Singapore CBD Office Rental Market Report - Q1 to Q3 2019

Singapore CBD Office Rental Market Report – Q1 to Q3 2019

As all roads lead to Singapore for global businesses and investors as a geopolitical safe haven, demand for office space has been growing strong in the last few years boosting the rental prices at an even pace.

According to EDB (Economic Development Board), about 80 of the world’s top 100 technology companies have found their sweet spot in the garden city with its sound infrastructure ecosystem, aggressive and transparent policies etc.,

As convenience and flexibility prioritizes startups predominantly, and established corporations to some extent, flexible workspace operation has presently become mainstream asset class ranking top among six occupier sectors in CBD and elsewhere.

Upheld by new entrants, expansions and renewals amidst tight supplies, the 8% rental growth forecast for 2019 saw 5.4% fulfilled by first half and 7% by Q3 2019, well on track to fulfil the predictions by year end.

New buildings in CBD such as Frasers Tower, Guoco Tower and UIC Building, all completed within the last three years have improved the image in the precinct and rental rates along.

As AI (Artificial Intelligence) emerges as the future and initiatives like Singapore AI supporting the cause positioning Singapore as an AI R&D hub, Chinese AI start-up Sense Time with remarkable triple-digit percentage growth has expanded its presence in Singapore occupying about 10,000 sq ft on Fraser Towers with plans to triple its local workforce to 300 in the next three years.

Nevertheless, traditional occupier sectors also play their part in the foray, evident through American Express’ move to the three floors of One Marina Boulevard.

Expecting to bridge and build a community of Japanese and Singapore Companies, One &C o of JR East has opened 13,000 sq ft co-working space to accommodate 275 persons on the 11th floor of Twenty Anson in light of the recent MOU between EDB and JETRO (Japanese External Trade Organization) to strengthen ties between businesses of the two countries.

Since 2017, co-working market has grown from 7,00,000 sq ft to 1.4 million sq ft, which is likely to exceed 2 million sq ft by 2020.

In Q2 2021, after HSBC moves out, WeWork will take over 21 Collyer Quay (previously HSBC Building) of about 200,000 sf as part of its aggressive expansion.

Office Rental in CBD Hit Record High

When the average CBD Grade A office rent touched S$9.93 psf in Q2 2019, it was a record 10-year high since Q4 2008 and eighth straight quarter of increase.

Though tight supplies have kept vacancies in check and propelled rental hikes in CBD, a moderate resistance to hikes and flight to value are seen as the deterrent factors that caused slight setbacks in Q3 2019 percentage.

Still its increased S$10.08 psf, that is 1.5% QOQ, as against 3.0% QOQ in the previous quarter, and likely to rise marginally without any foreseeable hitch until 2021.

This powerful demand-supply dynamics in the CBD office market has contributed to a fair rise in capital values.

By Q2 2019, office property investments leaped 176% QOQ s$ to 2.3 billion contributing to YTD commercial properties volume of S$7.17 billion.

Q2 2019 was robust for CBD with transactions like Chevron House (S$1.03 billion) and Frasers Tower (S$982.5 million)

Q3 2019 saw notable office transactions like Duo Tower (S$1.575 billion), 71 Robinson Road (S$655 million) and Anson House (S$210 million), in the fringes outside CBD.

Out of the Q3 2019 total investment sales of S$8.493 billion, 54.1% accounted to office investments, 64.1% increase QOQ largely attributed to the trust in the country’s office market in spite of restricted availability of quality assets.

As of Q3 2019, the average imputed capital value of CBD Grade A office properties has rose to 0.7% QOQ at S$2,930 psf with cap rates remaining stable at 3.20%.

In Q3 2019, a similar trend has been noticed in prime retail rents on Orchard Road with 1.2% increase QOQ at S$35.64 psf due to increased tourist arrival.

Healthy Office Market

The Economists’ Bleisure Index 2019 rates Singapore as the second-best Asia-Pacific destination for bleisure travel.

It’s a tightrope walk for both owners and occupiers; owners are tempted to take advantage of the tight supplies yet have to offer subsidies to hold anchor tenants; and unless eCommerce business, occupiers on the other hand, have to think twice before migrating from CBD address to the city-fringe or the suburbs

Meanwhile, URA’s ‘CBD Incentive Scheme’ has a part to play over 6.5 million sq ft of space in older buildings to transform into mixed developments, another element that could potentially increase rental growth due to withdrawal of existing stock for redevelopment.

A healthy office market fueled with heavy commercial activities has motivated property experts to expect year 2019 to beat the record of 2007’s S$12.5 billion transactions.

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