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With the number of new office projects set to fall significantly after 2017, analysts expect a revival in the Singapore office market as some recent transactions were sealed with optimistic pricing, reported Nikkei Asian Review.
CapitaLand Commercial Trust (CCT), for instance, sold a 50 percent stake in a 23-storey prime office building for S$1.18 billion to Hong Kong insurer FWD Group. The price was 16.7 percent above One George Street’s valuation in December.
Three months ago, the S$725.2 million sale of a holding firm that substantially owns 28-storey GSH Plaza also resulted to a chunky profit for its owners.
“Typically, Singapore goes through periods of ‘too much’ and then ‘too little’ office space,” said CBRE Singapore executive director for capital markets Jeremy Lake.
“We are mostly over the ‘too much’ period,” he said.
With this, Lake expects Grade A office rents to recover as early as 2H 2017.
Urban Redevelopment Authority data showed that office rents dropped 3.4 percent quarter-on-quarter in Q1 2017, while prices for office space fell four percent.
Market experts believe the office market is near or at its bottom in terms of capital values, while rents may continue on a downward trend for several quarters.
Based on data compiled by CCT, new office space supply within the central region may drop to about 800,000 sq ft by next year. The figure is way below the 2.3 million sq ft in 2017 and 1.9 million sq ft in 2016.
Citing estimates and historical data from CBRE and URA, CCT expects the supply to decline further to 600,000 sq ft by 2019.
“With office supply slowly tapering off post-2017, we expect rents to bottom out this year and start rebounding in 2018,” said RHB Research in a report.
Moving forward, Lake expects Singapore’s office value to get a lift from the recovering economy and demand from Hong Kong investors in a bid to diversify geographically.
This article was edited by Denise Djong.
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