Do rental prices hitting all-time high in 2012 indicate a better future for the office market?

Experts unfortunately said that 2013 would be even worse than we thought.

Data from the Urban Redevelopment Authority have shown that office rent in the central region of Singapore held steady at $9.35psfpm in 3Q12 while median price increased 1.9% q-q to $1,098psf, compared to the 0.9% decline seen in the previous quarter. 

The industrial property price index meanwhile soared 8.8% to 183.3 and surpassed the all-time high of 168.4 registered in the last quarter. Phillip Capital however notes that rising momentum on industrial rents are petering out and slowed to an increase of 1.2% to 127.9 in 3Q12, relatively lower than the growth rates of 1.8% in 1Q12 and 2.8% in2Q12.  

Cushman & Wakefield notes that ental trend across all submarkets in Q3 2012 confirmed that the  office market has softened further but at a more moderate pace as compared with 1H2012. Not surprisingly, Marina Bay and Raffles Place, it said, registered the highest QoQ rental decrease of 2.5% and 3.9%, respectively. Meanwhile, other areas saw more temperate rental corrections ranging from 0.2% to 1.8%.

The following are views from experts how would Singapore office market be by 2013:

Getty Goh, Director, Ascendant Assets

While private property prices have reached an all-time high in 2012, in comparison the office space sector has been fairly subdued since the markets recovered after the global financial crisis in 2008.

Moving forward, we expect office spaces to continue to be subdued in 2013 for two main reasons. Firstly there is ample supply of office space coming up from now till 2016. Based on projections by URA, 262,000sq m of office space is expected to come online by 2013. By the time we reach 2016, about 800,000sq m worth of office space will be available. This will inevitably put some pressure on office prices (in terms of rental and transaction).

Secondly, the office market is more susceptible to economic performance. Issues such as the European sovereign debt crisis, the sizable US trade deficit, weakening global outlook, etc. are all still there. All these issues could potentially degenerate to become a full-blown financial crisis in 2013. Hence those who are thinking of buying or renting office spaces will likely stay away in 2013 until there is clarity on how these issues can be resolved.

Moving forward, we expect office spaces to continue to be subdued in 2013 for two main reasons. Firstly there is ample supply of office space coming up from now till 2016. Based on projections by URA, 262,000sq m of office space is expected to come online by 2013. By the time we reach 2016, about 800,000sq m worth of office space will be available. This will inevitably put some pressure on office prices (in terms of rental and transaction).

Secondly, the office market is more susceptible to economic performance. Issues such as the European sovereign debt crisis, the sizable US trade deficit, weakening global outlook, etc. are all still there. All these issues could potentially degenerate to become a full-blown financial crisis in 2013. Hence those who are thinking of buying or renting office spaces will likely stay away in 2013 until there is clarity on how these issues can be resolved.

Nicholas Mak, Executive Director, SLP International Property Consultants 

Briefly, the average office rentals in Singapore could come under downwards pressure in 2013, especially in the CBD area. A large supply of about 2.8 million sq ft of new office space is expected to be completed in 2013. Furthermore, the economic uncertainty may cause businesses to be cautious about their expansion plans. As a result, demand for office space could be slower in 2013.