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The average rent of Grade A office buildings in the central business district rose by 2.6 percent to S$9.88 per sq ft in Q4 2014 compared to the previous quarter, according to a Savills report.
“Record high rents since Q3 2010 were observed across all submarkets, with Raffles Place/Marina Bay continuing to lead at S$10.66 per sq ft, followed by Orchard Road at S$10.08 per sq ft and City Hall at S$9.75 per sq ft,” said the consultancy.
However, overall rental growth slowed by 1.8 percentage points from 4.4 percent in Q3 2014. “The slowdown could be due to tenants’ resistance after having faced eight consecutive quarters of rental increases,” it explained.
Nevertheless, rents of Grade A office space in the CBD rose 14.3 percent for the whole of 2014 compared to just 3.9 percent in the previous year, while AAA Grade office space saw the highest rental gain of 24.9 percent.
Additionally, capital values of Grade A offices inched up by 1.8 percent to S$2,850 per sq ft in the fourth quarter versus S$2,800 per in Q3 2014. On a annual basis, the figure climbed by 2.4 percent from S$2,780 per sq ft in Q4 2013.
However, office investment sales fell sharply to S$156.6 million in the last quarter from S$1.94 billion in Q3 2014. Nonetheless, the figure for the entire year soared by 17.5 percent to S$4.2 billion from 2013’s S$3.6 billion.
As for vacancy, the overall vacancy rate at CBD Grade A offices monitored by Savills edged up to 3.6 percent from 3.4 percent
“The rise in vacancy rate was led mainly by the Beach Road and Tanjong Pagar micro-markets, with increases of 1.3 and 0.9 percentage points quarter-on-quarter respectively. Vacancy rates in the other micro-markets inched up 0.1 percentage points, while only the Shenton Way area remained unchanged.”
“By grade, the AA segment saw the greatest rise in vacancy level, up by 1.1 percentage points to 3.0 percent by the end of 2014. Conversely, the vacancy rate for the AAA Grade segment dipped 0.2 percentage points to 4.8 percent, while that of the A Grade segment stayed at 3.2 percent.”
Moving forward, new-to-market tenants with smaller space requirements than financial institutions are projected to dominate the office leasing market this year. Hence, rents of Grade A office space measuring less than 10,000 sq ft are forecasted to grow by 12.9 percent, while capital values of office properties are expected to rise between 2 to 5 percent in 2015.
In terms of supply, there would be a dearth of new office buildings in the CBD, wherein only 1.25 million sq ft would come from CapitaGreen, South Beach and PS 100. Taking into account the major refurbishment of Equity Plaza in March 2015, net supply is estimated be around 1.0 million sq ft. Using last year’s sluggish take-up of 713,300 sq ft, the inventory may likely match the demand, leading Savills to conclude that the office market will be fundamentally sound this year.
“Contrary to expectations, the office market should continue to shine in 2015 as the dearth of supply enables landlords to manage rents upwards. However, changing organisational dynamics may mean a move towards smaller [spaces],” said Alan Cheong Senior Director at Savills Research.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg.
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