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Grade-A office rents to rise more than 10% this year

/ EdgeProp |

May 5, 2018 9:00 AM SGT

URA’s office rental index for the Central Region rose for the third consecutive quarter, grewing 2.6% q-o-q in 1Q2018, the same pace as in the previous quarter. This reflects a 7.7% rental recovery in less than a year since the market bottomed in mid-2017, says Duncan White, Colliers International head of office services.

Renewed strength among businesses, especially the services sector, coupled with a limited stock of upcoming new CBD supply from 2018 to 2020 likely drove brisk rental recovery, says White.

Upcoming stock expected later this year includes Frasers Tower and 18 Robinson, which will contribute 823,000 sq ft of net lettable area (NLA), says Christine Li, senior director of research at Cushman & Wakefield. The redevelopment of Park Mall and Funan will result in 557,000 sq ft of NLA entering the market in 2019.

Close to 70% of the NLA in Frasers Tower and 18 Robinson are already pre-committed. Even CapitaSpring, the redevelopment of the former Golden Shoe Car Park, has already secured JP Morgan as anchor tenant three years ahead of its completion in 2021, points out Tay Huey Ying, JLL head of research and consultancy for Singapore.

Close to 70% of the net lettable area in Frasers Tower (the ‘green oasis’ pictured) is already pre-committed (Picture: Frasers Property)

Supply will remain stable in 2020 with 644,000 sq ft from the redevelopments of CPF Building and Afro Asia Building, she adds. The next large wave of supply totalling 1.9 million sq ft will only enter the market in 2021, namely the new development at the Central Boulevard government land site and CapitaSpring.

Average rents of CBD premium buildings recorded a 4.8% q-o-q increase in 1Q2018, bringing the cumulative rental uptick to 14.3% since the trough in 2Q2017. This is nearly double the 7.7% growth for the office market islandwide, notes Colliers’ White.

The office price index in the Central Region likewise increased for the third consecutive quarter, but at a more gradual rate of 1.3% q-o-q compared with 2.7% growth in the preceding quarter, notes Colliers.

JLL is optimistic that Grade-A office rents, which were at $9.51 psf per month as of 1Q2018, could rise by more than 10% to hit the high of $10.56 psf per month recorded in 1Q2015 “within the next 12 months”.

With the prospect of rising rents in the CBD, cost-conscious companies that do not need a downtown address have started looking at decentralised locations. As such, pre-leasing at Paya Lebar Quarter rose to 50%, with SMRT relocating its headquarters there and taking up 100,000 sq ft, says Cushman & Wakefield’s Li.

“Singapore’s upbeat leasing market continues to draw the interest of global investors,” says JLL’s Tay. “Supported by ample liquidity, URA’s office price indices for Central Region, which had recorded three straight quarters of growth, are also similarly expected to stay on the expansionary path over the next 12 months.”

This article appeared in the EdgeProp Pullout Issue #829 (May 7 2018)

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