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COMMERCIAL property prices and rentals fell further in the fourth quarter of last year, as supply outpaced demand.
According to figures released by the Urban Redevelopment Authority (URA), office rents fell by 1.8 per cent in Q4, albeit at a slower pace of decline than the 2.9 per cent decrease in Q3.
This led to a full-year drop of 6.5 per cent, which eroded most of the gains achieved in 2014 when rents rose 9.8 per cent.
Weak leasing demand led to net absorption of office space turning negative in Q4 with nett 107,639 square feet of space given up.
However, shrinking new office stock during the quarter resulted in vacancy rates holding steady at about 9.6 per cent.
But with the supply overhang of more than four million sq ft in gross floor area of office space slated for completion in 2016, vacancy rates will surge past double digits this year, said Christine Li, research director at Cushman & Wakefield.
Alan Cheong, Savills Singapore's research head, said: "2015 was when advance notice was given by investment banks and tech companies of their medium-term real estate needs . . . with many foreign banks scaling back and tech companies split in their choice of traditional office versus business park space."
Consultants believe that the weak office leasing was due to a slump in business sentiment, weak macroeconomic conditions on the back of China's slowdown, and continued volatility in the Chinese stock market reverberating through global economies.
Ms Li said: "With prime rents projected to slide by a further 10-12 per cent in 2016, a wave of flight to quality is expected as tenants seize the opportunity to lock in long leases in the upcoming premium developments at attractive rental rates."
This is already a more conservative forecast, compared to Chris Archibold, JLL's head of markets, Singapore, who expects prime office rents to plunge 10 to 20 per cent in 2016.
Despite the fall in rents, office prices stayed resilient with both a quarter-on-quarter and year-on-year dip of just 0.1 per cent in the fourth quarter.
Consultants said the resilience in price could be due to the scarcity of prime assets available for sale, as well as the weight of capital looking for investments.
The office sector continues to see strong overseas interest with foreign investors bidding for Asia Square Tower 1 and One George Street.
BlackRock Real Estate, which owns Asia Square Tower 1, has said that talks with several buyers are in progress, even after CapitaLand last November bowed out of negotiations.
An expression of interest exercise is also said to have ended early last month for the sale of a half stake in CapitaLand Commercial Trust's One George Street office tower.
Analysts think that office capital values will in time start to track rental growth and moderate further, but it is hard to say exactly how long it will take before the market sees a more significant drop in office prices.
On the retail space front, rentals fell 1.3 per cent in Q4, after falling 2 per cent in Q3. For the whole of 2015, rentals have fallen 4.1 per cent.
This comes as some retailers are consolidating their businesses, to counter cost and operational pressures. Vacancy rose from 7 per cent in Q3 to 7.2 per cent in Q4, as there was negative absorption of space.
Prices of retail space too was more resilient, falling 0.1 per cent in Q4, after falling 0.3 per cent in Q3. For the whole of 2015, prices had fallen by 0.8 per cent.
Mr Cheong from Savills said: "Notwithstanding the problem of stagnant retail sales, the retail space sector is holding up reasonably well. Although softness can be seen in the rental market, they are still consolidating in an orderly manner."