Downtrend In CBD Office Rents Likely To Persist In 2021
SINGAPORE – Some property experts believe that Grade A office rents in the city-state’s central business district (CBD) would continue to fall this year as businesses reduce their office footprint due to the COVID-19 pandemic, reported The Business Times on Wednesday morning (6 January, SGT).
While JLL’s Research Head Tay Huey Ying foresees that Grade A office rents in Singapore’s CBD would decline, she believes that the drop could lessen to around half of the 9.3 percent contraction witnessed last year as the economy starts to recover.
Still, some companies would likely slash their office space requirements just like what was seen during past economic crises.
“Given that technology has given occupiers the ability to work remotely, the outcome could well be in excess of that seen during the Global Financial Crisis, though we are currently at around the same level,” said JLL’s Head of leasing Chris Archibold.
Similarly, Savills’ Executive Director Alan Cheong forecasted that headline rents for Grade A offices would fall as most occupants will likely reduce their office premises as they renew their leases.
Financial firms like Citigroup and Mizuho are already slashing their office footprint across the globe, including in Singapore’s Asia Square, and other firms could do the same thing once their leases end.
Nonetheless, ecommerce giant Amazon is set to take over some of the office space being relinquished by Citigroup at Asia Square Tower 1 as it’s leasing roughly 90,000 sq ft across three levels there.
“Some (office market players) may, in the interest of keeping headline rents stable, be open to venturing into structured deals,” noted Cheong, who added that it will be difficult to determine the fall in headline rents as structured transactions could conceal the effective rental rate.
Based on net cash flow terms, he estimated that renewed leases or newly signed ones could decline by approximately 10 percent on a yearly basis.
Still, some major tenants may retain their office usage. For example, many financial firms could still require their frontline employees to return to the workplace.
Meanwhile, CBRE revealed that the core CBD office rental market is already feeling the pressure of the emerging vacancy, with monthly Grade A office rents there sliding 2.8 percent to S$10.40 psf in Q4 2020 on a quarterly basis.
On an annual basis, this works out to a larger decline of about 10 percent, reversing the year-on-year growth of 6.9 percent in 2019, said the property consultancy. It also foresees that occupancy levels of Grade A office space in the core CBD market would be dragged down despite the limited stock of upcoming Grade A office premises.
On the other hand, Colliers International offers a rosier projection, as it believes that Grade A office rents in Singapore’s CBD would recover by 5.5 percent this year.
Colliers International’s Research Head Tricia Song attributed the brighter outlook to a dearth of new office completions, rising demand from tech firms, and the removal of office space in the market as ageing buildings are turned into mixed-use projects. She also thinks that businesses would expand their office space needs amidst a recovering global economy. While some industries severely affected by the health crisis will likely reduce their office space, some sectors that are performing well could increase their office footprint, leading to positive net office absorption in 2021.
Furthermore, property experts think that this year’s primary drivers of office demand would come from companies in the technology, social media, and financial technology industries.