The average prime CBD office rent was $9.64 psf per month last quarter, climbing for the seventh consecutive period, according to Colliers International. The figure was up by 2.3% q-o-q and 12.1% y-o-y.

Broadly, the continued recovery of the office property market in the CBD reflects growth in the overall services sector, which expanded by 4.8% q-o-q on a seasonally-adjusted basis in 1Q2019, according to the Ministry of Trade and Industry.

This year, total net demand for prime office space in the CBD is expected to reach 857,000 sq ft and should outstrip available supply and place upward pressure on rents, says Tricia Song, head of research for Singapore at Colliers International. This will be mostly driven by demand from technology and flexible workspace operators. Landlords are also more confident in the market and have lowered incentives, contributing to an overall rental uplift in the CBD.

The fastest growth came from the Beach Road and City Hall areas as landlord confidence was boosted by upcoming rejuvenation plans for these areas, namely the new Guoco Midtown and the redevelopment of Shaw Tower due for completion in 2022 and 2023 respectively. The Beach Road area was the front-runner last quarter, rising by 3.1% q-o-q and 15.6% y-o-y, to $8.78 psf per month.

Notable leasing contracts during the period were technology companies Grab and Zendesk, which occupied 32,000 sq ft and 50,000 sq ft respectively in Marina One West Tower. Meanwhile, flexible workspace operator Regus took up more than 30,000 sq ft comprising three office floors and one retail floor in the newly completed 18 Robinson.

The vacancy rate of CBD Grade-A office space tightened to 3.9% at the end of 1Q2019 from 5.4% in the previous period. The move by UBS to 9 Penang Road, coupled with the potential surrendering of space by other financial occupiers, should provide some relief to occupiers in the core CBD area over the next few quarters, says Colliers.

CBD Grade-A office rents are expected to remain firm this year, and could grow by 8% for the full year amid supply shortfall and healthier occupier demand, says Song. However, prime CBD office rents could experience a slight drop in 2021 on the back of higher new office supply in the following year, she adds.