Singapore office rents to start seeing coronavirus impact in Q2: Colliers

THE impact of the Covid-19 outbreak on Singapore's central business district (CBD) Grade A office rents was not yet apparent in the first quarter this year, as rents and capital values remained flat, while vacancy tightened. This is according to research by Colliers International, released on Tuesday. 

On average, CBD Grade A rent was unchanged quarter on quarter (q-o-q) at S$10.09 per square foot per month (psf pm), and rose 4.7 per cent year on year. 

Colliers expects the effect of Covid-19 on office rents to be more evident in Q2 2020, though the pandemic may not jolt the office market as significantly as past crises. 

Tricia Song, head of research for Singapore at Colliers International said: "In the 2003 Sars episode, the effect was noticeable after a one-quarter lag. While the Covid-19 pandemic could last longer than Sars, we observe that the current office market has lower vacancy and supply than it did in 2003. Rental levels are also not at 'bubble' levels seen in the run-up to the Global Financial Crisis in 2008. However, the odds of a global recession have risen and pose downside risk to demand and rents."

In light of slower demand and higher forward supply, Colliers expect a 4 per cent rent decline in 2021. 

Demand drivers in Q1 continued to be the technology, media and telecommunications (TMT) and flexible workspace sectors. Demand from TMT included An Xing Technologies occupying One Marina Boulevard, as well as Shutterstock and IRESS Market Technology in 18 Robinson. New space take-up at 18 Robinson in Q1 helped to push its occupancy to 95.3 per cent from 67.3 per cent. This in turn led to further tightening of CBD Grade A vacancy to 3.1 per cent, from 3.4 per cent in the previous quarter. 

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Rick Thomas, head of occupier services in Singapore at Colliers International, noted that as a result of the virus outbreak and safe distancing measures, many companies have progressively pivoted to remote working.

Added Mr Thomas: "We believe the Covid-19 outbreak will profoundly change the way people work and could fast track the adoption of new technologies... At this juncture, we would recommend occupiers to invest in technology and review their real estate space requirements amid shifting market dynamics."

According to Colliers, the flexible workspace sector is set to expand its footprint further in the coming quarters: JustCo is opening new branches at OCBC Centre East (45,000 sq ft) in Q2 and Centrepoint (60,000 sq ft) in Q3, The Great Room is occupying 37,000 sq ft of space at the new Afro-Asia i-Mark building in Q2, while Arcc Spaces will launch its flagship space (19,000 sq ft) at One Marina Boulevard in April.

On the supply side, Colliers expects that CBD Grade A supply will be muted through 2021, with the next major supply hike due in 2022. 

Transaction volumes however, were subdued as investors stayed on the sidelines, the property consulting firm added. With fewer transactions in the quarter, the average imputed capital value of CBD Grade A office properties stayed flat q-o-q at S$2,518 psf. 

Meanwhile, total office or mixed office developments investment volumes fell 32 per cent q-o-q to S$746 million in Q1 2020, bringing the rolling 12-month volumes to S$7.4 billion, down 2.6 per cent from the previous quarter. 

Sales during the quarter was driven mainly by the S$648 million transaction of China Square Central as a result of the merger between Frasers Commercial Trust and Frasers Logistics & Industrial Trust announced prior to the Covid-19 outbreak. Excluding this deal, investment sales would have fallen 91 per cent q-o-q, with just three strata transactions at Samsung Hub and Suntec Tower One, Colliers pointed out. 

In the near-term, Colliers expects that concerns about the economic fall-out from the virus outbreak will "cloud market sentiment considerably". Over the next few years, however, real estate investment sales prospects remain optimistic, on a favourable interest rate outlook and capital allocation to Asia.

Jerome Wright, senior director of capital markets in Singapore at Colliers International, said: "Singapore's strong policy response to Covid-19 should instil confidence in occupiers, talent and investors, reinforcing Singapore's safe haven status. When the situation gets back to normal, the real estate market will be among the first to recover. There will be real estate opportunities, as businesses affected by Covid-19 will have to reassess their options."