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Office rents took a steep fall in 1Q2017

Office rents in Central Area fell for the eighth consecutive quarter, dipping 3.8% q-o-q in 1Q2017, according to URA statistics released on April 28. This was also the steepest decline seen in eight quarters, or since 2Q2015.

Leading the rental decline was Category 2 office space where median monthly rent fell 3.9% from $5.39 psf in 1Q2016 to 5.18 psf in 2Q2016. Median rent for Category 1 office space slipped 1.7% from $8.80 to $8.65 psf per month over the same period. Category 1 office buildings are defined as those located in core business areas, which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area.

Cushman and Wakefield research director Christine Li notes that premium quality buildings in the heart of the CBD have been well-received by large occupiers.

“On the other hand, lower quality and older buildings with low efficiency in the city fringe have been come under immense pressure to keep pace with the changing needs of the savvier occupiers who are spoilt for choice ranging from strata-titled buildings to co-working spaces and even business parks,” says Li.

Lee Nai Jia, head of South-east Asia research at Edmund Tie and Company, says the office market remains soft amid the uncertain external environment and leasing activity was dominated by “flight to quality”.

Island-wide vacancy rate inched up from 11.1% in 4Q2016 to 11.6% in 1Q2017. Over 1 million sq ft of office space (gross) was completed in the quarter including GSH Plaza at Cecil Street (344,445 sq ft) and Vision Exchange in Jurong East (625,383 sq ft).

Market watchers expect the office market to recover in 2018. JLL’s research shows the average monthly gross rents for Grade A offices in the CBD are showing signs of firming. The pace of decline has slowed since 2Q2016 and was unchanged at -1.1% q-o-q in 4Q2016 and 1Q2017.

Meanwhile, high pre-commitments in the recently completed UIC Building and the soon-to-be-completed Marina One have partially assuaged landlords’ anxiety over maintaining occupancy, notes Tay Huey Ying, head of research & consultancy at JLL Singapore.

On the other hand, the uncertain environment and upcoming supply in 2020 onwards, such as the CPF building, the redevelopment of Golden Shoe Carpark and the Central Boulevard site, are likely to keep rents in check, says Edmund Tie and Company's Lee.

For the whole of 2017, JLL expects Grade A office rents to ease by less than 5% compared to the 9.9% correction in 2016. “The next wave of rental correction will hit the older and lower-grade office space as they come under pressure to backfill space vacated by occupiers who upgraded to newer projects,” says Tay.

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