Opportunities in the office market

The sectors contributing to occupier movement include e-commerce firms, Asian financial institutions and pharmaceutical companies.

LAST year, the benign economy weighed on office leasing demand. Much of the leasing activity was by existing tenant movements due to upgrading or rent advantage rather than expansionary purposes. The lack of demand from financial institutions remained the principal headwind for office demand in the Central Business District (CBD). While the energy and commodity sectors continued to be cautious, the sectors that have contributed to occupier movements included e-commerce firms, some Asian financial institutions, insurance and pharmaceutical firms.

Given that the weak economic outlook is projected to continue, office leasing demand is expected to be relatively muted over the next 12 months. While there is greater caution in the occupier community which may impact expansion and leasing volume, the other main concern lies in the wave of new development completions scheduled from H2 2016.

The only known upcoming Grade-A CBD Core supply will be Marina One (1.8 million sq ft) in H2 2016. Two other major office developments are expected to complete also in H2 2016, albeit in the CBD fringe. They include Guoco Tower (850,000 sq ft) and Duo (570,000 million sq ft). CBRE Research does not view the overall volume of future office supply as excessive but the scheduling remains a concern.

Vacancy levels remained relatively low amid a lack of major new supply in 2015. However, with new supply expected to outpace the current anaemic demand, this low level of vacancy is expected to be challenged by the looming wave of new supply in H2 2016.

Landlords are expected to focus more on occupancy than on rental values especially when tenant retention is given higher priority by existing landlords. Grade-A CBD Core office rents already corrected from Q2 2015, declining 8.8 per cent for the year. CBRE Research expects further downward pressure on rents, with supply expected to outweigh demand in the short to medium term.

In the words of John F Kennedy, the word "crisis" is written in two Chinese characters "danger" and "opportunity". "In a crisis, be aware of the danger - but recognise the opportunity."

The office market is definitely presented with major challenges in the short to medium term. However, there are also several opportunities that may emerge for either landlords or occupiers during these challenging times.


With the expected downward pressure on rents, some occupiers may take advantage of this opportunity to locate themselves in Grade-A CBD Core premises in the light of a more cost-competitive leasing climate. At present, it is evident that some occupiers have been holding off space planning in anticipation that the market may move in a direction favourable to them and they can take advantage of more competitive lease terms. The gap in expectations between landlords and prospective tenants is expected to narrow and interest in the upcoming developments is increasing, leading to pre-lease commitments.

CBRE Research expects some key anchor tenant deals to conclude closer to the completion of the upcoming developments. "Flight to value" is expected to drive occupier movements for 2016 and 2017.


In addition, it should be noted that Singapore's office market cycles are becoming shorter and less volatile. When compared to rental cycle patterns prior to the peak of Q3 2008 (chart), it is obvious that the peak-to- peak rental cycles have been shorter at approximately 15 quarters compared to the previous 20 to 30-quarter cycles while the trough-to-peak rental changes have become more subdued.

Currently, there are also no other Grade-A CBD Core supply expected beyond 2016. The white site in Marina Bay at Central Boulevard on the Reserve List of the Government Land Sales (GLS) programme remains the only expected potential supply in the CBD. With a typical project development period of up to four to five years, it is quite likely that the market may face a shortage of CBD office developments from 2018 till around 2021 if this site is successfully tendered and awarded for sale.

Hence, with the limited supply post 2016, the market could find support sooner than anticipated by market players. Based on historical market performance, occupiers should not assume that favourable market conditions will certainly continue over a medium to long-term horizon.

Concerns around the high volume of new CBD office supply in 2016 will likely ease as occupancy is expected to firm up and there is a greater visibility on the absence of new supply towards the close of the decade. CBRE Research expects a possible market recovery to occur as soon as end-2018 especially when available space is expected to get tighter should demand remain relatively stable.


The financial industry in Singapore was dealt a huge blow by the Global Financial Crisis in 2007/2008 followed later by the Eurozone Crisis. This affected the Singapore office market as the financial sector was a key demand driver for this sector prior to these crises. Similarly, the downturn in the energy and commodities sector has also impacted office demand. The office market was thus characterised by consolidation and right-sizing as a consequence of the downturn in these industries.

However, resilience in the office market has been aided by a diversification of office demand. Occupier demand was fairly diversified while the formerly dominant financial industry remained muted. Complementary industries such as insurance, commodities, business services and the legal sector continue to sustain demand while new sectors such as pharmaceutical and e-commerce firms have expanded their office footprints in the CBD. The office market has benefited from occupier demand across non-financial occupiers and is weaning itself off the predominant finance industry.


CBRE remains optimistic about the market prospects as the broader-based occupier demand will prove to be more stable for the office market in the long run. This is definitely in line with two of the seven strategies in the 2010 report of the Economic Strategies Committee (ESC) - Anchor Singapore as a Global-Asia Hub and Build a Vibrant and Diverse Corporate Ecosystem.

Looking ahead, the current demand and supply imbalance is expected to exert some pressures on the office market in the near to middle term. However, opportunities remain in the market for both occupiers and landlords. Just as the office market has somewhat benefited from the ESC 2010's drive to generate growth, gain market share, encourage competitiveness and boost foreign direct investments, the market now anticipates that the strategies/policies that the Committee on the Future Economy may implement will help drive the office market.

  • The writer is head of CBRE Research for Singapore and South-east Asia.

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