SINGAPORE (EDGEPROP) - The office rental premium between Singapore and Hong Kong has narrowed markedly between 2015 and 2020, says real estate consultancy Cushman & Wakefield. (See also: Tech firms drive up premium office rents in Singapore)

As business sentiment in Hong Kong weakened amidst the protests in the latter half of 2019, the rental gap continued to close over this time period. It was exacerbated by the pandemic which further drove rents down in both cities, it highlights.

As of end-2020, the firm saw a 108% difference in office rents between Singapore and Hong Kong.

In 2015, the rental premium between Hong Kong and Singapore Grade-A CBD office rents widened rapidly, reaching 135%, from 71% in 2014 as rents in Hong Kong were on an uptrend due to tight supply conditions and strong demand from corporate occupiers, particularly from Chinese financial firms looking for prime multi-floor space in the CBD. Meanwhile, Singapore office rents fell in the year due to weak global economic growth and a supply glut.

The gap in rents continued to widen to reach a peak of 173% in 2017, at which point the Singapore market started to recover, driven by a recovering global economy and demand from co-working operators and tech firms, Cushman & Wakefield observes.

In 2018, the office rental premium gap narrowed in 2019, as rents in Singapore rose 15.3% y-o-y, backed by tight vacancies and strong demand.

“Despite the ongoing pandemic, the Singapore office market is showing signs of recovery with rental growth turning positive in 2Q2021. This is fuelled by a flight to quality with demand for quality office space driven by technology and investment management companies as they leverage the lower rents to secure spaces in trophy buildings,” Cushman & Wakefield notes.

It expects office rents in Hong Kong to be on a downtrend till 2023, further closing the rental gap between the two cities. The new addition of supply in Hong Kong will put further pressure on office rentals in the city, it says.