Grade A Office Rents Down

Grade A Office Rents Down 10% YOY In Q4 CBRE

SINGAPORE – A property consultancy revealed that Grade A office rents in the city-state have fallen by 10 percent year-on-year (YOY) to S$10.40 psf per month in Q4 2020 compared to a positive annual growth of 6.9 percent during the same period in 2019, reported The Business Times on Friday morning (18 December, SGT).

Although CBD office rents only dipped by 2.8 percent quarter-on-quarter, this marks the 4th straight quarterly decline, according to data published by CBRE on Thursday. The real estate consultancy added that emerging vacancies are dragging down Grade A office rents in Singapore.

Cushman & Wakefield (C&W) also released figures on Thursday projecting that monthly office rents in the city-state’s central business district (CBD) could reach S$9.54 psf by the end of December 2020, which is 10 percent lower than the peak of S$10.66 psf in 2019.

The real estate consultancy thinks that the declining CBD rents could trigger a flight to quality, especially for businesses that are still seeing growth. However, most firms are expected to shun capital expenditure (CapEx).

As for office rents across all grades at the city’s outskirts and suburban areas, these slid by 1.5 percent and 1.6 percent respectively between Q1 and Q3, versus the heftier 7.7 percent drop witnessed by Grade A office premises in the CBD over the same period.

C&W’s Head of commercial leasing in Singapore and Executive Director Mark Lampard said firms occupying office space in fringe or suburban markets have less room to lower their operational costs as office rents in these areas are more affordable. He also believes that coworking space will remain in-demand as it grants much-needed versatility to tenants during downturns.

Meanwhile, CBRE shared that office rental activity this year was mainly driven by renewals and relocations, with firms slashing their total office footprints. During the first 3 quarters of 2020, this has led to a negative net absorption of 545,000 sq ft.

Based on its initial figures, year-to-date leasing volume has reached roughly 1.18 million sq ft, with tech firms and financial institutions being the top 2 lessees, accounting for over 50 percent of the leasing volume, noted CBRE’s Co-head of office services David McKellar.

Although the office space reduction by major occupiers have led to a higher amount of secondary office space, he pointed out that this has given other tenants the option of securing quality, fitted-out premises.

“We observed that given the heightened uncertainties in the market, incoming tenants are open to taking over fitted premises as it reduces the need for additional capital expenditure,” McKellar explained.
Moving forward, C&W foresees that CBD office rents would continue falling next year, as businesses negotiate for shorter leases as a prolonged period of working from home may likely reduce their need for office space.

Still, demand for office space in the city outskirts and suburbs is forecasted to remain robust as the health crisis has compelled many companies to establish secondary office locations for business continuity.

“Planning contingencies for secure secondary office locations has become a priority for many corporates and this trend will feed demand for city fringe and suburban locations, including business parks,” commented C&W’s Research Head for Singapore and Southeast Asia Christine Li.

Furthermore, the property consultancy shared that the construction of the Central Boulevard site in 2021 will add 1.3 million sq ft of new office space in the CBD, and this could drag down office rents. Nonetheless, the demand outlook remains positive as Singapore continues to lure a significant number of well-established companies in the technology, biomedical, and pharmaceutical sectors, as well related service providers.

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