Interest in commercial and industrial space may rise

February 19,  2019

Interest in commercial and industrial property could shoot up as investors look for alternative opportunities following last week's tough cooling measures for residential real estate, say consultants.

Retail investors who can afford a higher capital outlay could turn to strata-titled offices and conserved shophouses that are zoned commercial, Ms Christine Li, Cushman & Wakefield's senior director of research, told The Straits Times.

Other investors familiar with the industrial market might also reassess the sector, as rents for this kind of space are showing signs of stabilisation after a prolonged correction.

Ms Li also noted in a report that commercial rents have performed strongly since last year, with Grade A office space tracked by Cushman & Wakefield Research now 15 per cent up from the trough in the first quarter of last year, and just 7 per cent below the highs hit in the first quarter of 2015.

She noted: "Although we do not expect residential developers to rush into acquiring commercial and industrial sites, as many are not traditional commercial and industrial asset owners, over the medium term, some liquidity will still find its way back to these segments, should Singapore continue to remain a compelling choice for businesses."

Cushman & Wakefield noted that Grade A office rents in the Central Business District (CBD) accelerated in the second quarter of this year, increasing by 3.9 per cent from the first three months of the year - the fifth consecutive quarterly gain since the first quarter of last year.

This is probably a result of the increasing scarcity of Grade A space in areas such as Marina Bay and Raffles Place.

Frasers Tower received its temporary occupation permit last month with a pre-commitment rate of nearly 80 per cent. However, in this half of the year, the only Grade A CBD supply coming onstream is 18 Robinson by Tuan Sing Holdings. This should bode well for office demand over the next couple of years.

Companies usually prefer premium buildings with larger and more efficient floor plates.

There was more leasing activity late last year and earlier this year with the completion of Marina One, UIC Building and Frasers Tower, as companies were aiming to relocate to these premium buildings.

Supply continues to favour office landlords until 2020 or so, with the annual supply of Grade A CBD office space anticipated to stay below the historical annual average of one million sq ft.

The next large wave of supply totalling an estimated 1.9 million sq ft is expected to come in 2021, including the Central Boulevard government land sales site and CapitaSpring.

The second half of this year could see less activity as most of the occupier demand, particularly from co-working operators, has been met.

Rising CBD rents have made some consider decentralised locations.

Pre-leasing at Paya Lebar Quarter is now close to 80 per cent, with SMRT, Great Eastern and NTUC Income taking up large spaces.