Office rents suffered steepest decline in almost six years in Q2

Rents fell by 2.6%.

Office rents booked a 2.6% quarter-on-quarter decline in the second quarter, according to the Urban Redevelopment Authority (URA)’s real estate statistics for Q2.

Cushman and Wakefield noted that this marks the steepest contraction since the fourth quarter of 2009, when rents dropped by 3.3% quarter-on-quarter. This is also the first decrease since the first quarter of 2013.

“The moderation can be attributed to the lacklustre Q2 GDP growth of 1.7% and the supply overhang of close to 4.0 msf of prime space arriving in 2016. Another source of weakness is due to the government’s restrictive foreign labour policy with Q1 office-using employment increasing by a mere 2,700 workers, the lowest level since 1Q2009 during the Global Financial Crisis,” Cushman and Wakefield said.

Cushman and Wakefield added that while the Q2 islandwide vacancy rate declined to 9.8% from 10.2% in Q1, broad weakness in the office leasing market along with record supply is expected to push vacancy rates sharply up in 2016.

“The anticipated weak economic growth does not bode well for the office leasing market, which is currently facing significant challenges with banks downsizing and large tech firms contemplating a relocation to cheaper business parks. With more companies seeking space rationalization in this challenging business environment and the absence of replacement demand drivers to pick up the slack, we expect rents to continue declining over the next six consecutive quarters,” Cushman and Wakefield noted.