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Office rents will recover in 2H2021: CBRE

By Valerie Kor

/ EdgeProp Singapore |

December 18, 2020 12:00 PM SGT

SINGAPORE (EDGEPROP) - Following the Ministry of Trade and Industry’s projection that the Singapore economy will grow by 4% to 6% in 2021, CBRE Research has projected that office rents will improve in 2H2021, leading to overall rental growth. Demand will be fuelled by Chinese technology and non-bank financial services firms, such as investment managers and hedge funds.

Read more: Office occupancy levels decline with only 30% back in offices: Savills Singapore

In 2020, leasing activity in the office sector has been significantly slow and impacted by the Covid-19 outbreak. It was primarily driven by renewals and relocations, with a reduction in overall net absorption potentially amounting to –560,000 sq ft, which is “well below” the 10-year historical annual average net absorption of 1.62 million sq ft.

In the first three quarters, this meant a cumulative negative net absorption of –545,000 sq ft. For 4Q2020, preliminary estimates suggest that the reduction in occupied space has slowed, registering a net absorption of –14,800 sq ft.

As office vacancy rose from 4.5% in 4Q2019 to 6% in 4Q2020, which in turn caused downward pressure on Grade A (Core CBD) office rents. In 4Q2020, Grade A (Core CBD) office rents corrected for its fourth consecutive quarter, declining at 2.8% q-o-q to $10.40 per sq ft per month. This is a full year decline of 10% in Grade A (Core CBD) office rents, which reversed the rental growth of 6.9% in 2019.

AXA Tower was one of the aged buildings that leveraged on the CBD Incentive Scheme (Photo: Samuel Isaac Chua/The Edge Singapore)

Office demand will remain relatively subdued in 1H2021 due to cautious business sentiments. Even with a limited supply of new Grade A developments in the pipeline, CBRE Research expects that occupancy of Grade A offices in the core CBD area will face further downward pressure.

“The initial office supply pressure for 2022 has been dissipated due to construction delays. However, delays provided more time for pre-leasing activities, which meant that the future supply that will spread over a longer time horizon allows demand and supply dynamics to recalibrate,” says Desmond Sim, head of research, Singapore and Southeast Asia at CBRE.

However, Sim says that leasing activity is improving. “We understand that there are currently more ongoing negotiations for CapitaSpring which is slated to complete next year.”

Of the five new office developments that are estimated to complete in 2021, which will add another 1.23 million sq ft to the entire office stock, there is only one Grade A office development, which is CapitaSpring. It will add another 0.65 million sq ft of office stock to the Grade A (Core CBD) market.

Meanwhile, as some aged CBD buildings—such as AXA Tower and Fuji Xerox Towers—are currently going through redevelopment through the CBD Incentive Scheme, Grade B market will witness more occupier movement due to the displacement of occupiers in these buildings, according to CBRE.

Sim notes that due to the rise in co-working and hybrid work modes, landlords are increasingly offering flexible office arrangements.

CBRE remains optimistic that if the administration of the vaccine by 3Q2021 is successful, the office sector will also recover, with rents and occupancy increasing in 2H2021.

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