The Singapore economy grew by 2.0 per cent (based on advanced estimates) on a year-on-year basis in the fourth quarter of 2015, triumphing the 1.8% growth in the previous quarter of 2015 and achieved an overall growth of 2.1%, in line with the GDP growth forecast of ‘close to 2.0 per cent’ as announced by the Ministry of Trade and Industry earlier.
The services producing industries contributed significantly to the overall GDP growth with a 3.2% growth in fourth quarter of 2015, a slight dip from the 3.4% growth in the previous quarter and an overall growth of 3.6% growth over the previous year. The growth was attributed to expansion in the wholesale and retail trade, and finance and insurance sectors.
Fueled by the increase in construction activities in the public sector, the construction sector saw a 2.2% growth in the fourth quarter of 2015 on a y-on-y basis, inching up on the 1.1% growth in the previous quarter with an overall growth of 1.1% over the previous year.
While the construction and services producing industry sectors saw growth, the same cannot be said for the manufacturing sector which saw a 6.0% contraction in y-on-y in the fourth quarter of 2015, continuing the trend which saw a decline of 5.9% from the previous quarter; resulting in an overall decline of 4.8% over the previous year. The decline in the manufacturing sector was due to a lower output from the electronics, transport engineering and precision engineering clusters.
As Singapore march towards the post LKY era, it faces enormous challenges to continuously reinvent itself to stay ahead of its flourishing neighbors, and become a magnet for foreign investments to create more jobs and attract top talents to work here. Singapore, as a developed nation faces structural challenges as a result of low birth rate and a rapidly ageing population. To maintain its competitiveness, it needs a skilled and productive workforce with relevant skills to cope with the demands of the modern business world and to add to that, new ideas to keep the economy growing. Finance Minister Heng Swee Keat will be leading a committee called ‘The Future Economy’ to look into helping workers as well as businesses adapt to the weaker global economy and a leaner workforce. The committee, made up of 30 members will comprise business leaders from multinational companies and ministers alike.
Office Space in CBD, Central Area and Fringe Areas
The total office space supply as at 3Q2015 stands at 81.59 million square feet across the island with a vacancy rate of 9.6% or approximately 8.03 million square feet, an increase in 0.2% over the previous quarter due to the removal of 32,292 sqft of office space from the total stock and 161,460 sqft of office space being taken up in the same period.
Median rental for Grade A+ office space in the Raffles Place/Marina Bay dropped to a range of $12.00-$13.30 per square foot, a -2.7 % change over the previous quarter. Median rental for Grade A fell to $10.10-$10.90 per square foot, a -0.7% change over the previous quarter. Grade A office space in Shenton Way/Robinson Road/Tanjong Pagar fell marginally by 0.6% over the previous quarter to $8.00 – $8.50* per square foot in the 3Q2015.
Median rental for office space in Orchard, Marina Centre, City Hall micro-market all fell by 0.2%, 1.1%, 0.5% respectively over the previous quarter. The median rental for the Bugis micro-market remained unchanged at around $7.70-$8.30.
Median rental for office space in CBD fringe areas dipped by 0.3% over the previous quarter to $5.40 to $8.20 per square foot in 3Q2015.
On the supply side, South Beach Tower is the only prominent Grade A office building to be completed in 2015 in the civic district with strong pre-commitment from tenants close to 90%. South Beach Tower has a net lettable area of 527,400 sqft. 137 Cecil Street, a non-Grade A building along Cecil Street was refurbished and completed in 2Q/3Q2015 and added approximately 68,019 square feet to total office & retail space within the Central Business District and over 54% of the office space in 137 Cecil Street has reportedly been leased at the end of 4Q2015.
Moving forward, the Singapore economy is expected to grow at a rate similar to 2015 albeit muted growth in most sectors. Oil & Gas, Marine and even the financial sectors are now under pressure to cut head count. The service sector, being very dependent on many of these sectors, would likewise follow suit. Interest rate hike in the US would also pull funds away from this region. China is stuttering and its economic growth is probably around 7%, a far cry from double digits in the yesteryears.
The Singapore government has just announced a $19 billion stimulus to focus on expanding the Research, Innovation and Enterprise (RIE) sector and this sector traditionally are not big users of office space particularly in the Central Business District. If the financial institutions and multinational companies are not expanding their footprint in Singapore, leasing activity could be sluggish in the coming year. With large scale office buildings such as Guoco Tower (855,601 sqft) completing in July, Marina One (1,880,000 sqft) and DUO Tower (570,000 sqft) both expected to complete later this year, the total amount of office space coming on to the market in the CBD and CBD fringe is approximately 4,522,723 sqft which is much higher than the average annual stock of 1.68 million from 2010-2014 inclusive. There would be enormous pressure on rents and the rate of decline in office rentals will be largely down to the holding power of landlords and commercial REITs. With muted leasing activity, tenants will be in great position to negotiate harder with landlords for more attractive rent and better incentives when their leases are up for renewal.
We are also likely to witness the migration patterns of tenants from the Central Business District to Decentralized Commercial areas as they embark on cost cutting measures and consolidate their workforce to keep their business going. Landlords will be trying hard to keep their tenants in place with better incentives in the form of rent-free period. However, the abundance of prime Grade A space coming up for lease will see continued ‘flight to quality’ trends continuing with technology, healthcare industries taking the lead.
With global uncertainty looming and a huge supply of office stock coming up, the forecast is for prime office rental to fall in 2016. Hopefully the billions pumped into the RIE sector by the Government would help alleviate part of the slow growth that is envisaged this year and next.
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