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COMMERCIAL SECTORS SHOW SIGNS OF RENTAL REDUCTION: CREDIT SUISSE REPORT

posted Jul 28, 2015, 9:06 PM by Benjamin Ng   [ updated Oct 24, 2015, 10:01 PM ]
The latest report from Credit Suisse shows that the office sector recorded the highest quarterly drop in office rental for Q2 2015. 

In Q2, fringe zones had a rental reduction of 2.4%, while the central zones broke the heaviest drop of 2.6%. This was the largest drop recorded in rental since 2009, and it came directly after a slowing pace of growth in the previous three quarters: +2.6 percent in Q3 2014, +1.7 percent in Q3 2014 and +0.6 percent in Q1 2015.

Despite all that, the island-wide occupancy rate for office space increase by 0.6% to 89.5% in Q2 2015, while the net demand for office space reached 333,681 sq ft as tenants relocated to CapitaGreen & South Beach. The combined of these 2 project had injected 1.5 million sq ft into the market since their completion in Q4 2014.

Cited landlord Capitaland Commercial Trust, 50% of the tenants moved to CapitaGreen for expansion purposes, 25% consolidated space for operational efficiency, 12% was relocated from other developments, 13% was actually attracted by CapitaGreen’s building specifications and new set-up concepts.

Due to large supplies in the pipeline, office rents are expected to be affected negatively said the Swiss Financial Institution.

“We understand that pre-leasing activity of incoming office buildings has started and concerns about the sizeable oncoming supply is likely to be pushing the negotiating power further in favour of tenants.”

Moving on to the retail segment, overall retail rents slipped by 0.6% quarter-on-quarter in Q2 2015, dragged down by the 0.4% and 0.6% rental drop in the fringe and central zones.

Similarly, median rents in the central area dropped by 0.3%. Orchard Road tumbled by 0.4%, while the rest of the city area registered the largest reduction in rent by 0.6%.
Additionally, island-wide vacancy level climbed by 0.3% point to 8.6% in Q2 2015. Vacancy rate in Orchard Road rose by 1.2% point to 8.6%, while that in Downtown core zones increased by 1.4% point to 15.5%.

In comparison, “there was more stability outside the central region (OCR) as fringe vacancies fell 0.7% point and Outside Central Region occupancies only fell 0.4% point. Occupancy is currently highest for Outside Central Region at 95.8%, while downtown core is the lowest at 83.5%,” noted Credit Suisse.

With this, rents at suburban malls are expected to more resilient than those in other areas in the future.

Meanwhile, industrial rents in Singapore softened by 0.7% in Q2 2015 mainly due to the 1.2% rental drop in multi-user factories, while warehouses posted a marginal drop of 0.1%.

Although the vacancy level for factories rose by 0.2% point, business parks and warehouses saw better occupancy as their vacancy rate dropped by 0.9% and 1.7% point respectively.

However, Credit Suisse projected that occupancy levels for warehouses could subsequently come under pressure due to the expected non-renewal of leases for some tenants of single-user industrial properties.

Credits: Commercialguru
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