Q3 – Office rents up. Retail rents down.

In the commercial real estate sector, rents in different segments have veered in opposite directions.

Office rental prices rose in Q3

Despite the vacancy rate for the office sector at its highest in 12 years, rents have risen 2.4% last quarter. This is the sector’s first rise in 10 quarters. The previous quarter saw a 1.1% decline.

Supply of completed office spaces has increased. That said, analyst consider Q3’s price rise a positive sign. It is an indication that prior fears of oversupply have diminished. More new office developments are seeing an increase in uptake of spaces.

Perhaps in alignment with positive sentiments around the residential property market, commercial real estate is also seeing a uptick. Sooner than expected however. Recoveries in industries such as shipping, energy, legal and technology have made up for the softening of the banking and financial services sectors. The improving economy have boosted market confidence, to the benefit of the commercial real estate sector.

En bloc sales have picked up for commercial properties as well with the recent awarding of the Beach road site. The acquisition of Asia Square Tower 2 and with Tanglin Shopping Centre making another attempt at a collective sale, leasing momentum looks set to pick up.

Retail prices and rents dipped but far from being in the slumps

Orchard Road

Retail rents, however, have had a lacklustre showing last quarter. Prices fell 0.9% following a 3.2% decline in Q2. Rents fell 0.2% following a 1.2% drop in the second quarter. The fall in Q3 was, however, less steep, showing that the decline have moderated somewhat.

Demand for retail space has also increased in Q3. Across the country, demand rose by 15,000 sq m, compared to the contraction of 41,000 sq m and 3,000 sq m in the first and second quarters respectively.

Analysts attribute the increase in demand to improving tourism traffic. Demand for Orchard road retails spaces have previously waned but retail rents of these units are leading the recovery. Median rents of new leases increased by 1%, the first rise after 10 quarters of decline.

More new-to-market international brands are showing interest in Orchard road retail spaces and malls. Fringe areas however may still struggle slightly. E-commerce is however a major force of competition for the retail market. While big-box retailers such as Courts, Decathlon, Gain City and Harvey Norman are moving towards a stronger e-commerce platform, some online shops are moving the other direction and setting up brick-and-mortar physical stores.