Rise in building vacancy signals risky year ahead for the non-residential property

With the expected economic slowdown, it seems that persistent falls in building vacancy is a certainty than a possibility, warned an expert.

According to R’ST Research director Ong Kah Seng, things will be harder in 2012 for the non-residential sectorwhich have been the hot favourites of investors this year largely as there was limited property cooling measures. The extent will however depend on each property fundamentals, such as stock, users’ and investors’ mode of operations and property investment and appetite.

The expert provided the following estimates on property sector vacancy:

 

Property Sector Vacancy as at 3Q 2011 Estimated Vacancy
By end 2Q 2012
 
office (island-wide) 10.8% 12.4%
office (prime-CBD) 6.3% 8-9.5%
     
retail (island-wide) 7% 8-9.5%
retail (primed- Orchard Road) 7.5% 8-10
     
industrial (conventional factories) 9.5% 10-11.5
industrial (warehouses) 6.5% 7-7.5
industrial (high value added) 15.5% 17-18%

 

According to the expert, with the economic fundamentals become increasingly challenged, there will still be interest and opportunities from tenants which are looking to expand in space in existing, older buildings which are released by organizations which relocated. Businesses’ decision to expand however will slow and is cautious amid the opportunities.

“Across the 3 non-residential sectors, the potential for the office sector to reach the estimated rise in vacancy in 1H 2012 is highest,” said Mr. Ong noting that the increase is exacerbated by both the economic and spatial concerns, i.e. the influx of substantial new office completions in the past 1.5 years.

“Already, before the US economic recession became pronounced, there were concerns about a flight to quality office space as users relocate to newer buildings. But there were ample opportunities then as a steady economic recovery and fundamentals could well provide opportunities for a timely backfill of new available space,” he added.

For the retail sector, the key challenge, says Mr. Ong lies in consumer sentiments, which is expected to be less optimistic, leading to challenges for some retailers, especially those which have yet to find their winning factor to sustain or emerge in this period.

The business park and high-tech industrial space (i.e. high value added industrial premises) meanwhile according to Mr. Ong, will continually be attractive to qualifying businesses which do not require a CBD location and which sees the benefit of such space which offer long term lower costs and less fluctuating property solutions. However, the soft landing in office space, he notes, will mean less pressure and necessity to relocate upon lease expiry, unless overall business conditions have been immensely affected, leading to drastic cost cutting measures.
 

To contact the journalist, you may send your message to [email protected]

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