SINGAPORE: Prime office rents in Singapore fell 15 per cent in 2015 and industry players expect rents to fall further this year.
An estimated 3.4 million square feet of new office space is scheduled to be completed this year and according to property consultants JLL, rents could fall another 10 to 20 per cent. The new supply is the highest in at least 10 years.
JLL said conditions could improve in 2017, when the supply of new office space falls to "normal" levels of around 1 million square feet. But with international banks cutting back, finding replacement demand will be key.
Said Mr Chris Archibold, international director and head of markets at JLL: "The demand piece is always the elephant in the room and the hard bit to predict. The other bit that is a bit of reservation in the market is around population growth.
“In order to increase the amount of office space occupied, you need to have the staff to put in there. Everybody knows the employment rate in Singapore is very strong, there are very few unemployed people out there. So in a lot of ways, to occupy that office space, you got to let the population grow in order to fill that space."
Singapore's largest office landlord, CapitaLand Commercial Trust, is also cautious about prospects, even though it achieved better results last year.
Ms Lynette Leong, CEO of CapitaLand Commercial Trust Management, said: "In the near term, there are headwinds because of the large supply in a single year. But beyond this, 2019 and beyond, there is actually no new supply in the market.
“So I think we just have to brace ourselves, buckle up for these few years and we continue to manage our portfolio very well in order to attain high occupancy. So we engage our tenants early, we retain our tenants and strengthen our relationship and then for any vacancy that is in the portfolio, we lease it out as actively as possible.”
She also noted: "Increasingly, we find that the size of tenants is not as big as before. In the past, the primary, the dominant players in the market were the financial institutions, they took up a lot of space.
"Right now as the spaces are not as large, there's a larger variety of them, they're more diversified so it's actually helpful because we're not concentrated in any particular sector. The positive signs are coming from the insurance companies, and companies in the telecommunications, IT and media (sectors)."
Looking ahead, JLL said Singapore remains an attractive base for global companies, with prime office rents that are much lower when compared to other international cities, such as Hong Kong and London.