Office Rents To Rebound

Office Rents To Rebound By H2 2021 If COVID-19 Vaccination Is Successful

SINGAPORE – Property consultancy CBRE expects that the republic’s office leasing market would see positive rental growth from the second half of next year (H2 2021), reported The Edge on noon today (18 December, SGT).

It said office leasing demand will be driven by Chinese tech firms and non-bank financial institutions, like hedge funds and investment managers.

The bright outlook comes as the office rental sector has been severely affected by the health crisis, with total net absorption possibly hitting –560,000 sq ft by the end of year, which is a far cry from the 10-year historical annual average of 1.62 million sq ft.

Between Q1 and Q3 2020, office net absorption totalled –545,000 sq ft. For the last quarter, preliminary data indicates that the decline in occupied office space has slowed as net absorption improved to –14,800 sq ft.

CBRE revealed that office vacancy edged up from 4.5 percent in Q4 2019 to 6.0 percent this quarter, dragging down Grade A office rents in the core central business district (CBD). In fact, monthly office rents there fell 2.8 percent on a quarterly basis and 10 percent year-on-year to $10.40 psf in Q4 2020, compared to a positive growth of 6.9 percent for the whole of 2019.

The property consultancy expects demand for office space will remain relatively subdued during the first half of 2021. Even with a tight supply of upcoming Grade A office premises, it believes that Grade A office space in the core CBD area will experience further downward pressure.

“The initial office supply pressure for 2022 has been dissipated due to construction delays. However, delays provided more time for pre-leasing activities, which meant that the future supply that will spread over a longer time horizon allows demand and supply dynamics to recalibrate,” said CBRE’s Research Head for Singapore Southeast Asia Desmond Sim.

Still, office rental activity is on the uptick. “We understand that there are currently more ongoing negotiations for CapitaSpring which is slated to complete next year,” he noted.

Of the 5 office projects that are anticipated to be ready by next year, which have an overall area of 1.23 million sq ft, only CapitaSpring is Grade A. It’s expected to inject 0.65 million sq ft of high-quality office supply to the core CBD market.

Moreover, CBRE shared that as some older office buildings like Fuji Xerox Towers and AXA Tower undergo redevelopment to benefit from the CBD Incentive Scheme, the Grade B office market will see some relocations as tenants move out.

Sim also added that commercial property owners and lessors are increasingly offering versatile leasing terms as flexible workspaces and hybrid work modes become more popular.

Furthermore, CBRE remains bullish that the office rental market would recover. It expects occupancy levels and rent to rise by H2 2021 if the widespread roll-out of the COVID-19 vaccine by Q3 2021 is successful.

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