Investors Still Eyeing Singapore Office Space: JLL
SINGAPORE – The city-state’s property investment market, particularly the office segment, is expected to pick up this year, according to an article written by JLL Singapore’s Research Head Tay Huey Ying that was published by The Business Times on Thursday morning (4 February, SGT).
“We expect Singapore’s office assets to stay high on investors’ radar as the low pipeline supply supports a wider margin of safety in light of the uncertainty surrounding office demand post-COVID-19,” she said.
“Specifically, the city-state’s investment-grade CBD office inventory is estimated to grow at a slow rate of 0.5 million sq ft per annum on average between 2021 and 2025. This is just half of the 1.0 million sq ft average annual net absorption recorded between 2010 and 2020, and should buffer the sector well against the impact of any potential increase in occupier adoption of work-from-home (WFH) strategies.”
She attributes the recovery in the property investment market to Singapore’s anticipated economic recovery, coupled with the availability of sufficient liquidity and the pressure to deploy capital, as well as an upbeat market sentiment arising from the vaccine roll-out.
A testament to investors’ confidence over the medium- to long-term growth prospects of the local office market is Allianz Real Estate’s recent purchase of a 50 percent interest in OUE Bayfront in the central business district (CBD) for about S$633.75 million, Tay noted.
Another factor contributing to the positive outlook is that the contraction of office rents slowed down in Q4 2020. The average gross effective rents of Grade A CBD office space fell 9.3 percent during last year’s fourth quarter to S$9.81 psf per month compared to S$10.81 psf per month in Q4 2019. Not only is this lower than the 12 percent drop forecasted by JLL during the onset of the pandemic in April 2020, but is also a lot better than the 49.1 percent plunge recorded during the 2008 Global Financial Crisis.
However, office and retail tenants are generally expected to adopt a cautious stance due to an uncertain business outlook amidst an obscure safe-distancing environment. This is because the government could delay or even reverse the easing of safe-distancing rules as Phase III of the reopening could increase the risk of community outbreaks of the coronavirus.
“That said, some companies may take the opportunity to move up to quality in light of rent corrections. The growing technology and asset management sectors could also drive demand for office space in 2021. With more occupiers planning new premises in 2021, there would be greater clarity on the impact of COVID-19 on workplaces and their designs,” she noted.
As such, JLL believes that demand for office premises here could be stronger this year than in 2020, leading to milder rental drops.
“We project that CBD Grade A office rent could ease around 6 percent in 2021. These forecasts take into account the potential for rent to stabilise by the end of 2021, on the back of an improving COVID-19 situation, underpinned by the availability of vaccines,” Tay added.