RENTS for Grade A office buildings in Singapore’s central business district (CBD) are expected to rise by 8 per cent this year, and 5 per cent in 2020, amid tight supply and high pre-commitments, according to a report by Colliers International.
The real estate services and investment management firm also expects new supply in 2019-2021 to average 614,000 square feet (57,000 sq metres) per annum or 2 per cent of stock, versus 5 per cent over the past five years. This should keep vacancies tight in 2019 through 2021, Colliers said.
It added that of the six micro-markets in Singapore’s CBD, rents in Shenton Way/Tanjong Pagar could grow at the fastest rate on a three- and five-year horizon, driven by redevelopment and rejuvenation in the area. According to Colliers, new buildings such as Frasers Tower, Guoco Tower, and UIC Building, which were completed in 2016-2018, have raised the image and rents of the area.
In addition, Colliers said that redevelopments in the Shenton Way/Tanjong Pagar area, including the Afro-Asia Building and the CPF Building (to be named ASB Tower), should raise rents further in 2020 when they are completed. Rental growth could also be further supported by the withdrawal of existing stock for redevelopment, as landlords adopt the URA (Urban Redvelopment Authority) incentive scheme, Colliers said.
It also noted growth of the technology, media and telecoms (TMT) and flexible workspace sectors, which Colliers said accounted for most of the net absorption of office space in 2018 and 2019 year-to-date. In particular, flexible workspace stock has more than tripled since 2015.
TMT and flexible workspace operators have the highest presence in Shenton Way/Tanjong Pagar, occupying 21 per cent and 6 per cent of the Grade A micro-market respectively.
The five other CBD micro-markets assessed by Colliers comprise the areas of Raffles Place/New Downtown (Premium), Raffles Place/New Downtown (Grade A), Beach Road/Bugis, City Hall, as well as Orchard. The research also considered factors such as existing industry clusters, availability of office stock, accessibility, and rents.
Colliers said Raffles Place/New Downtown, with the largest concentration of premium buildings, still ranks as the top choice for financial services firms, while urban renewal could boost rents at a faster pace in the City Hall and Beach Road/Bugis micro-markets beyond 2022.
Colliers also noted that given Singapore’s status as a global financial hub, it is unsurprising that the financial services sector occupies a lion’s share (42 per cent) of total office space in the CBD.
The other relatively large space users are the professional services (15 per cent), TMT (12 per cent), followed by resources, energy and commodities (9 per cent), consumer (5 per cent), and flexible workspace companies (4 per cent).
Said Tricia Song, head of research for Singapore at Colliers International: “Singapore CBD office demand has historically been broad-based, driven by the core sectors of financial services, professional services, energy and shipping.
“However, we observed that technology firms and flexible workspace operators have taken up substantial amount of space in recent years – we estimate that they accounted for about 75 per cent of net absorption in 2018, for instance. We expect such changing occupier trends, as well as the ongoing rejuvenation and new developments within the city to continue to shape the various office micro-markets in the CBD.”
Rick Thomas, head of occupier services for Singapore at Colliers International, said: “Occupier demands have evolved from the sole considerations of location, price/rent and basic amenities. Other factors that are becoming more important include flexibility, space efficiency, wellness and lifestyle amenities, and tenant experience.”
He added that landlords need to ensure that their portfolio remains relevant. Meanwhile, occupiers should reassess their needs, and explore alternative lease options early given the limited prime space, and consider the strategy of combining flexible workspace with conventional office space.
This version of article written by Rachel Mui and first appeared at The Business Times.
Photo: ST File