5 biggest reasons why Singapore's office rents will bottom out this year

But pricier rents loom in 2014.

According to CIMB, it continues to believe that 2013 will be the year the office sector bottoms, with office rents expected to resume their growth trajectory in 2014. This is predicated on a few reasons.

Here's more:

1) A strong labour market and evolving demand from non-financial sectors continue to provide support for take-up.

2) The excessive supply that the market is concerned about continues to be digested. Incremental construction starts in the last few years (except for those already known since 2010) have been very marginal. Supply completions in the CBD from now till 2016 are estimated to average around 0.65m sf per year, lower than the historical average annual take-up of 1m-1.2m sf. The bulk of the supply completions are expected to come from outside the CBD area, which we believe do not competedirectly with office space in the CBD.

3) As vacancy stabilises and future supply becomes more manageable, we expect landlords to gradually gain pricing power. Our recent checks with industry landlords suggest that rents will remain sticky in the near term as occupancy for the recently completed buildings is over 85%.

According to JLL, vacancy rates in the CBD have fallen from 7.1% in 1Q12 to 6.5% in 1Q13. Vacancy has been on a gradual declining trend since the high of 10.2% in 3Q09.

4) CBD rents remain at 40% below their previous peak and 40% cheaper than that of Hong Kong, still the widest discount seen in the past two decades.

The discount between Grade A rents and decentralised rents is also one of the narrowest seen in the same period. According to JLL,average CBD rents have stabilised at S$8.90 psf in 1Q13, unchanged from the previous quarter.

5) The ongoing removal of office stock, as the old CBD continues to be rejuvenated, should continue to alleviate the supply situation. OUE has announced recently that it will convert around 160+k sf of CBD office space (DBS Towers) into serviced apartments.