SINGAPORE - Vacancies at Singapore's gleaming office towers are nearing their highest level in almost a decade, with construction of the tallest building - GuocoLand's 64-floor block in the financial district - wrapping up just as the economy slows.
Singapore's export-oriented economy has been hit by the slowdown in China and beyond, which has also put pressure on key sectors such as marine oil and gas, commodity trading and banks. Last year, the economy grew at just 2 per cent, its slowest pace since 2009.
A January review by real estate services firm JLL of major foreign international banks in the financial district showed half had either reduced the size of their office space over the past year and a half, or had to contend with extra space.
Analysts predict vacancy rates will continue to rise this year, with JLL estimating prime office rents to fall between 10 per cent and 20 per cent after dropping 15 per cent last year in a city that is ranked the eleventh most expensive in the world to rent top quality offices.
Mr Nicholas Mak, executive director at SLP International Property Consultants, said many of the buildings that are now ready for occupancy were planned about five years ago, towards the end of the global financial crisis.
"Many people thought that this is the new boom, let's try to capitalise on it. Nobody expected the party to end by the end of 2015," he said, adding that office vacancy rates could hit 13.5 per cent, a level not seen since 2005.
Broader cost-cutting at banks due to the slowdown in the global economy is likely to have an impact on vacancies as financial institutions are key tenants for prime commercial space in Singapore.
Barclays will cut about 1,000 jobs in investment banking worldwide and close its cash equities business in Asia, an internal memo seen by Reuters showed.
Societe Generale gave up two floors in an office tower after selling its private banking activities in Asia to DBS Group Holdings in end-2014, taking up a smaller space in an existing building instead.
Mr Mak said vacancy rates could improve by the end of next year if the economy picks up and as demand catches up with the supply, easing the glut.
In the meantime, office landlord are limiting the number of leases that will expire over the next couple of years as well as diversifying their tenants to cope with the glut.
"This will be a short-term blip," Ms Lynette Leong, chief executive of CapitaLand Commercial Trust, said in January.
Banking, insurance and financial services represented 33 per cent of Capitaland Commercial Trust's tenant mix at end-2015, compared with 38 per cent five years ago, its results show.