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Rents of prime retail spots and Grade A offices in CBD incline to decrease

Rents of prime retail spots and Grade A offices in CBD incline to decrease.

Rents across both Grade A CBD office spaces and prime retail spots will likely continue to face pressure in the coming 12 months, says a property consultancy in its Q2 reports. It forecasts declines across the board, except for prime suburban retail which has a stable 12-month outlook.

On the retail front, the consultancy noted that there are increased food and beverage (F&B) components in shopping malls and department stores to combat the surge of e-commerce. It also noted that the paradigm shift in shopping is becoming more evident, and that brick and mortar shops will be inadequate in today's context.

Prada had earlier announced plans to advertise via Snapchat and that it will be offering a range of goods online; meanwhile the Singapore Tourism Board is using WeChat and Baidu Connect to reach out to independent Chinese travellers.

Average prime rents along Orchard Road declined by 0.8 per cent quarter on quarter, as demand from international brands for shop-fronting prime space is still relatively steady.

Prime rents for ground floor units with good frontage sized below 3,000 square feet in the suburban areas meanwhile dipped 0.4 per cent while average prime rents in the city fringe fell by 0.6 per cent quarter on quarter.

That being said, demand is still relatively high for soon-to-be completed projects. Retail space at Compass One is 90.0 per cent pre-committed, ahead of its target opening in Q3. Meanwhile, Marina One is 50.0 per cent pre-leased with tenants such as Virgin Active, Cold Storage, and Cookhouse by Koufu.

In the longer term, rental for prime space in the city fringe are expected to be boosted by the completion of alteration and addition (A&A) works from major developments in the City Hall/Marina Bay cluster.

In terms of office outlook, it was noted that it is an opportune moment for companies who have been waiting on the sidelines to secure premium spaces at favourable rental rates.

The overall Grade A CBD vacancy rate dipped 0.4 percentage point to 4.2 per cent in Q2.

Marina Bay's vacancy rate declined to 5.5 per cent, down from 6.0 per cent while the vacancy rate in Raffles Place decreased to 2.9 per cent, down from 3.7 per cent in the previous quarter.

It is worth noting that there is still 1.88 million sq ft of space under construction in the Marina Bay area, and 2.44 million sq ft of space under construction in the Shenton Way/Tanjong Pagar sub-market.

The overall Grade A CBD rent moderated by 1.1 per cent to S$8.86 per square foot per month in the second quarter. Marina Bay rents declined by 1.4 per cent during the quarter to S$9.56 psf per month, while rents in Raffles Place slid 2.0 per cent to S$9.13 psf per month.

The report also notes that there was an uptick in office leasing activity during the second quarter, with a slew of leasing deals in upcoming projects which are slated for completion in the next six months.

Marina One reportedly achieved 550,000 sq ft in leasing pre-commitments, translating to a pre-commitment rate of 30 per cent. GuocoTower also saw substantial take-up of space during the quarter. Tech firm SAS leased a sizeable 20,000 sq ft of floor space in GuocoTower and will be relocating from Twenty Anson.

Looking ahead, the consultancy said that it expects the insurance segment to continue driving office leasing activity as the increasing frequency of cyber attacks, along with the government's ongoing Smart Nation initiative, will boost demand for cyber insurance.

Adapted from: The Business Times, 13 July 2016