"Shadow spaces" are growing behind bright office market

Expansion of tech and real estate firms lifted demand to 50% in 2017.

So-called "shadow spaces" are slowly growing in Singapore's office market, as they expanded from an average of 112,000 sqft in 2014-2016 to 172,000 sqft in 2017, UOB Kay Hian said.

According to their report on the Built Environment & Property Prospects Seminar 2018, shadow supply is leased but empty spaces, due to downsized companies with more leased space than they need, or tenants stuck in long-term leases with more space than they need.

"The excess of shadow spaces may pose competition going forward, especially for older buildings," UOB Kay Hian analyst Vikrant Pandey said.

Despite the growth of shadow spaces, Cushman & Wakefield (C&W) said that the expansion of tech and real estate players lifted leasing demand from 14% to 50% during 2014 to 2017.

"At the current pace of expansion, these players may extend their presence to outside of CBD area," UOB Kay Hian analyst Peihao Loke said.

Overall, Grade-A central business district (CBD) rents rose 6.6%, led by Marina Bay rents rising by 15.6%, despite the entry of 2.2 million sqft office space into the market.

Here's more from UOB Kay Hian:

New projects are also seeing strong performance, with high occupancies at Guoco Tower (99%), Marina One (80%), Duo Tower (80%), UIC Building (85%).

Frasers Tower is also enjoying good leasing momentum (with 40% pre-leased). Due to the strong pick-up in GDP of 3.5% (vs 2% average in 2015/16), the positive sentiment had added about 16,100 jobs.

As a growth driver, manufacturing has the greatest spillover to services, thereby creating demand for office space. C&W noted that with every S$1m value-add in manufacturing, $0.29m of value-add in services is created. Every 100 new jobs in manufacturing also created 27 new jobs in services.