Central region office rents and prices fall 8.5% and 10.7% respectively in 2020

Cecilia Chow
·5-min read

Chinese company ByteDance, the developer of TikTok and Douyin video-sharing apps, continues to expand its footprint in Singapore: It has leased around 58,000 sq ft of office space at Guoco Tower in Tanjong Pagar and another 100,000 sq ft at One Raffles Quay in Raffles Place at the CBD Core, says Wong Xian Yang, associate director of research for Singapore and Southeast Asia.


ByteDance has leased around 58,000 sq ft of office space at Guoco Tower in Tanjong Pagar and another 100,000 sq ft at One Raffles Quay in Raffles Place at the CBD Core (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Meanwhile, Boston Consulting Group (BCG) secured the top two office floors at the recently completed 79 Robinson Road at the end of the year while CIMB is said to have leased more than 50,000 sq ft in the office podium of the recently refurbished 30 Raffles Place, notes Tay Huey Ying, JLL Head of Research and Consultancy, Singapore.

Towards the end of 2020, there was a pick-up in leasing activity from the technology and financial services sectors, says Desmond Sim, CBRE head of research for Southeast Asia.

However, these were not enough to stave off a decline in both office prices and rents in the Central region in 4Q2020. Prices corrected 3.1% q-o-q in 4Q2020, reversing the 0.2% increment in 3Q2020. Meanwhile, rents fell 3.5% q-o-q in 4Q2020, a moderation from the 4.5% decline in 3Q2020. This brings the full-year drop for Central region office prices and rents to 10.7% and 8.5% y-o-y respectively.

Just one-third the 23.5% rental fall in GFC

The 8.5% fall in the rental index for the Central region in 2020 was just about a third of the 23.5% fall recorded in the first four quarters of the Global Financial Crisis (GFC)-led correction in 2008/9, says JLL’s Tay. “Despite Singapore entering the worst post-independence recession in 2020 due to the Covid-19 pandemic, office rent had corrected significantly less than during the GFC,” she says.

In 4Q2020, islandwide net absorption was slightly positive at 21,500 sq ft, according to Cushman & Wakefield’s Wong. “Most areas saw small gains in net absorption except for the Downtown Core which saw a contraction of 172,200 sq ft.”

For the whole of 2020, net absorption amounted to a negative 850,348 sq ft, notes Leonard Tay, head of research for Knight Frank Singapore. “As corporate occupiers critically reviewed their space strategies against the now-tested benefits of flexible working solutions, several have plans to reduce their space footprints when leases are due for renewal,” he adds.

The last time Singapore witnessed a full year of net negative absorption of 237,000 sq ft was during the GFC, points out Tricia Song, Colliers International head of research for Singapore.

Rental decline slowing

Despite the ongoing downsizing exercises by office occupiers, 4Q2020 indicators seemed to suggest that the reduction in occupied space has slowed, observes CBRE’s Sim. After three consecutive quarters of negative net absorption, the office market registered a positive net absorption of 2,000 sqm (21,528 sq ft) in 4Q2020.

Most of the rental declines stemmed from older office buildings outside the Downtown Core and Orchard Road Planning Area (Category 2 office space), suffering a higher vacancy rate of 12.7%. Category 1 office space (relatively new and recently refurbished office space in the Downtown Core and Orchard Road Planning Area) registered a vacancy rate of 9.6% in 4Q2020. “Some landlords are cognisant of this trend and are more open to slightly lower rents to maintain occupancy,” says Sim.

Table: Median Rents of Office Space, Based on Contract Date

*Refers to office space in buildings located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area.

^Refers to the remaining office space in Singapore which are not included in “Category 1”

Source: CBRE Research, URA

Office stock was taken off the market as some landlords see the lull as an opportunity to undertake asset enhancement initiatives, adds Sim. Consequently, although prices and rents both fell by more than 3% in 4Q2020, vacancy rates have remained relatively stable falling by only 0.2 percentage points to 11.8%, he points out.

‘Gradual and uneven growth’

Even though the economic recovery is expected to be gradual and uneven, 2021 is envisaged to revert to growth, observes Knight Frank’s Tay. Ministry of Trade and Industry is projecting the economy to expand by between 4.0% and 6.0%. “Barring new strains of the virus causing recurring waves of infection and consequent lockdowns, and with the economy improving as expected, office rents may fall by around 5% in 2021 before bottoming out and recovering in 2022, considering the combination of the above factors,” he says.

Although weak now, market dynamics are conducive for a recovery towards the end of 2021, Colliers’ Song agrees. Key factors driving new office demand include the booming technology sector and overall business recovery. She sees CBD stock likely to be further reduced through redevelopment. So far, AXA Tower, Fuji Xerox Towers and Tower Fifteen have announced redevelopment plans, and Song expects more to jump onto the bandwagon over the next few months.

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