Singapore’s Grade A CBD office rents in 3Q17 posted a second consecutive quarter of increase and at a faster pace than in the preceding quarter, JLL’s preliminary estimates show.
Specifically, it is estimated that the average monthly gross rent of Grade A office space in the CBD strengthened by 4.3 per cent on a quarter-on-quarter (q-o-q) basis to SGD 8.86 psf in 3Q17 following the modest 0.7 per cent q-o-q uptick recorded in 2Q17 that ended eight consecutive quarters of rent decline.
Rent growth in 3Q17 was driven by the Marina Bay sub-market. The average monthly gross rent of Grade A office space in Marina Bay surged by 5.2 per cent q-o-q to SGD10.01 psf in 3Q17, a steep pickup from the 1.3 per cent q-o-q increase in 2Q17. The remaining sub-markets (i.e. Raffles Place, Tanjong Pagar and Marina Centre) posted rent growth ranging between 2.6 per cent and 3.0 per cent.
“Business sentiment in many industry sectors is generally more positive now than a year ago and this has increased occupier activity,” says Chris Archibold, Head of Markets for JLL Singapore.
Rapid ramp up of co-working demand
The rapid ramp up of co-working demand has also had a very positive impact on sentiment. Occupiers are aware that market sentiment is turning in favor of the landlords, therefore it is in their interest to act quickly to secure premises. This has played a part in the recent spate of space take-up that has set the stage for increased investor confidence and rental growth.
Archibold added: “On a slightly more cautionary tone, it should also be noted that many of the large occupiers with lease expiries before 2019 have already locked in their accommodation. Therefore, in order to fill developments with significant vacancy, investors will either need to commit a larger number of smaller tenants, or look to attract occupiers with lease commencement dates more than 18 months away.”
As of 3Q17, JLL’s preliminary estimates show that CBD Grade A office rents have recovered 5.0 per cent from the recent bottom of SGD8.44 psf per month in 1Q17 but are still some 16.1 per cent from the recent peak of SGD10.56 psf per month in 1Q15.
In the Marina Bay sub-market, the average monthly gross rent is estimated to have regained 6.6 per cent of its lost ground and is currently some 22.5 per cent below the recent peak of SGD12.90 psf in 1Q15.
Meanwhile, the average vacancy rate of CBD Grade A office space tracked by JLL is estimated to have held steady in the region of seven per cent in 3Q17. The average vacancy rate of Marina Bay was tight at 3.3 per cent in 3Q17.
The strengthening office leasing market has further fueled investor interest and driven the average capital value of Grade A CBD office space up a sharper 5.1 per cent q-o-q in 3Q17 to SGD2,376 psf, compared to the 2.3 per cent q-o-q uptick in the preceding quarter.
The average capital value of Grade A office space in Marina Bay climbed a steeper 6.0 per cent q-o-q to SGD2,781 psf in 3Q17 following the 3.2 per cent q-o-q rise in 2Q17.
Firmly on a recovery path
“Two straight quarters of rent and capital value growth, with the second coming in at a stronger pace than the first, is a reaffirmation that the CBD Grade A office market is now firmly on a recovery path,” says Tay Huey Ying, Head of Research & Consultancy for JLL Singapore.
“The worst appears to be over for this market. Concerns of oversupply is abating on the back of the healthy commitment rates achieved by the new completions. Moreover, new CBD supply which peaks in 2017 with the completion of Marina One will taper down in 2018 and dry up by 2019.”
Tay concludes: “Against the backdrop of a brighter economic outlook that should continue to lift business confidence and support real estate relocation and, increasingly, expansion plans, we are optimistic that CBD Grade A office rents and capital values will continue to trend up in the quarters ahead.”
CBD Grade A office rents could post full-year growth of between six per cent and eight per cent, given that the year-to-date increase stands at 3.7 per cent. Capital values are expected to outperform rents and could chalk up growth in excess of 10 per cent for the whole of 2017.