Rents for office and retail space continued to fall in the second quarter as poor sentiment and a weak economic outlook weighed on the demand for space.

Retail rents in the central region slipped 3.9 per cent, compared with the first three months of the year - a much higher fall than the 1.9 per cent decline recorded in the first quarter, Urban Redevelopment Authority (URA) figures showed yesterday.

This was the sixth straight quarter of decline and the steepest drop since the second quarter of 2011.

The major fall in rentals of retail space was well within expectations due to ailing retailing conditions and many retailers struggling to survive or break even.

A combination of slow sales, high operating costs, fast-changing consumer needs and competition from e-commerce have hit retailers' bottom lines in recent years and even larger stores have not been spared. Retail chains which have consolidated businesses include City Chain, Wing Tai Asia and department stores such as Marks & Spencer, Cold Storage, John Little, Isetan and Metro.

Islandwide vacancy rates in malls in the three months to June 30 rose to 7.8 per cent, from 7.3 per cent in the previous quarter. Vacancies in the Orchard planning area climbed further in the second quarter to 9.2 per cent, after hitting a five-year high of 8.8 per cent in the first quarter.

Market watchers say the retail environment will remain challenging. The headwinds facing the retail sector is expected to intensify as Brexit could further dampen the already fragile consumer sentiment and affect retail spending.

Office vacancy rates improved marginally from the first to the second quarter - dipping from 9.2 per cent to 9.1 per cent - as leasing momentum picked up on the back of easing rents.

URA data showed that office rentals in the central region fell 3.5 per cent in second quarter from the first quarter - the fifth consecutive quarterly decline. This followed a 2.1 per cent decline in first quarter.

Analysts remained downbeat on the office sector in view of the supply glut and weaker demand for space from tenants, particularly in the financial services sector.

With the global sentiment as it is, big corporate expansion will be hard to come by. This will dampen the take-up of space with the new supply coming in, vacancies could also spike up to double digits in the coming quarters.

An immediate respite for office rents is not expected in at least the next three to four quarters, especially with the large upcoming supply slated for completion in 2016 and 2017.

Adapted from: The Straits Times, 23 July 2016