CBD Grade A office rental growth highest since 2010

Annual rental growth for Grade A offices in the Central Business District for last year was 14.9 per cent, compared with 22 per cent in 2010 after the global financial crisis.
Annual rental growth for Grade A offices in the Central Business District for last year was 14.9 per cent, compared with 22 per cent in 2010 after the global financial crisis.PHOTO: ST FILE

Annual growth for 2018 at 14.9% amid tight vacancies and strong demand as rents set to keep rising

Grade A offices in the Central Business District (CBD) posted the highest annual rental growth since 2010 due to tightening vacancies, according to real estate services firm Colliers International.

The annual growth for last year was 14.9 per cent, compared with 22 per cent in 2010 after the global financial crisis, said Colliers in a statement yesterday.

CBD Grade A office rental growth was 2.3 per cent in 2017.

Demand is expected to remain strong, especially amid the continued expansion of the technology sector and flexible workspaces.

The Shenton Way/Tanjong Pagar and Beach Road markets saw the largest rental increases last year, due to new developments such as Guoco Tower near Maxwell Road and Duo near Bugis MRT station.

In the fourth quarter of last year, average CBD Grade A rent in Beach Road rose 18.6 per cent year on year to $8.52 per sq ft per month (psf pm), while rent in Shenton Way/ Tanjong Pagar increased 18.4 per cent year on year to $9.53 psf pm.

This is against the backdrop of an overall rise in prime office rents.

Mr Duncan White, head of office services at Colliers International, said occupiers should review their portfolios early amid the limited stock, as well as consider strategies that combine traditional office leases with short-term lease tenures within flexible workspace offerings.

Figures from the Urban Redevelopment Authority last month showed prime office rents turning in a robust performance for last year, after a lacklustre 2017.

Central region rents rose by 7.4 per cent last year, compared with 0.4 per cent in the preceding 12 months.

The upward trend is expected to continue, said Ms Tricia Song, head of research for Singapore at Colliers.

"In view of tight vacancy and a muted supply pipeline, we expect the steady upward rental trend to persist over the next two years," she said.

She is predicting average rents to rise 8 per cent year on year this year, and a further 5 per cent year on year next year.

"The supply shortfall over 2019 to 2021 should keep CBD Grade A vacancy tight, below the 10-year average of 6.2 per cent," said Ms Song, adding that this was after accounting for the impact of slowing net absorption in 2020 and 2021 due to forecasts of slowing economic growth.

Net absorption measures the amount of new space leased by tenants minus the space vacated, and reflects the property market's momentum.

Colliers is expecting new CBD Grade A supply from 2019 to 2021 to average 614,000 sq ft per annum, which is about 2 per cent of stock per annum.

In contrast, new supply was about 10 per cent of stock in 2017.

The next major jump in supply, about 8 per cent in stock, is expected in 2022.

Mr Duncan White, head of office services at Colliers International, said occupiers should review their portfolios early amid the limited stock, as well as consider strategies that combine traditional office leases with short-term lease tenures within flexible workspace offerings.

He added: "Meanwhile, office landlords could be more proactive in engaging occupiers and be more progressive with varied lease structures to retain and attract tenants."

Colliers is also expecting more investor interest in the commercial sector on the back of the additional buyer's stamp duty hike on residential properties last July.

Mr Jerome Wright, director of capital markets and investment services at Colliers International, said: "We expect capital values to trail the projected rent growth and hence yields to remain largely stable over 2019 to 2021.

"This is mainly due to the hefty weight of global capital directed towards gateway cities. Moreover, the Singapore office market offers favourable fundamentals, given the impending supply shortfall over 2019 to 2021."

In the fourth quarter of last year, the capital values of CBD Grade A office properties rose 7.9 per cent year on year.

A version of this article appeared in the print edition of The Straits Times on February 14, 2019, with the headline 'CBD Grade A office rental growth highest since 2010'. Print Edition | Subscribe