Rents for office space in the Central Region inched up 0.6% quarter-on-quarter in 1Q15, marking the eighth consecutive quarter of rental increases, according to latest statistics by the Urban Redevelopment Authority (URA). As with previous quarters, the uptrend in office rents was partly driven by tenants’ flight to prime new projects such as CapitaGreen and South Beach Tower.

Notably, the 0.6% gain was slower than the 1.7% hike seen in the preceding quarter as rising supply and vacancy rates began to rein in rental growth. The slowdown was more apparent with Category 1 offices, defined by the URA as higher quality space in the Downtown Core and Orchard Planning Areas. With recently completed projects not fully leased out, vacancy rates for Category 1 offices climbed 1.4 percentage points to 11.2% in 1Q15. For example, as of April 21, CapitaGreen was said to be 76% committed.

URA data further showed that approximately 4.4 million sq ft of office space (net lettable area) is expected to come on-stream islandwide in 2016, arising largely from DUO Tower, Guoco Tower, Marina One and V On Shenton. This pipeline supply is significantly above the average annual take-up of 1.4 million sq ft over the past decade. Against this backdrop, prime office rents are likely to hit their inflexion point this year.

Figure 1: Slowing rental growth amid rising vacancy of Category 1 office space

Figure 2: Annual supply and take-up of office space in the Downtown Core