A long slump in Singapore's retail, residential and office property markets shows no signs of ending soon as declining occupancy weighs on older marquee sites in the regional financial hub and banks and other key tenants shed staff and look at new and often better options.
In a report this week, Deutsche Bank noted that office rents were down 18 percent from 1Q15 peaks, while capital values were off just 8 percent. That suggested rental yields were down for investors.
Deutsche Bank expected Grade-A office net supply to rise 117 percent this year.
Looking at the segment, Bart Coenraads, the global head for global indirect real estate at Aviva Investors, earlier this week pointed toward the cranes dotting the skyline of Singapore's central business district (CBD) as a sign of the supply continuing to enter the marketplace.
"In addition to that, a number of investment banks have de-staffed as well. There's a lot of shadow space in existing buildings already," he said.
He also pointed to specific deals, such as Julius Baer's decision in the third quarter of last year to move from Asia Square to Marina One.
"Clearly, they're leaving behind space as well. There's a big question mark how the space will all be filled," Coenraads said, adding that rents were falling.
In the fourth quarter, office occupancy fell to 88.9 percent from 89.6 percent in the third quarter, according to government data.
That's a pattern that appeared to show in the recent results of Singapore-listed Keppel Real Estate Investment Trust, which owns partial interests in several office towers in the city-state.
Credit Suisse said in a note Wednesday that the REIT's distribution per unit for 2016 came in below its expectations as rent reversions were down by 9 percent, with management saying it expected further pressure on rents this year.
Aviva expressed concern that Singapore's office property may not compensate investors enough for the risk.
The spread between Singapore's prime office yields and the city-state's 10-year government bond yield has been around a tad under 200 basis points, in line with historical averages, according to data from Aviva Investors. But that paled compared with other regional capitals, with Sydney and Melbourne offering an around 300 basis-point spread, well above historical averages, the data show. Tokyo also offered around 300 basis points, although that's in line with historical averages, and Hong Kong was offering more than 200 basis points, the data show.
Analysts weren't holding out much hope of an office-rent recovery.
"With continual supply pressure in 2017, we reckon rents will continue to soften at least for the first half of 2017," Chua Yang Liang, head of research for Southeast Asia at JLL, said in a note Thursday.