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Despite the economic uncertainty and lower GDP growth, Singapore’s office market is showing signs of bottoming.
In fact, CBRE Research believes there is potential for some return of growth by the end of 2017, as well as a more sustained recovery by next year.
The property consultancy, however, expects the recovery to be mixed, with Grade A offices as the main beneficiary of any increase in rents.
It revealed that net absorption of islandwide office space grew for the third quarter in a row in Q1 2017, albeit at a smaller pace compared to the previous quarter. But CBRE’s islandwide office vacancy rose to 6.4 percent in Q1 2017 as net supply, which was driven by several new completions, surpassed net absorption.
With this, the initial fears of supply overhang is starting to fade as new developments register higher than expected pre-commitment rates.
CBRE noted that take-up tends to increase when projects near completion. Guoco Tower, for instance, was reportedly 70 percent pre-committed in September 2016, when it received its Temporary Occupation Permit, up from just 10 percent in January 2016.
As at Q1 2017, Marina One was reportedly 60 percent pre-leased compared with 30 percent in June 2016.
“The bulk of leasing deals have been driven by relocation and consolidation, although a number of occupiers have expanded their office footprint marginally when moving to their new premises,” the report said.
The tech and media sector emerged as the key demand driver, along with pharma firms and insurance groups.
The report revealed that Grade A core CBD rents fell 1.6 percent quarter-on-quarter to $8.95 psf per month in Q1 2017.
“It looks likely that after a period of market softening that has spanned over two years, rents may soon find support levels and at a level slightly above previous forecasts,” said Moray Armstrong, Managing Director for Advisory & Transaction Services at CBRE.
“Singapore’s core CBD Grade A space is available at rents that look increasingly competitive when set against other key regional centres; by way of example Singapore offices are less than half the cost of equivalent quality space in central Hong Kong. This has been noted by many multinational corporations as they consider an Asia Pacific strategy, and more recently we have observed increasing footprints in the republic.”
And with relatively few new office projects set to enter the market in the next two to three years, Armstrong believes the conditions for a return to rental growth are developing.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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