Stingy tenants lock horns with landlords as office rents surged to record high in Q3

The gap in rental expectations is steadily widening.

Singapore’s office rents scaled ever-greater heights in the third quarter. According to Colliers International, rental growth for Premium Grade office space in the Raffles Place/New Downtown micro-market surged by 6.1% quarter-on-quarter to $11.67 per sq ft in September, the highest quarterly growth recorded in three years.

Colliers noted that the tight market gave landlords greater pricing power over tenants, allowing them to test the market by raising rental expectations with each benchmark deal closed.

“With office rents on a consistent uptrend for the past one and a half years, there is a growing divide between the types of space tenants desire and the amount of rent they can afford to pay for that space, as well as landlords’ rental expectations. Hence, in 3Q 2014, the buzz in the leasing market was generated by an increase in viewings rather than lease commitments as tenants took a longer time to work out their sums,” the report stated.

Here’s more from Colliers:

Office rents in the other Grade A micro-markets in the Central Business District (CBD) also marched towards the psychological rental benchmark level of $10.00 per sq ft, climbing by between 0.4% and 2.9% QoQ in the three months ending in September 2014. Meanwhile, rents for Grade B office micro-markets in the CBD grew at a slightly slower rate of 0% to 2.3% QoQ during the same period. 

In the first nine months of 2014, the average monthly gross rent for Premium Grade office space in the Raffles Place/New Downtown micro-market has escalated by some 13.3% while those for the overall Grade A and Grade B office space in the CBD have gained 6.4% and 3.9%, respectively.

The continued rental growth comes amid a supply squeeze, given that the average occupancy rates of most micro-markets have breached the technical full occupancy rate of 95%. For instance, as of September 2014, the average occupancy rate for Grade A space in Raffles Place/New Downtown and Shenton Way/Tanjong Pagar stood at 97.2% and 99.4%, respectively. 

Meanwhile, the average occupancy rate for Premium Grade space in Raffles Place/New Downtown edged closer to the technical full occupancy of 95% by climbing 0.7 percentage point to reach 94.1% by the end of September 2014 from 93.4% three months ago. 

Overall, the average occupancy rate for completed Premium and Grade A office space in the CBD held firm at 96.5% in 3Q 2014, relatively unchanged from that in 2Q 2014, which was already the highest occupancy level recorded in more than five years.