It took a while, but the high end of Singapore’s office rentals finally hit the bottom this year – earlier than expected.
This was because the take-up rate for Grade A office space in new developments in the Central Business District (CBD) was more robust than anticipated. Another reason was the rosier economic outlook.
Most property consultants expect the upward rental momentum to continue next year, citing expectations of continued healthy demand for office space from the likes of tech companies and co-working operators.
Some agents are also pinning their hopes on a recovery in demand from financial institutions, traditionally the major occupiers of CBD offices.
However, at least one office-leasing veteran is being more cautious.
Moray Armstrong, CBRE’s managing director for advisory and transaction services, said: “Rental growth in the office sector is expected in the near term, but will likely be at modest rates, while the market absorbs the remaining space from the supply surge over the last two years.”
The tightening availability of quality space in 2019-2020 means that the market is likely to start delivering slightly stronger rental growth in 2019.
He added: “Most indicators are positive for the Singapore office sector, but the underlying strength of occupier demand remains patchy and limited to a select group of sectors – including technology and co-working and, to a lesser extent, insurance.
“A more broad-based demand recovery will be needed to lend support to an overall stronger rental growth story.”
That said, the Grade A segment is expected to outperform, given favourable supply dynamics and the fact that it had experienced a deeper correction through 2015/2016, he added.
Ashley Swan, senior director of commercial at Savills Singapore, said that from a tenant’s perspective, the biggest challenge in the office leasing market this year has been the acceleration of rents. This caught many by surprise, as it does not represent the general business sentiment, which is seeing some green shoots – but not robust growth.
“Some sectors like technology continue to grow quickly; others like financial institutions, and oil and gas remain challenging.”
In late June this year , JLL was the first property consulting group to point out that Grade A office rents in Singapore’s CBD may have bottomed in Q1. The average monthly rental value for its basket of such office space inched up 0.7 per cent to S$8.50 per sq ft (psf) in Q2, from a low of S$8.44 psf in Q1 – making for the first quarter-on-quarter uptick after two years of declines.