Singapore CBD office rents at decade high after surging past recent peak

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Steady stream of mid-term Singapore CBD office supply should alleviate overheating.

Singapore’s office property market started the year on a high with the 1Q19 CBD Grade A rents nudging past the recent peak to hit a decade high, JLL’s preliminary estimates showed.

Specifically, the average monthly gross effective rents of Grade A CBD office space are estimated to have risen 3.7 per cent quarter-on-quarter (q-o-q) to SGD10.63 per sq ft in 1Q19.  This is 0.7 per cent above the recent peak of SGD10.56 per sq ft per month recorded in 1Q15. It is also the highest rent recorded since 4Q08 when rents stood at an average of SGD12.55 per sq ft per month.

1Q19 rent growth was broad-based across all submarkets, with Marina Bay in the lead. As of the end of 1Q19, the average monthly gross effective rent of Grade A office space in the Marina Bay submarket stood at SGD12.54 per sq ft after rising 4.8 per cent q-o-q from SGD11.96 per sq ft in 4Q18.

Average monthly gross effective rents for Grade A CBD office space

Submarket SGD per sq ft per month Quarter-on-Quarter growth
4Q18 1Q19 4Q18 1Q19
Overall CBD 10.25 10.63 3.3% 3.7%
Marina Bay 11.96 12.54 3.9% 4.8%

Source: JLL Research

Mr Chris Archibold, Head of Leasing, JLL Singapore, commented: “Many occupiers are still keen to have a CBD presence.  However, the limited availability of good quality space for lease, based on most Grade A office developments in the CBD enjoying near-full occupancies, is driving rentals steadily upwards.”

Indeed, JLL’s preliminary research showed that the average vacancy rate of Grade A CBD office space have tightened from 7.2 per cent in 4Q18 to just 6.0 per cent in 1Q19.

Research: Depleting supply is accelerating rental growth in office sector

By the end of 4Q19 when more occupiers who have committed to space in recent completions such as Frasers Tower and 18 Robinson move in, JLL forecasts that the average vacancy rate of Grade A office space in the CBD could plunge below the frictional level of 5 per cent.  The squeeze for space had led to 1Q19 rent growth accelerating to 3.7 per cent q-o-q from the 3.3 per cent q-o-q staged in 4Q18.

No relief is seen for CBD office supply any time soon.

This is because the next office completion in the CBD will likely be 79 Robinson Road and Afro Asia i-Mark which are expected to provide some 0.7 million sq ft of office net lettable area in total only from 2020.  The refurbished Chevron House could also return to the market in 2020.  Thereafter, CapitaSpring and Hub Synergy Point are expected to come on stream in 2021, followed by IOI Properties’ Central Boulevard project and Guoco Midtown in 2022.  The Shaw Tower redevelopment could complete in 2023.  Altogether, these will generate an average annual new supply of approximately 1.0 million sq ft from 2020 to 2023.

Ms Tay Huey Ying, Head of Research and Consultancy for JLL Singapore, opined: “With the next new office development in the CBD expected to come on stream only from 1H20 onwards, upward pressure on rents is unlikely to abate any time soon. This is especially in view that schemes completing outside the CBD this year (e.g. Funan and 9 Penang Road) are seeing keen occupier interest and could enjoy healthy pre-commitments, including forward leasing deals.  They are thus unlikely to significantly ease upward pressure on CBD Grade A rents as earlier envisaged.”

Ms Tay concluded: “Barring adverse external shock rattling business confidence and dampening demand, Singapore’s CBD Grade A office rent could post another year of strong rent growth matching the 11.7 per cent recorded for 2018. However, the steady stream of supply expected from 2020 to 2023 should ease Grade A CBD rent growth from 2020 onwards.  There is thus little risk that the average monthly gross effective rent of CBD Grade A office space will breach the historical high of SGD15.27 per sq ft recorded in 2Q08 in this current upcycle.”

Office space supply tightening and firm demand to drive rents north

Mr Paul Ho, chief mortgage consultant at iCompareLoan, said “the Additional Buyer’s Stamp Duty (ABSD) imposed by the Government in July last year on residential properties should continue to fuel a rise in investor interest towards the commercial sector.”

He added, “despite the curbs on residential properties, Singapore remains an attractive investment destination for investors, liquidity remains robust and demand for commercial projects is expected to remain high in 2019.”

Mr Ho believes that investors are expected to seek core opportunities in Singapore amid a rising rental market, and would not give the Grade A CBD office a miss.

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