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As CBD Grade A office rents have cumulatively grown by 27 percent since Q2 2017, prompting some tenants to relocate to another building with a lower rent.
Colliers International, via Colliers Research, said there are signs indicating tenants are against further hikes in rents after nine straight quarters of increases in Grade A office rents located in the central business district (CBD).
Driven partly by tightening supply, CBD Grade A office rents have cumulatively grown by 27 percent since the second quarter of 2017 (Q2 2017), according to Colliers International’s latest research report.
“We are starting to see ‘flight to value’ in the market where some tenants eschewed higher lease renewal rate and opted to relocate to another building with a lower rent. Whether this trend would become more widespread will depend on market dynamics and the state of the economy,” said Tricia Song, Colliers International head of research for Singapore.
“Broadly, we expect rental growth to continue to slow in line with a slower economic growth. Some trade sectors may have already felt some pressure. We may see some shadow space emerge from large occupiers, such as financial institutions.”
Colliers Research revealed that average Grade A office rents located in the CBD grew by 1.5 percent quarter-on-quarter (QOQ) to S$10.08 per square foot per month (psf pm) in the third quarter of 2019 (Q3 2019). This is slower than the three percent increase made in the previous quarter.
On a year-on-year (YOY) basis, average CBD Grade A office rents in Singapore rose by 9.6% in Q3 2019.
In Q3 2019, Grade A office rental growth was at its strongest in the Shenton Way/ Tanjong Pagar and Raffles Place/New Downtown Premium micro-markets, due to new builds and tight vacancies.
For 2019, Colliers Research predicts that overall CBD Grade A office rents should increase by eight percent, moderating from the 15 percent rise in 2018. It also projects rents to go on growing at a slower five percent pace in 2020.
Meanwhile, new CBD Grade A office space will still be limited from 2019 to 2020, averaging 678,000 sq ft annually. Colliers Research noted this should keep CBD Grade A vacancy tight, less than the 10-year average of 6.3 percent.
Also, with optimistic valuations gained in major transactions in Q3 2019, the average imputed capital value of CBD Grade A office properties grew 0.7 percent QOQ to S$2,512 psf.
Cap rates remained the same in the quarter at between 3.5 percent and 3.15 percent on average.
Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg
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