Singapore office occupants eyeing newer buildings to escape rental squeeze

Savills revealed that some companies occupying existing Grade AAA office space here are considering to relocate to upcoming premises if their current landlords are undeterred in imposing substantially higher renewal rental rates, reported Singapore Business Review.“Some are voting with their feet by agreeing to move to new office completions in 2020. Although the forward rental rates for these future buildings are not low, nevertheless, it is still at a steep discount to the renewal rents in existing Grade AAA buildings,” said Alan Cheong, senior director at Savills Research.But even if rents at existing office space are reduced, it could be from a higher benchmark than prevailing rental rates. “This is the expected outcome because the relative lull in new supply between now and 2020 plays into the hands of landlords of both existing buildings and those in the pipeline,” he noted.As owners of existing Grade AAA office space continue to ask for higher renewal rents, this will pressure their tenants to seek premises elsewhere. In turn, this is expected to encourage landlords of buildings entering the market in 2020 and beyond to stick with their rents, which are by no means low and have already been inputted into Excel spreadsheets several years ago.“However, if landlords of existing stock use this supply lull to reset renewal rents to a level that is very much higher than the desktop-processed rents for new builds completing in 2020 and beyond, it will end up as a win-win situation for both,” Cheong explained.Office rent in Singapore was propelled by the high demand for newly completed buildings in 2016 to Q1 2018 as well as the healthy appetite for co-working space. It is also being pushed up by declining stock, with the supply of Grade A office space falling sharply to 800,000 sq ft this year from 2.25 million sq ft in 2017.“Although demand this year may be lower than last year, the deceleration rate in new supply plus the unexpected saviour in the secondary market that came in the form of co-working space operators gave landlords the confidence to raise asking rents.”“Given the current dynamics, Savills forecasts Singapore’s CBD Grade A office rents to rise by 10 percent in 2018,” Cheong added.Source: CommercialGuru, 14 August 2018