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The average monthly rents of Grade A office space in Singapore’s central business district (CBD) edged up by 0.4 percent to S$9.92 per sq ft in Q1 2015 compared to S$9.88 per sq ft in the previous quarter, according to a report from Savills.
Specifically, office rents in Marina Bay recorded the highest quarterly gain of 0.7 percent to S$13.75 per sq ft, followed by Raffles Place which posted a slight increase of 0.5 percent. On the other hand, office rents in the other submarkets were flat during the period under review.
Despite the marginal gains during the first quarter and the robust rental growth of 14.3 percent for the whole of 2014, rental growth has started to slow down due to the global economic uncertainty and tenants’ resistance to the continued increase in asking rents, the consultancy said.
Savills added that what can drag office rents down is the deluge of secondary and shadow space, as many banks have scaled down their spatial requirements at a significant extent and at a much earlier time than expected.
“The return of shadow space by financial institutions has come sooner than expected, upsetting the ability of the market to digest the space in such a short time,” explained Alan Cheong, Senior Director for Singapore at Savills Research.
It is noted that some banks have begun the process of returning the space to the market and these will further increase the amount of shadow space at existing Grade AAA offices over the next 24 months.
“Taking the new supply entering the market, together with other residual stock from existing Grade A offices as well as secondary space vacated by tenant relocations, the CBD Grade A office market may be looking at around 5.37 million sq ft in total from Q2 2015 until the end of 2017,” he said.
Given the substantial supply, Savills reduced its office rental forecast with effective rents now likely to slide by 3 percent year-on-year in 2H 2015.
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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