Commercial property trends and outlook

The Singapore office rental market was stable in Q2 2013, since Grade A office rents only fell by an average of 0.4 percent quarter-on-quarter. This was the smallest quarterly decline since it fell consecutive quarters from Q4 2011.

Thus, there are hints that office rents are on the way to recovery by 2014. In fact, rents could potentially stabilise across the board from H2 2013, after which limited vacant space will allow landlords to renew leases or make new offers at higher rates since there might be fewer competing choices elsewhere. The economy in the U.S. might improve and if that leads to a worldwide improvement in economic conditions, MNCs may be in a better position to plan for expansions into key markets in Asia.

Rents of Grade A office space are likely to bottom out and then see some marginal recovery from H1 2014. Office space in the city fringes and suburban areas will start to enjoy modest increases from H2 2013. Benchmark rents in suburban offices are also expected to be boosted by new completions such as The Metropolis. The overall outlook for landlords of office space is cautiously optimistic from H2 2013. Landlords are unlikely to radically raise rents but neither will they be keen to lower rents in order to retain or attract new tenants since overall economic conditions are improving.

Strata offices continue to be well received

Office prices rose 1.5 percent quarter-on-quarter in Q2 2013 according to URA, easing from the 2.1 percent quarter-on-quarter increase in Q1 2013. This shows that investors have an interest in buying strata offices, though they are becoming increasingly prudent because of high strata office prices. This is also the only sector of non-residential strata investments that has not seen cooling measures.

Major businesses that want to own property have shown an on-going, strong buying interest in strata offices, as the past decades saw a dearth in new strata offices. New strata offices will continually be valued by users who want long term certainty and who want to avoid the cost of unnecessary relocations due to rental fluctuations.

Strata office sales are expected to remain active in H2 2013, and speculations in strata office properties will not be significant. There’s also no major need to ensure compatibility in tenant mix in strata office buildings, unlike malls. The outlook for strata offices is thus the most optimistic compared to strata factories, shops and residential property investments.

Will cooling measures for the residential market affect the outlook for commercial properties?

The cooling measures for the residential market would mean that investors would look for alternative assets, and may even seek investments outside of Singapore.

For commercial properties (including offices, shops and shophouses), we see investors readily looking at them, especially those for sale with tenancy. The majority of such buildings are owned and managed by major landlords or trust funds, so the shortage of strata units and shophouses mean that there would be capital appreciation when held over time.

For investors who are looking to buy commercial and industrial properties, it is important to define the purchase objectives: is it for capital appreciation and what is the holding period? Is it for rental yield and what is the nett rental yield expected? For business owners who are looking to occupy the space, is it to curb rental?

Also, investing in commercial properties can be tricky, as there are not many agents who have the specialised knowledge to advise on how best to invest in that sector. By working with a specialised real estate consultancy like PropertyBank, you can take advantage of their expert advice and personalised know-how to make the right investment decision.

Source: 1st November 2013 Propertyguru

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Commercial property trends and outlook

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