Channel NewsAsia

New supply could push up vacancy rates for office space market in 2016

Property consultants say new office buildings are taking a longer time to find tenants and this could push vacancy rates up in the Central Business District.

SINGAPORE: Property consultants on Wednesday (June 18) said the office space market in Singapore could see a slight moderation in 2016, when some 4 million square feet of new supply come onstream. New office buildings are already taking a longer time to find tenants, they said, and this could push vacancy rates up in the Central Business District.

According to analysts, the take-up rate in the Central Business District has been relatively healthy in the past year, cutting the vacancy rate from about nine per cent to the current five per cent. Some 1.8 million to 2 million square feet of office space is expected to be taken up this year.

The average monthly rental rate for Grade A office buildings in the CBD is about $10 per square foot and this could rise by 10 per cent over the next 12 months, according to some analysts.

“The concern is in 2016 where you have the completion of Guoco Tower, the completion of Marina One and DUO," said Mr Donald Han, Managing Director of Chestertons Singapore. "These offices, combined with a few others, will offer almost 4 million square feet. We expect the market to see some form of moderation, or some form of down trend in 2016.”

Over the next six months, as more buildings like South Beach and CapitaGreen are completed, vacancy rates may increase as "the new buildings are not completing with full occupancy", he added.

As of April 15 this year, about 12 per cent of CapitaGreen's net lettable area of 700,000 square feet has been committed. Its developer CapitaLand said it was "optimistic" about progressively achieving 50 per cent commitment by the end of the year.

Responding to Channel NewsAsia's query regarding concerns about oversupply of office space, CapitaLand said: "The total gross new supply of office space in Singapore's Central Area from 2014 to 2018 is about 6 million square feet, but this only translates to an average gross new supply of about 1.2 million square feet per annum. This annual average gross new supply of 1.2 million square feet is not expected to be excessive given that in the past five years, from 2009 to 2013, the historical average annual net demand was around 1 million square feet while historical average annual net supply was 1.2 million square feet."

Over at the South Beach Tower, which is also expected to be completed by the end of this year, more than 50 per cent of the office space is under negotiation. The project has 500,000 square feet of lettable prime Grade A office space, and its first tenant is a foreign bank which has leased about 30,000 square feet of space.

Industry players noted that tenants are not taking up as much space as before. Mr Warren Bishop, CEO of Raffles Quay Asset Management (RQAM), said: "You are typically seeing transactions in the smaller size category, such as 10,000 square feet and 5,000 square feet. There is quite a lot of activity in that area. Bigger tenants are not in the market currently. It's not that they are downsizing or shrinking, but a lot of the bigger tenants we sign on our portfolio, you are talking about 100,000 to 300,000 square foot tenants. They would typically have signed longer-term leases and not do any transaction at the moment."

RQAM's portfolio of two properties - Marina Bay Financial Centre and One Raffles Quay - is about 98 per cent leased. The developer said there will probably be an under-supply of office space in the next 18 months and the supply that is due to come onstream in the next few years is "not unmanageable".

Established by Cheung Kong Holdings, Hongkong Land and Keppel Land in 2001, RQAM is keen on new development sites in the Marina Bay area, but will not commit to whether it will bid for a white site that is placed on the Reserve List of the Government Land Sales programme for the second half of 2014. The site, located near Marina View and Union Street has an estimated commercial space of 101,400 square metres of gross floor area.

Mr Bishop said: "As a consortium, we prefer larger sites that are available in the Marina Bay reclamation area. Naturally we will be looking at sites more within our vicinity, adjacent to Marina Bay Financial Centre. Whether or not we will look at the Union Street site, we will have to see. At the end of the day if it is attractive, certainly the shareholders might look at it. But the natural lean would be towards a site more adjacent to where we are now."

Tweet photos, videos and updates on this story to  @channelnewsasia