Prime office rents dipped 2.2% in 3Q

On the back of rising vacancy rate and anaemic economic growth, rents of office space fell for the sixth consecutive quarter, by 1.1% q-o-q in 3Q.

Median rents for Category 1 office space fell by 2.2% to $9 psf per month under supply pressure, while those for Category 2 office space slipped 1.1% to $5.50 psf per month.

URA defines Category 1 office buildings as those located in Downtown Core and Orchard Planning Area. They are relatively modern or recently refurbished and have large floor plates and gross floor area. Other buildings are classified as Category 2 office space.

Rental gap between the two categories has narrowed to 64%, compared with 69% in the same period last year. This continues to fuel the flight-to-quality trend in the office market.

Major new supply in 3Q came from the completion of Guoco Tower with a GFA of 1.01 million. The office space is understood to be 80% committed. Committed tenants include Agoda, Amadeus, ASICS, Danone, Straits Trading and Teva Pharmaceutical Industries.

Vacancy rates for office space rose from 9.1% in 2Q to 10.4% in 3Q. According to the URA, around 1.03 million sq ft of office space is expected to come on-stream in 4Q and 4.05 million sq ft in 2017. They include Marina One, DUO Tower and Vision Exchange in Jurong East.

In the retail segment, shop rents fell by 1.5% q-o-q and 8.3% y-o-y in 3Q2016. Median monthly rents in the central area fell by 1.8% q-o-q and 9.3% y-o-y to $7.84 psf in 3Q. Those in the city fringe fell by a lesser 0.8% q-o-q and 5.5% y-o-y to $7 psf in 3Q2016.

Occupancy rate of shop space fell by 0.6 percentage point q-o-q to 91.6% island-wide in 3Q2016. As at 3Q, there are 65 million sq ft of retail space available island-wide, up from 64.8 million sq ft in 2Q. Major completions in 3Q include retail space at Changi Airport Terminal 4 and Guoco Tower.

An additional 7.4 million sq ft of retail floor space is currently in the pipeline, of which, about 2.6 million sq ft will come on-stream in 2017. Major upcoming projects include the Hillion Mall in Bukit Panjang and the retail space in Marina One.

Shop prices fell for the third consecutive quarter by 0.6% q-o-q and 13.4% y-o-y in 3Q2016. The fall is led by the Central Area, where prices softened by 3% q-o-q to $1,418 psf in 3Q. On the other hand, shop prices in the city fringe increased marginally by 0.7% q-o-q to $1,122 psf in 3Q. Compared to a year ago, prices in the central area and city fringe declined by 6.3% and 6.2% respectively.