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CBD Grade A rents are expected to recover in H2 2021, supported by strong economic growth and potential COVID-19 easing measures.
Despite higher vacancy rates, CBD Grade A office rents in Singapore stabilised in the second quarter of 2021, dropping only 0.1% quarter-on-quarter to $9.52 per sq ft (psf), revealed Colliers International.
“Overall vacancy deteriorated in Q2 2021, as businesses continue to rationalise real space needs and seek value space options,” said Colliers International’s Executive Director and Head of Tenant Representation June Chua.
CBD Grade A vacancy increased to 5.6% in Q2 2021 from 5% in Q1 2021, while Grade B vacancy expanded by 2.1% to 9.3%, “dragged by Shenton Way/Tanjong Pagar, as tenants moved out of the CBD due to upcoming redevelopment plans for Fuji Xerox Tower”, she said.
Looking ahead, Chua expects vacancy to moderate to 5.5% by the end of this year, with benign supply keeping vacancy rates at 5% or below thereafter.
CBD Grade A rents are also expected to recover in the second half of 2021.
“We believe CBD Grade A rents are hitting a turning point and expect a recovery in H2 2021 supported by strong economic growth and potential COVID-19 easing measures. Occupiers should take the opportunity to lock in their leases early before rents start rising in the coming quarters,” she added.
The technology sector continues to drive new demand, with Twitter expanding one more floor of about 22,000 sq ft at CapitaGreen, said Colliers Research. US-based data management firm, DataStax, also set up its regional Asia Pacific headquarters within the city-state as it opens a new office.
The Flexible Workspace also continued with its expansion, with IWG’s Regus expanding 22,000 sq ft into PLUS building. JustCo unveiled its contract to manage around 35,000 sq ft of office space at The Metropolis Tower 1 from the first quarter of next year.
Meanwhile, total office or mixed office investment volumes jumped 51.5% quarter-on-quarter in Q2 2021, mirroring Singapore’s long-term attractiveness to foreign investors as well as “appetite for high-quality freehold or premium and Grade A office buildings”.
Ling Wei Kong, Senior Director of Capital Markets and Investment Services in Singapore at Colliers, noted a few major transactions in Q1 2021.
These include PGIM Real Estate’s $143 million acquisition of 108 Robinson, the divestment by Suntec REIT of its 30% stake in 9 Penang Road and the acquisition by Sun Venture of a 40% stake in Westgate Tower.
“Over the next few years, we remain optimistic for deal volumes on a favourable interest rate outlook and capital allocation to Asia’s key gateway cities,” he said.
In Q2 2021, CBD Grade A office properties’ average imputed capital value remained flat from the previous quarter at $2,439 psf, while cap rates remained at 3.15% to 3.50%, said Keng Chiam Tan, Executive Director and Head of Valuations at Colliers.
“We expect long term capital value growth to be intact on low-interest rates and higher capital allocation,” he added.
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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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