Office supply to tighten over the next decade

This may allow rents to rise 20% in the CBD over 2020-2022.

The upcoming supply of office space is projected to be tight for the next decade, with the government expected to focus on land sales in 2020-2025 on suburban regional hubs, according to a report by JLL.

With the reduction in land supply from the government, the annual completion of office space in 2020-2024 is projected to average around 0.9 msf, compared to 1.2 msf per year in 2010-2019. At the same time, stock withdrawals for refurbishment and redevelopment are expected to hit 1.5-2.0 msf, reducing average supply to 0.6 msf per year.

Meanwhile, the islandwide occupied office space is projected to grow annually by 1.5-2.5% over 2020-2022. With these, rents in the core business district (CBD) are expected to rise 20% over the same period due to low supply and resilient demand.

“Given the typical five-year development period, this could potentially mean that office supply in the CBD could stay low till 2030, allowing a long runway for rents to appreciate,” the report stated.

The government has stopped releasing office sites for sale in the CBD since June 2017, for the first time since 2003, in a bid to build up scalable suburban regional hubs to decentralise employment opportunities.

Furthermore, the number of buildings that could qualify for the CBD Incentive Scheme, which encouraged the converting older office buildings for mixed uses, is estimated at 20, which have a total of around 6-6.5 msf of existing net lettable office space.

If all of these were redeveloped, with 40-60% of the new gross floor area (GFA) set aside for non-commercial use, about 4-5 msf of office area, it could yield over 3,000 residential units and 3,000 hotel rooms, JLL said.

Despite slower economic growth, occupied office space grew 2.3%, or close to 2 million sqft, attributed to a strong continued GDP expansion and employment gains in technology, finance, insurance and business services sectors of 2.7% and 3.6% YoY, respectively, as of Q3 2019.