Optimism On Singapore Office Market

Optimism On Singapore Office Market Should Be Tempered

SINGAPORE – Investors have been splurging on office properties here, including groups owned by institutional investors and affluent Asian families, but there are reasons to temper optimism in the office market, according to an opinion piece published by The Business Times on Monday afternoon (1 August, SGT).

“Firstly, interest rates are rising,” argued Leslie Yee of the news outlet.

“If borrowing cost is over 2 percent per annum and initial net yield on the purchase of an office building is around 3 percent, the spread between the net yield and the borrowing cost is fairly narrow. Should a major tenant vacate and a gap exist before the new tenant moves in, the spread can turn negative in the interim. Also, further increases in debt costs can erase any positive spread,” she opined.

Office rents may increase when leases come up for renewal, especially as the stock of good quality office buildings appears tight, and this would push up net yield. However, it will still take time for the positive effects of positive office rental reversion to flow through.

Second, she believes that it could be risky to assume that office rents and occupancy would rise despite deteriorating economic and business across the world. The risk of economic recession in the United States and other countries is increasing. With a weaker economic outlook, businesses may slow down on leasing more office space. If economies contract, companies may actively reduce costs, including property expenses.

“Thirdly, these are early days in drawing a definitive conclusion on the relevance of office buildings. Technological advances have enabled the widespread adoption of remote working. Many knowledge workers appear to value having flexible work arrangements,” Yee added.

Nonetheless, the active office sales market indicates that investors are probably betting big on Singapore’s growing importance as a commercial hub.

Recently, The Economist magazine stated that the city-state could be the main beneficiary as the map of Asian financial hubs is being redrawn. With Asia accounting for a third of global GDP and its weight in the world economy increasing, owners of premium office buildings in Singapore could benefit from this trend.

Free Finding Service