SINGAPORE - Singapore office rents have increased for the sixth straight quarter in the third quarter of 2018, coming closer to beating the last high seen at the start of 2015, amid near-term tightening in CBD (central business district) space and strong demand from occupiers.
Research from consultancy JLL showed that gross effective rents of Grade A office space in the CBD edged up 2.3 per cent quarter on quarter in the third quarter (Q3) of 2018 to average $9.93 per sq ft (psf) per month.
That means an 18 per cent increase over the six quarters, putting rents just 6 per cent below the Q1 2015 peak of $10.56 psf per month.
Chris Archibold, head of leasing, JLL Singapore, said: "Occupier demand has been firm, coming from a wide spectrum of industries, although co-working operators remained the single most active space seekers given their expansion spree as they race to gain market share.
"On the other hand, good quality office space in the CBD is limited as most new builds are enjoying near full occupancy or commitment rates, while space vacated or to be vacated by relocating tenants has mostly secured replacements. This has continued to put upward pressure on rents."
Rent growth in the quarter was broad-based across all sub-markets, said JLL. But the pace of CBD Grade A rent growth has also been decelerating for three consecutive quarters, from a recent high of 4.2 per cent quarter on quarter in Q4 2017, to 2.3 per cent quarter on quarter in Q3 2018.
This was cheered by Tay Huey Ying, head of research and consultancy for JLL Singapore, as a positive, "as it makes for a more sustainable growth trajectory", she said.
Ms Tay added: "Singapore's CBD Grade A office rent is well-positioned for sustainable steady growth in the near and mid-term. The demand and supply dynamics of Grade A office space in the CBD is supportive of continued rent growth, but the availability of good grade office space outside the CBD during this period should keep growth in check and sustainable."
JLL said that new completions in the CBD will taper down sharply to circa 0.8 million sq ft in 2018, coming from Frasers Tower and 18 Robinson which are about 70 per cent committed or pre-committed as at Q3 2018, following the addition of more than two million sq ft net lettable area of office space in 2017 arising from the completion of Marina One and UIC Building.
Next year could also see what JLL called a peak in the squeeze for space as the withdrawal of Chevron House for refurbishment will shrink the leasing stock at a time when the market is void of new completions, though the completion of the redevelopment of Park Mall and Funan located outside the CBD in 2019 could relieve some upward pressure on Grade A CBD rents.
More supply will come from 2020 onwards. ASB Tower and Afro-Asia I-Mark are due to complete in 2020, and this will be followed by the scheduled completion of CapitaSpring and the redevelopment of Hub Synergy Point in 2021.
In 2022, IOI Properties' development in Marina Bay and GuocoLand's development on Beach Road should complete, JLL added.
Hence, over the next four years (2019-2022), the CBD will see an average annual new supply of 0.8 million sq ft, slightly under the 10-year historical average net take-up of 0.9 million sq ft.
"The potential withdrawal of ageing assets for redevelopment will further tip the balance in favour of demand, and support rents," JLL said.
According to URA Space, the written permission for the redevelopment of Keppel Towers on Hoe Chiang Road was renewed in April 2018.
JLL said that several other owners are understood to be mulling over redevelopment plans for their ageing assets.
Ms Tay said: "A government land sales programme that places greater emphasis on office land supply outside the CBD will complement today's demand and supply dynamics to bring about steady and sustainable CBD office rent growth, encourage a market-led urban rejuvenation and drive decentralisation."