Singapore Leasing Market Update | Q2 2018
The second quarter of 2018 is now behind us. Here’s a snapshot of the most important commercial property trends in Singapore in the office, retail and industrial sectors.
CBD office space
Rents for CBD offices have increased for the fifth consecutive quarter. The quarter-on-quarter increase for all types of office premises averaged 2.7%, with even higher increases in A-Grade space. Low vacancy rates (5.9%) saw A-Grade rents increase by just over 4% to just over $10 per square foot per month. B-Grade premises in the CBD average $7.80/ft2 and just over $7.20/ft2 island-wide.
CBD vacancy rates decreased significantly in the first half of 2018, as many large corporates moved into new premises. The stock of office space still rose by 26,000 square feet in Q2 2018, but that’s much smaller increase than the 72,000 square feet recorded in Q1. This tapering of new supply is expected to continue in the foreseeable future, though demand is expected to continue to be strong. The key demand drivers in the Singapore office market include organisations seeking flexible coworking spaces, technology firms, and insurance companies.
Major office leases recently signed in the Singapore city office market include:
- Insurance companies Great Eastern and NUTC Income expanding their operations and leasing space in the new Payar Lebar Quarter development.
- IWG’s lifestyle brand Spaces leasing more than 35,000 ft2 of office space at TripleOne Somerset in Orchard Road.
Rents for prime retail space have remained stable during Q2. Prime retail rents average $31.45/ft2 per month in Orchard Road, which is virtually unchanged since Q1. Leasing demand is driven by food and beverage retailers, as well as those attempting to capitalise on increased consumer demand for health and wellness products. For example, multi-brand ‘athleisure’ retailers like JD Sports and Footlockers have entered the market in recent years in response to this trend. Retail demand, in general, is forecast to rise marginally in the short-term due to increased tourism.
There is an increasing trend for retailers to take advantage of strong catchment areas in suburban areas. The rent is also slightly cheaper in these locations compared to Orchard Road, averaging just over 29/ft2 per month.
Retail vacancy rates rose slightly in Q2 to an average of 7.2%, up from 6.8% in Q1. There is currently 8.2 million ft2 of stock island-wide. Approximately 1 million ft2 of new retail space is expected to be added to the market during 2018 and 2019 before the new supply tapers off significantly in 2020 and 2021.
During Q2, the six-storey Century Square shopping mall in Tampines reopened after a nine-month refurbishment.
Industrial and factory space
Rents for warehouse premises space have remained stable in Q2 for the third consecutive quarter, averaging $1.20/ft2 for upper floor space and $1.58/ft2 for ground floor. Prior to this stabilisation of rent rates, there were ten consecutive quarters of decline. Warehouse rents may actually increase in the market in the near future, due to falling vacancy rates, reduced new supply, and a positive outlook for the Singaporean economy.
Current warehouse space stock levels are estimated to be just over $114 million ft2, and demand is being driven by both lease renewals and organisational relocations.
Factory rents are comparable to warehouse rents, averaging $1.23/ft2 (upper floor) and $1.57/ft2 (ground floor) for a sixty-year lease arrangement. These rent rates in the factory sector have decreased slightly in Q2 due to more vacant space being available. However, occupancy rates are expected to pick up in the second half of 2018. Organisations in the semiconductor, petrochemical, and logistics industries are expanding.