Rents of Grade A and premium office space in Singapore’s central business district (CBD) have risen by 12.1 percent so far this year and is expected to increase by roughly 14 percent for the whole of 2018 – the highest annual growth since 2010 and the first double-digit yearly gain since 2011, according to Colliers International’s Q3 2018 Office sector report.

“We expect the steady upward rental trend to persist over the next two years, with average rent rising an estimated 8.0 percent year-on-year in 2019, and a further 5.0 percent over 2020,” said Colliers’ Singapore research head Tricia Song.

“However, we acknowledge the risk that our rent forecasts may prove too high if turbulence in stock markets continues and results in reduced demand from finance sector occupiers, which account for about 45 percent of Grade A office space in Singapore’s CBD.”

In Q3 2018, monthly average rents of such office premises rose 4.3 percent quarter-on-quarter to $9.2 psf, following a 2.6 percent quarterly uptick in the second quarter.

On an annual basis, rents in the third quarter rose 15.2 percent, with the sharp rise attributed to tight vacancy and limited future supply.

In fact, vacancy only edged up by 0.1 percentage point to 5.6 percent in Q3 2018 on a quarterly basis. Upcoming prime office supply is also forecasted to ease to 0.57 million sq ft on average or 2.0 percent of stock per year over 2019 to 2021, a far cry from the large inventory that entered the market in 2017 that accounted for about 10 percent of stock.

The lower supply pipeline is expected to keep the vacancy of prime office space in the CBD lower than the 10-year average of 6.2 percent, even after considering the effect of slowing net absorption in 2020 and 2021 based on consensus forecasts of a softer global economy.

“The market is acutely aware of the tight office vacancy rate and muted future supply, and this likely prompted a series of consolidation and relocation activity by multinational corporations in Q3 2018,” said Duncan White, head of office services at Colliers.

“We expect keen competition for prime upcoming supply and would advise occupiers to review portfolios early, as CBD Premium and Grade A vacancy should stay firmly below 6.0 percent over the next three years,” he added.

Source: 8 November 2018, CommercialGuru