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The growth in Singapore prime office rents gained momentum in the first quarter of this year, according to a new report from Colliers International, which expects prime office rents in end 2018 to surpass the previous peak in 2015.
In the first three months of 2018, premium and Grade A office rents in the central business district (CBD) rose quarter-on-quarter to $8.60 psf per month (psf pm) at a rate of 4.8 percent, exceeding the gains of 0.6 percent and 2.7 percent in Q3 and Q4 2017 respectively.
“Sharply higher rent growth herald a sea change from the soft market conditions of 2015-2017. We view the Singapore office market (prime CBD) as the strongest income-growth opportunity within Asia for investors, with the potential to achieve up to 20 percent rental growth over 2018-2019,” said the property consultancy’s senior research analyst JieMei Tan.
“Firm economic momentum, bolstered by synchronized growth across office-using sectors, should elevate prime office rents by 10 percent to 12 percent over 2018, and by five percent to seven percent over 2019.”
Moreover, Colliers data shows that all premium, Grade A and Grade B office premises across the island posted rental growth on a quarterly and annual basis, with Raffles Place/New Downtown seeing the largest increase.
In fact, average gross effective rents of premium offices at Raffles Place/New Downtown rose 13.9 percent year-on-year to $10.49 psf pm. This was followed by Grade A premises in Shenton Way/Tanjong Pagar (8.9 percent), Beach Road (7.8 percent), Raffles Place/New Downtown (7.7 percent), City Hall (6.0 percent) and Orchard Road (5.2 percent).
Similarly, Grade B buildings recorded yearly rental growths ranging from 3.2 percent to 6.9 percent.
In Q1, the average vacancy rate of premium and Grade A buildings in the CBD also declined 2.3 percentage points to 5.8 percent on a quarterly basis, while that for Grade B premises edged up 0.2 percentage points to 6.8 percent.
Over the next two years, Colliers expects moderate CBD premium and Grade A supply pipeline to average 0.58 million sq ft per year. This translates to an annual growth of two percent in stock versus the 10 percent supply injection in 2017.
“The supply drought should be especially pronounced in 2019, as new office space is slated to be heavily concentrated outside the core CBD,” it noted.
The next major supply pump of around seven percent in stock is forecasted to occur in 2021 at CapitaSpring and the Central Boulevard greenfield site (pictured) within Raffles Place/New Downtown, which will have a combined area of 1.9 million sq ft.
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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