Foreign investors shun Singapore commercial property as tenant demand hits record low

Capital values will deteriorate further.

Investment enquiries from potential foreign buyers of commercial properties fell for the third consecutive quarter in Q1, according to data compiled by the Royal Institution of Chartered Surveyors (RICS).

The report by RICS also showed that tenant demand for commercial property has fallen at its fastest pace in Q1 2016 since the depths of the financial crisis in 2009.

The sharp decline in occupier demand has taken its toll on investment activity, as foreign buyers increasingly look beyond Singapore for better returns.

The survey showed that majority or 64% of surveyors expect rents to fall further over in the next quarter, and 65% expect the downward trend to continue into next year. Over the next twelve months, respondents expect rental values to fall by 5.8%, with all sectors forecast to see a substantial decline.

In response with a sharp decline in demand, landlords have increased rent-free periods to incentivize tenants to sign leases. Meanwhile, developers are putting the brakes on development projects, particularly for retail and industrial properties. In the office sector, only 20% of respondents reported an increase in project starts.

Against a weakening economy, the Q1 2016 RICS Global Cities Commercial Property Monitor showed that contracting demand from both occupiers and investors has led chartered surveyors to anticipate a further drop in capital values and rents over the coming year. Despite this, survey respondents were reluctant to describe local real estate as affordable or reflecting true value.

“The softening Singapore commercial market reflects, in part, some of the ongoing macroeconomic challenges facing the country and the wider Asia Pacific region. In the immediate future, Singapore property professionals remain pessimistic about the market rebounding. Ongoing cooling measures, compounded with rising interest rates, suggest that improvements, if any, are likely to be both slow and small,” said RICS ASEAN Director Dexter See.