Brace for a bumper influx of fringe office spaces in 2013

And rents may slip 10%.

According to DBS Vickers, the medium term outlook for the Singapore commercial sector is one of high incoming supply amid a sub-par economic growth environment.

Here's more from DBS:

In 2013, we are likely to see a bumper influx of both fringe office space and quasi office properties, totaling 5msf, of which 52% is office space and the remaining business parks space.

While we still expect to see positive business formations and positive net absorption of office space, the large influx of new inventory is likely to boost vacancy levels in the short term and drag on rental outlook.

Rents expected to decline by 10%. We expect office rents to decline by an average of 10% in 2013 while capital values are likely to hold up relatively well as interest rates remain low.

We do not expect to see further significant cap rate compression from hereon and capital values are likely to remain stable and supportive of RNAV valuations. Our strategy for office reits and landlords in 2013 is to prefer office landlords with exposure to the CBD or Central areas.

With less new incoming supply of office space into the Central locations till 2015, we believe landlords are likely to face slightly less drag on rental rates before the completion of the two major developments by M+S Pte Ltd in 2016/17.

Conversely, landlords with assets located in the fringe areas as well as older buildings in the Central areas are likely to experience greater downward rental pressure as they would have to price rentals competitively between business parks and Central offerings.