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Over the course of 2021, office demand is expected to be supported by gains in employment and a gradual recovery of Singapore’s economy.
With the government’s announcement that work-from-home will no longer be the default arrangement in Singapore, CBRE expects Grade A offices to lead the recovery of the Singapore office market this year.
“There is optimism surrounding the mid-term outlook, as prospects of the office market remain healthy. Over the course of 2021, office demand is expected to be supported by gains in employment and a gradual recovery of Singapore’s economy. In addition, office rents will be supported by a tight supply pipeline,” said Catherine He, Associate Director of Research for Southeast Asia at CBRE.
In its latest report, CBRE Research noted that there has been more flight to quality movements in Singapore as occupiers focus on higher quality products in the Central Business District (CBD). This led to the emergence of a two-tier market comprising the Grade A (Core CBD) market and the Grade B (Islandwide) market.
The Grade A market showed resilience with tightening vacancy, while the Grade B market continued to struggle with higher vacancy rate.
In fact, the Grade A basket tracked by CBRE Research showed that office rents remained stable quarter-on-quarter at $10.40 per sq ft per month (psf pm) in Q1 2021.
The Grade B rents, on the other hand, further declined 1.3% quarter-on-quarter to $7.80 psf pm.
In Q1 2021, the office market also posted a positive net absorption of 0.13 million sq ft, following three consecutive quarters of negative net absorption.
An uptick in leasing momentum was also noted in the past six months as the city-state remains on the radar of large multinational firms.
“In particular, the Grade A (Core CBD) market registered a positive net absorption in Q1 2021, as occupiers capitalised on the declining rents and took flight to prime office buildings,” said CBRE.
“Key demand drivers included firms in the technology and financial services industries such as asset management firms, and to a smaller extent, family offices.”
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Moreover, the displacement of tenants from buildings scheduled for redevelopment, such as Fuji Xerox Towers and AXA Tower, also contributed to occupier activity in the last few months.
“This includes Alibaba Group and Lazada’s relocation from AXA Tower to 5One Central. In addition, ByteDance continued its growth plans in Singapore, with its latest new take-up in Guoco Tower,” said the report.
CBRE noted that there is also limited availability of new supply in the mid-term in the absence of commercial Government Land Sale (GLS) sites with an allowable office use within the CBD.
“Factoring in the likely removal of existing stock stemming from buildings that are scheduled for redevelopment such as AXA Tower, Fuji Xerox Towers, Central Mall, Faber House, this will offset the incoming supply over the next three years.”
CBRE, however, does not expect a uniform recovery across all office buildings.
It expects the Grade A market to be the main beneficiaries via the market recovery phase as “large corporates leverage on the short-term market pull-back to upgrade in location and quality”.
“Meanwhile, the Grade B market is likely to face further pressure from emerging vacancy,” it said.
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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this story, email: victorkang@propertyguru.com.sg
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