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Role of brokerages heightened in market downturns: CBRE
THE real estate market across all sectors in Singapore is in a correction phase, and "in a quirky way", the job of brokerages has become more important during the transitions.
This is the time when clients - whether they are in office, retail, or industrial - will require even more of the support and advice of brokerages, CBRE managing director, brokerage (Singapore) Moray Armstrong said.
Leasing across the property sectors is expected to be weak going forward, given imminent oversupply and some sector-specific challenges such as the rise of e-commerce for retail and weak manufacturing for industrial.
Both landlords and occupiers need help, Mr Armstrong said.
Landlords need help to mitigate voids and vacancies, so brokerages would provide counsel on tenant retention and lease restructuring (including lease extensions) to provide long-term certainty of tenure.
On the flip side, occupiers may have to take a proactive approach in leasing space, particularly if they are looking to save costs, consolidate, or upgrade to new and better-quality supply coming onstream.
CBRE has installed a leadership that sits above the brokerage to ensure connectivity across the office, retail, and industrial & logistic services units, while still keeping sector specialisation.
This is because it has realised that many of its clients have exposure across multiple sectors. A company could require space for a head office, retail outlets to distribute its products, logistics requirements for inventory, and even data centre space for analytics. Data centre leasing is rare among brokerages, but CBRE has a specialist division hubbed in Singapore doing just that.
Revenue from CBRE's leasing brokerage made up about a fifth of its overall revenue of US$10.9 billion in 2015. CBRE's 2015 revenue was a 20 per cent surge from 2014 in US dollar terms. Of that, Asia-Pacific revenue made up 10 per cent and is on the uptrend.
In an interview with The Business Times, Mr Armstrong also said that he expects a recovery in the office market in 2017, while rentals may find a support level by the end of 2016.
He is methodological in arriving at these conclusions. Thus far, the correction phase in the office sector is now almost a year in, with vacancies trending up and rentals softening.
The previous three cycles in Singapore (one cycle is measured from trough to peak, or vice versa) have averaged about 1.5 to two years. That seems to suggest that a turnaround is possible in six months' time, but for this cycle, there is the added complication of a strong delivery of some four million square feet of office space completing in 2016.
"In terms of profiling of the market, we do think this correction phase has further to run, but I would suggest looking to an inflexion point somewhere round about mid-2017, because by then, the bulk of the supply wave would have passed and absorption would have kicked in and improved. I would also optimistically look to the Singapore economy starting to strengthen and improve by then."
He added that the office market is highly cyclical, and cycles in Singapore tend to be shorter compared with other cities such as London and New York, given its small size and open economy, which exposes it more to fluctuations in economic growth. The correlation with GDP is more pronounced and thus accentuates its volatility.
In industrial, low-end manufacturers have been the major casualties as Singapore moves up the value chain. But occupiers are adapting. Some industrialists are looking to extract value from their facilities through sale and leaseback arrangements. Niche sectors such as data centres, pharmaceutical and IT also continue to do well.
In retail, e-commerce is hurting physical retailers, but the latter are also adapting by adopting an omni-channel approach - through having both online and brick-and-mortar presences. Landlords are also injecting more food and beverage offerings into their malls. Meanwhile, this adjustment period also opens up opportunities for retailers to gain access to prime retail space that hitherto had not been available because it is always tightly held and rarely vacant.
Across the sectors, Mr Armstrong expects transaction volume to "rise markedly" owing to the closing of the rental gap between expectations from landlords and end-users.
"That will support an upsurge in leasing activity. It is counter-intuitive, but this correction is about to support a strengthening in momentum of leasing activity. I think you will see anchor tenants (occupiers typically of more than 100,000 sq ft) firm up leasing transactions in the first half of this year.
"This is a contrast to where we were last year when there was a disconnect between where occupiers felt the market rates should be, and expectations set by landlords.
"That gap has closed to the point that transactions will start to emerge. Several large projects are also set to complete in the second half of the year. In my experience, if that becomes a trend, it can be a sign of the market finding its support level. That also very often leads to a recovery at some point thereafter."