Singapore office rents bottomed out in Q3, likely to head higher: Knight Frank, JLL

Available pre-termination space also fell to about 76,000 square feet in Q3.
Available pre-termination space also fell to about 76,000 square feet in Q3.ST PHOTO: LIM YAOHUI

SINGAPORE (THE BUSINESS TIMES) - Office rents in Singapore have turned a corner, bottoming out in the third quarter of this year, according to Knight Frank's quarterly office market bulletin out on Wednesday (Sept 29).

The real estate consultancy firm reported that prime-grade office rents in the Raffles Place/Marina Bay precinct grew for the first time since the fourth quarter of 2019, with rents rising by 0.2 per cent quarter on quarter to $9.98 per square foot per month.

This came as the area's occupancy rates remained "relatively stable", falling 0.7 percentage point quarter on quarter to 93.6 per cent, after the 0.1 percentage point growth in the previous quarter.

In tandem with early signs of market improvement, available pre-termination space also fell to about 76,000 sq ft in the third quarter, down 78.9 per cent from second quarter's 360,000 sq ft.

"The decrease in shadow space was expected as the flight-to-quality continued with corporates taking advantage of the rare opportunity to snap up premium spaces in prime buildings that were normally fully occupied, before rents start to increase significantly," Knight Frank reported.

Growth in rents was also driven by co-working operators, which expect demand for flexible work spaces to rise in the post-pandemic work environment.

In August, co-working space providers The Executive Centre and The Great Room opened locations in the central business district (CBD) spanning 38,736 sq ft and 37,000 sq ft respectively.

In a separate report on Tuesday, JLL noted that following the pandemic, the government is expected to focus on developing suburban hubs to bring jobs closer to homes.

Ms Tay Huey Ying, head of research and consultancy at JLL Singapore, said: "There is likely to be little or no office land releases in the CBD in the short to medium term. Guoco Midtown and Central Boulevard Towers are likely the last of fresh office injections on greenfield land within the CBD. Beyond that, we may see a reduction in office spaces as more older buildings are converted to mixed-use developments to take advantage of the CBD Incentive Scheme."

However, JLL added that demand for offices will "remain healthy", driven by growth in the fintech, asset management and healthcare sectors.

"Additionally, Singapore remains a safe place to live and operate amid the pandemic, drawing technology firms, wealth management and family offices, amongst others, to set up offices in the city," the real estate services company said.

Over the next few years, JLL expects Grade A office rents to continue their climb, potentially gaining 23 per cent to 30 per cent by 2025.

In its report, Knight Frank also noted that demand for the upcoming supply of space from new office developments appears strong. For example, more than 90 per cent of CapitaLand's upcoming integrated development CapitaSpring's space is already pre-committed or in advanced negotiations. This includes leases from IMB subsidiary Red Hat and Sumitomo Mitsui Banking Corporation.

"This re-emphasised the appeal of Singapore as a neutral, accommodative and stable business node, drawing multinational corporations to quality office spaces in the city," Knight Frank said.