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Average CBD Grade-A office rents hit 10-year high in 2Q2019

/ EdgeProp Singapore |

July 23, 2019 4:36 PM SGT

Average CBD Grade-A office rents in Singapore hit a 10-year high in the second quarter of 2019 at $9.93 psf per month (pm), according to a report by Colliers International. It was also the eighth consecutive quarterly increase for this segment of the office market, climbing 3% q-o-q and 12.6% y-o-y.

“Tighter vacancies coupled with healthy space take-up among certain occupier segments – particularly technology and flexible workspace firms – continued to support rental growth in 2Q2019,” says Tricia Song, head of research for Singapore at Colliers International.

However, she reckons the pace of increase has likely peaked as tenants become more resistant to rent hikes.

CBD Grade-A office rents grew 5.4% in 1H2019, and are on track to meet Colliers’ expectation of 8% for the full year. “We are projecting CBD Grade-A rents to rise in 2019 and 2020, before dipping moderately in 2021 in view of new supply and potentially softer economic outlook,” says Song. Overall office rents are projected to continue to moderate from the strong 15% y-o-y growth in 2018, and grow by 5% next year.

In 2Q2019, rental growth was the strongest in the Beach Road/Bugis micro-market, rising by 4.6% q-o-q and 18% y-o-y to $9.18 psf pm. This was largely due to tight vacancies in office buildings in the area, and as landlords priced in the upcoming rejuvenation in the precinct, with the completion of Guoco Midtown in 2022 and the redevelopment of Shaw Tower slated to be ready in 2023, says Colliers Research.

Table: Colliers International

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The ongoing US-China trade dispute has had negligible impact on the local office investment market. Investment transactions jumped 176% q-o-q to $2.63 billion in 2Q2019, pushing the rolling 12-month volumes of office and mixed-use commercial transactions to $7.17 billion, a 27% q-o-q increase.

Investment sales in 2Q2019 were led by the $1.03 billion sale of Chevron House and Frasers Property’s divestment of a 50% stake in Frasers Tower to Korea’s National Pension Service, valued at $982.5 million. In light of the optimistic valuations achieved in major transactions last quarter, the average imputed capital value of CBD Grade-A office properties rose 1.8% q-o-q and 6.1% y-o-y to $2,498 psf, according to Colliers Research.

“Investment sentiment in the office market remains positive, supported by rising CBD rents in recent years. We also observed signs of investors looking beyond the prime CBD for office assets in search of yield – the sale of 7&9 Tampines Grande during the quarter is an example,” says Song. She expects capital transactions to remain robust on the back of favourable interest rate outlook and tighter local office demand-supply dynamics.