularly expanding, with big-names such as A&W continuing Singapore expansions and new concepts opening such as The Source Bulk Food, a zero-waste store.A key trend in the market is the adoption of Augmented and Virtual Reality designed to engage millennials and create an experiential in-store experience. A Gartner survey saw 46% of retailers planning to integrate AR and VR into stores by 2020.
For example, Golden Village Cinema in Funan introduced virtual pods where movie goers could watch new trailers or enagage in VR gaming whilst waiting for their movie.
Oversupply is beginning to impact warehouse rental growth. A weak manufacturing sector outlook has also slowed leasing activities and led to lower rents.Rents for warehouse space are on a downward trajectory, which has consistently occurred for over 5 years. This suggests the market may have bottomed out, with warehouse rents currently averaging $1.23 per sqft.
Warehouse rents are less affected by Singapore's economic outlook compared to other sectors on the back of a pipeline of single-user warehouse developments. However, the economy is still foretasted to suppress rental values.Factory rents increased by 0,8% for single-user factory spaces, and 15% for multi-user factories. They now average $1.77 per sqft. Energy companies are particularly driving the industrial market in Singapore, with Linde and Neste expanding their production footprints within the country. Linde is particularly building an integrated manufacturing complex to increase production capacity by four-fold.Overall, industrial rents are expected to decline by up to 2% y-o-y, despite a moderate supply increase.
Our team at Tenant CS has an office in right in Singapore! We provide high-quality tenant representation services for our clients, including lease negotiation and renewals, as well as office relocation. Contact us today to find out how we can help you!Want to read more about tenant representation first? Read about why it pays to have a tenant advisor on your side!
Or to find out more about the Singapore market click here to read our guide on retail and office leasing in Singapore!
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