Office market recovery set to continue into 2019
Singapore Central Business District office rents are forecasted to rise by about 10% to 12% y-o-y this year, given tighter vacancy in the CBD Premium and Grade A office segment. There is “firm interest” from financial, professional services, technology, and flexible workspace firms, says Duncan White, head of office services at Colliers International.
CBD office rents increased for the fourth consecutive quarter in 2Q2018 at a moderate pace compared to 1Q2018. CBD premium and Grade A average gross effective rents rose by 2.6% q-o-q to $8.82 psf pm, slower than the 4.8% q-o-q growth recorded in 1Q2018. The relatively slower pace of office rent growth is a “momentary consolidation”, as the leasing market has been experiencing a “rapid recovery” which saw an 11% y-o-y growth from 2Q2017, says White.
Office space in the 38-storey Frasers Tower in Tanjong Pagar have consistently transacted in excess of $10 psf pm on effective rents (Picture: Frasers Centrepoint)
Overall office rents have climbed by about 7.5% year-to-date, and steady rental upticks are expected to continue for the rest of the year. But, demand may taper down to a 5% to 7% y-o-y increase in 2019. Total office sales transactions increased 8.7% q-o-q to $3.79 billion in 2Q2018.
The Raffles Place/New Downtown area, and the Shenton Way-Tanjong Pagar area, recorded the highest y-o-y increase last quarter, climbing 16.1% and 15.4 % respectively. This was likely driven by new office space at Marina One and Frasers Tower. Office space in the 38-storey Frasers Tower in Tanjong Pagar have consistently transacted in excess of $10 psf pm on effective rents. Average gross effective rents in Raffles Place/New Downtown area was $10.66 psf pm last quarter, according to Colliers.
Paya Lebar Quarter comprises three Grade A office towers with about 1 million sq ft of space. (Picture: Lendlease)
The stream of anchor tenants filling up Paya Lebar Quarter’s three office towers “bodes well” for cost-effective city fringe districts, and the development’s pre-leased rate is about 50%. Major deals included co-working operator Spaces (IWG), as well as Great Eastern, NTUC Income, and SMRT Corporation. A strong rental upturn should accentuate the attractiveness of decentralised micro-markets, “prompting occupiers to consider city-fringe Grade A developments that can bridge the gap between cost and value,” says JM Tan, senior analyst at Colliers.
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