Singapore CBD Grade A office rents to climb 8% in 2019
RENTS for Grade A office buildings in Singapore’s Central Business District (CBD) are expected to rise by 8 per cent this year, and 5 per cent in 2020, amid tight supply and high pre-commitments, according to a report by Colliers International.
The real estate services and investment management firm also expects new supply in 2019-2021 to average 614,000 sq ft (57,000 sq m) per annum, or 2 per cent of stock, versus 5 per cent over the last five years. This should keep vacancies tight in 2019 through 2021, Colliers noted.
It added that of the six micro-markets in Singapore’s CBD, rents in Shenton Way/Tanjong Pagar could grow at the fastest rate on a three- and five-year horizon, driven by redevelopment and rejuvenation in the area.
According to Colliers, new buildings such as Frasers Tower, Guoco Tower, and UIC Building, which were completed in 2016-2018, have raised the image and rents of the vicinity.
In addition, Colliers also highlighted that redevelopments in Shenton Way/Tanjong Pagar, including the Afro-Asia Building and the CPF Building (to be named ASB Tower), should raise rents further in 2020 when completed.
Rental growth could be further supported by the withdrawal of existing stock for redevelopment, as landlords adopt the URA (Urban Redevelopment Authority) incentive scheme, Colliers said.
It also noted growth of the TMT (technology, media and telecoms) and flexible workspace sectors, which accounted for most of the net absorption of office space in 2018 and 2019 year-to-date. In particular, flexible workspace stock has more than tripled since 2015.
TMT and flexible workspace operators also have the highest presence in Shenton Way/Tanjong Pagar, occupying 21 per cent, and 6 per cent of the Grade A micro-market respectively.
The other five CBD micro-markets assessed by Colliers comprise Raffles Place/New Downtown (Premium); Raffles Place/New Downtown (Grade A); Beach Road/Bugis, City Hall; as well as the Orchard Road area. The research also considered factors such as existing industry clusters, availability of office stock, accessibility, and rents.
Given Singapore’s status as a global financial hub, it is unsurprising that the financial services sector occupies a lion’s share, or 42 per cent of total CBD office space, Colliers said. The other relatively large space users are professional services at 15 per cent, TMT at 12 per cent, followed by resources, energy and commodities at 9 per cent.
Said Tricia Song, head of research for Singapore at Colliers: “Singapore CBD office demand has historically been broad-based, driven by the core sectors of financial services, professional services, energy and shipping.
“However, we observed that technology firms and flexible workspace operators have taken up substantial amount of space in recent years – we estimate that they accounted for about 75 per cent of net absorption in 2018. We expect such changing occupier trends, as well as the ongoing rejuvenation and new developments within the city to continue to shape the various office micro-markets in the CBD.”
Rick Thomas, head of occupier services for Singapore at Colliers said: “Occupier demands have evolved from the sole considerations of location, price/rent and basic amenities. Other factors that are becoming more important include flexibility, space efficiency, wellness and lifestyle amenities, and tenant experience.”
He added that landlords need to ensure that their portfolio remains relevant. Meanwhile, occupiers should reassess their needs, and explore alternative lease options early, given the limited prime space, and consider the strategy of combining flexible workspace with conventional office space.
The Business Times, 22 June 2019