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Premium and Grade A office space in the central business district (CBD) saw their weakest rental growth in nearly two years, as tenants consolidate space or relocate to cheaper premises in a bid to slash occupancy costs, a report from Colliers International revealed.
Another factor exerting downward pressure on rents is the large upcoming supply, said Colliers’ Director of Research & Advisory Chia Siew Chuin.
“As pre-leasing activities of upcoming office developments that are slated to be completed in 2016 intensify, landlords – both new and old – are expected to increase incentives to compete and/or retain their tenants. This presents good opportunities for tenants to lock in leases at attractive terms,” she added.
Consequently, rents for Premium and Grade A office space in the CBD inched up by only 0.3 percent to S$9.44 per sq ft in Q2 2015, or their weakest quarterly rental growth since the second quarter of 2013.
Average monthly gross rents for Premium Grade office space in Raffles Place/New Downtown area were unchanged for the third straight quarter at S$11.93 per sq ft, while that for Grade A office space crept up by merely 0.2 percent to S$10.43 per sq ft, down from the 1.6 percent growth in Q1 2015.
Grade A office space in other micro-markets in the CBD also posted flat to marginal growth ranging from 0 percent to 0.7 percent. Similar to the trend in the core financial district, rental growth of such premises outside of downtown Singapore slowed to a two-year low and were nearly flat in the second quarter.
Meanwhile, the occupancy level of Premium Grade office space in the Raffles Place/New Downtown sub-market rose by 0.3 percentage points to 92.1 percent in Q2 2015 as tenants sought to consolidate their operations in Premium Grade offices thanks to their large and efficient floor plates.
However, the occupancy level of Grade A office space in the CBD dipped by 0.6 percentage points on a quarterly basis to 96.7 percent in Q2 2015, while the occupancy rate for similar properties in the suburbs increased by 4.9 percentage points to 96.7 percent.
“The continued wave of decentralisation contributed to the dent in the overall occupancy rate of Grade A office space in the CBD,” said Colliers Deputy Managing Director Calvin Yeo.
“The availability of new office buildings outside the CBD, such as Westgate Tower, which has comparable building specifications but more affordable than Grade A office space in the CBD, was a draw for tenants’ decentralisation move during the quarter,” he added.
In terms of sales prices, average capital values of Grade A and Premium-Quality office space remained flat at S$2,532 per sq ft and S$2,821 per sq ft respectively.
Amidst the volatile economic environment and the substantial pipeline over the next two years, the prospects of Singapore’s office property market is likely to be flat for the remaining six months of 2015, especially for the office submarkets within the CBD.
In line with this forecast, rents of Premium Grade office space in Raffles Place/New Downtown could hold firm in the period, likewise for the overall rents of Grade A and Grade B office space in the CBD after posting a gain of nearly 1 percent in first half of the year.
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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