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URA’s Office Rental Index for the Central Region increased for the first time in six quarters since the second quarter of 2019 by 3.3% quarter-on-quarter.
Singapore’s office market is starting to turn around, with office rents rebounding 3.3% quarter-on-quarter (q-o-q) in the first quarter of 2021, compared with the 3.5% decline seen in the previous quarter, showed the latest Urban Redevelopment Authority (URA) data.
Tricia Song, Head of Research for Singapore at Colliers International, noted that URA’s Office Rental Index for the Central Region increased for the first time in six quarters since the second quarter of 2019 by 3.3% q-o-q.
The Central Area performed better as it rebounded by 3.3% q-o-q, after contracting 4.2% q-o-q in Q4 2020. The Fringe Area also saw rent increase 1.3% q-o-q, reversing the 3.4% decline registered in the previous quarter.
Prices for office space, however, continue to lag, contracting 2.7% q-o-q in Q1 2021, albeit the decline is slower compared to the 3.1% drop in the previous quarter.
The Central Area saw prices for office space declined 4% q-o-q in Q1 2021, while prices in the Fringe Area rebounded strongly by 5.8% q-o-q.
Islandwide vacancy for office space edged up marginally by 0.1 percentage point to 11.9% in Q1 2021 from the previous quarter’s 11.8%.
“This was attributed to a decline in net absorption by 204,500 sq ft (versus an increase of 21,500 sq ft in Q4 2020) despite a reduction in office stock by 96,900 sq ft (Q4 2020: -140,000 sq ft), as a result of continued business downsizing and office space rationalisation,” said Song.
She observed that landlords are increasingly becoming more confident of renting out their space amid rental increases seen in selective buildings.
“Based on Colliers’ research, CBD Grade A office stabilised at $9.54 per sq ft (-0.3% q-o-q) in Q1 2021, as net absorption turned positive after two consecutive quarters of contraction, dragged mainly by the Orchard (-0.9% q-o-q) and Raffles Place/New Downtown Premium (-0.7% q-o-q) micro-markets.”
Looking ahead, Song expects CBD Grade A rents to increase 5.5% to $10.09 psf in 2021, with demand mainly driven by the technology sector.
“With further improvements in the reopening of Singapore’s economy, including measures allowing up to 75% of employees (from 50%) at the workplace at any one time from 5 April onwards, as well as increased event attendance with pre-event COVID-19 testing from 24 April onwards, this should increase mobility and economic activities going forward, and bode well for the office sector.”
On the retail front, the pace of decline for retail rents slowed down to 4.4% in Q1 2021, from the 5.2% drop in Q4 2020.
This comes as rents in the Central Area contracted 4.8% and 2.5% q-o-q in the Fringe Area.
Meanwhile, retail price declines accelerated further, falling 3.2% q-o-q in Q1 2021 compared to the 2.1% drop posted in the previous quarter.
“Performance was dragged by the Central Area, which saw prices falling 5.8% q-o-q, versus Q4 2020s 3.4% q-o-q decline,” noted Song.
Prices in the Fringe Area, on the other hand, held up better, increasing 1.6% q-o-q in Q1 2021, reversing the 1.7% decline registered in Q4 2020.
In Q1 2021, island-wide retail vacancy improved to 8.5% from 8.8% in the previous quarter, as net absorption remained positive at 301,400 sq ft from Q4 2020’s 258,300 sq ft.
This comes even as net supply of 107,600 sq ft were added to the stock following two consecutive quarters of net supply withdrawals.
“We believe landlords could be prioritising occupancy over rents,” said Song.
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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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