Grade A office rents in Singapore’s central business district (CBD) rose sharply by 14.9 percent on average to $9.43 psf per month in 2018, representing the highest yearly growth since rents recovered by 22 percent in 2010 after the 2008 Global Financial Crisis, according to Colliers International on Wednesday (13 Feb).

In particular, the office micro markets in Beach Road and Shenton Way/Tanjong Pargar recorded the highest rental growth. In Q4 2018, average monthly Grade A office rents in the aforementioned areas climbed by 18.6 percent and 18.4 percent year-on-year to $8.52 psf and $9.53 psf respectively.

The strong increases were driven by tightening vacancies and recently completed premium office spaces in the area, such as DUO and Guoco Tower, which were built in 2016 and ushered in a re-assessment of office rents in their respective micro-markets.

“In view of tight vacancy and a muted supply pipeline, we expect the steady upward rental trend to persist over the next two years, with average rents rising an estimated 8.0 percent year-on-year in 2019, and a further 5.0 percent year-on-year over 2020,” said Tricia Song, research head for Singapore at Colliers International.

“The supply shortfall over 2019-2021 should keep CBD Grade A vacancy tight, below the 10-year average of 6.2 percent, even after accounting for the impact of slowing net absorption in 2020 and 2021 in accordance with consensus forecasts of slowing global economic growth.”

In fact, the vacancy level slid by 0.2 percentage point quarter-on-quarter to 5.4 percent in Q4 2018, as there were no new completions and net absorption surpassed supply. For the whole of 2018, net absorption of Grade A office space is estimated to hit 1.28 million sq ft versus 663,000 sq ft of supply from Frasers Tower.

Looking ahead, the upcoming annual stock of CBD Grade A offices is forecasted to decline sharply between 2019 to 2021 to an average of 614,000 sq ft, or 2.0 percent of existing inventory compared to 10 percent in 2017.

 Source: 14 February 2019, CommercialGuru