COVER STORY
Office rents to recover on the back of accelerated vaccine rollout It showed hopeful signs when prime offices occupancy rate increased for the first time since the pandemic to 94.3% in Q2, Knight Frank says.
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fter several circuit breakers that took place in the second quarter (Q2) of 2021, it does not come as a surprise that the commercial property market remained weak. PropertyGuru’s director of special projects, Winston Lee, said that the retail segment continues to be under pressure with travel restrictions and social distancing measures impacting shopper traffic. Sales have dropped between 30% to 70% for some retailers since the pandemic. Meanwhile, the Urban Retail Development (URA) recorded slips in prices and rentals in the retail space. However, on the back of the government’s vaccine rollout, the rising tech industry and pending economic recovery, analysts still see a silver lining for commercial real estate property’s recovery. Office CBD grade A rents continue to have weak but positive demand for Q2 2021. In Cushman & Wakefield’s Office Q2 2021 marketbeat report, CBD grade A rents returned to growth at 0.5% quarter-on-quarter (QoQ), reaching $9.60 per square foot (sf) per month in Q2 2021 after five consecutive quarters of decline. “Net demand was positive at 17,000sf in Q2 2021 and 51,000sf in the first quarter (Q1) of 2021. Nonetheless, vacancy rates for CBD grade A continued to climb to 4.6% in Q2 2021, up 0.4 percentage points (pp) from Q1 2021 as net supply grew faster than net demand,” the report said. Cushman & Wakefield pointed out the key drivers of net supply growth being the completion of Afro Asia i-Mark and the addition of Lazada One to C&W’s grade A basket. Meanwhile, outside CBD, rents in Suburban (all grades) rose by 0.2% QoQ amidst lower vacancy rates; whereas City Fringe (all grades) 30
SINGAPORE BUSINESS REVIEW | DECEMBER 2020
How did the several rounds of circuit breakers affect the commercial property market?
rents fell by 0.5% QoQ, dragged lower by non-grade A buildings. Knight Frank agreed that rents showed hopeful signs of bottoming as soon as the occupancy rate for prime offices in the precinct increased for the first time since the start of the COVID-19 pandemic, growing 0.1 pp QoQ to reach 94.3% in Q2 2021. “Even though business sentiment improved with the recovering economy, pretermination space remained fairly stable in Q2 2021 with over 360,000 sf available compared to the 344,000-sf estimate in Q1 2021. This increase in shadow space was largely a result of right-sizing due to the adoption of rotational work-from-home protocols, more so than businesses and companies downsizing,” Knight Frank said. “For similar reasons, banks and financial institutions also trimmed their office footprints. This has freed up space in prime buildings that were typically full, hence fueling “flight-toquality” moves that characterise the current market activity. As a result,
Leonard Tay
Tricia Song
both shadow space and space given up at natural lease expiry in prime buildings should be absorbed,” Knight Frank added. Cushman & Wakefield even predicted that office net demand will be six times that of 2020 levels. Knight Frank Singapore’s head of research, Leonard Tay, however had a more modest prediction. The Information and Communications sector is expected to add more jobs over the next three years and the government’s expediting its vaccination rollout will eventually lead to economic recovery and boost the office market, as well. Retail The threat of a resurgence of COVID-19 cases still looms over the horizon for the retail property segment. Cushman & Wakefield’s data showed that an economic turnaround of 1.3% was registered in Q1 2021, with Singapore on track to achieve 4% to 6% gross domestic product (GDP) growth in 2021. At the same time, the retail market
