CBD rental rebound may prompt some firms to relocate

Rents for prime Central Business District offices will be close to bottoming out by the year end, said research director Christine Li.
Rents for prime Central Business District offices will be close to bottoming out by the year end, said research director Christine Li.PHOTO: ST FILE

The anticipated recovery in prime office rents in the Central Business District (CBD) next year may prompt some firms to consider relocating to cheaper areas, said consultancy Cushman & Wakefield.

It expects the gap in rents between Grade A offices in the CBD and suburban space to widen to 85 per cent next year and 94 per cent in 2019, up from 75 per cent in the first quarter of this year.

Research director Christine Li noted yesterday that rents for prime CBD offices will be close to bottoming out by the year end. "Once (these) rents return to growth in 2018, we could see decentralisation activities picking up pace."

She noted that monthly rents for Grade A space in the CBD have been sliding since a peak in the first quarter of 2015, when they were more than $10 per sq ft (psf). They continued to decline in the first quarter of this year, falling nearly 1.9 per cent from the fourth quarter of last year to $8.47 psf per month.

Monthly suburban office rents declined by about 1 per cent over the same period to $4.84 psf in the first quarter of this year.

Cushman & Wakefield expects prime office monthly rents in the CBD to ease further this year, before rising to a forecast rate of $8.86 psf at the end of next year and $9.60 psf in 2019.

The projected rental growth is largely due to the limited supply of new office buildings in the CBD from next year to 2020, with less than one million sq ft of additional space coming on in each of those years, it said.

Frasers Tower and Robinson Tower - both in Shenton Way - are expected to be ready next year, adding a combined 823,000 sq ft to the CBD. That is markedly lower than the 2.15 million sq ft from Marina One and 5 Shenton Way that will be completed this year.

"For potential tenants who do not need to be in the prime CBD location, the availability of decentralised office supply in locations such as regional centres will provide more affordable space options," said Ms Li.

Paya Lebar Quarter, with 840,000 sq ft of office space across three towers, is expected to be completed next year, while Woods Square in Woodlands will add another 534,000 sq ft of office space in the suburbs in 2019.

CBRE Research said it believes there is some potential for office rents to return to growth by the end of this year, with a more sustained recovery next year.

A version of this article appeared in the print edition of The Straits Times on April 26, 2017, with the headline 'CBD rental rebound may prompt some firms to relocate'. Print Edition | Subscribe