CBD rents edged up 17% for five consecutive quarters: report

The co-working boom is driving office demand.

Singapore’s office market is in its relatively early stages of a recovery which started in mid-2017, as at Q3 2018, core Central Business District (CBD) rents have been rising for five consecutive quarters by a total of 17%, with further growth expected in the coming years, according to UBS Asset Management’s 2019 real estate outlook.

According to the report, demand has been healthy in 2017 and 2018 amidst strong economic performance thanks to the co-working boom which has taken root globally.

Also read: Luxury co-working spaces on the rise in Singapore

“But in a heartening sign, there is also evidence of demand broadening out to other sectors,” the report’s authors Adeline Chan and Shaowei Toh explained. “This is evident in leasing activity which is reportedly coming from the banks, oil and gas firms, insurance companies and shipping firms. Expectations of buoyancy in demand for the coming year should be tempered given its close correlation with gross domestic product (GDP) growth, notwithstanding the rental upcycle that is expected to continue due to a lack of completions.” 

Pipeline supply between 2019 and 2021 is expected to be roughly 0.7 million sqft per year, less than half of both the 10-year average new supply of 1.8 million sqft per year and the 10- year average net absorption of roughly 1.4 million sqft per year, the report noted. The next spike in completions is due in 2022 when close to 2 million sqft of space is projected to enter the market. Until then, the lack of options for occupiers is likely to result in continued rental gains in spite of a slower economy. 

Signs of stabilisation are also starting to emerge in the industrial sector and are likely to get firm over the rest of 2019 as supply tapers off following a four-year influx, the report highlighted. However, variations amongst the sub-sectors exist with business parks as the clear standout.

Rents have generally been on a mild upward trend since early 2017, barring a marginal QoQ fluctuation in Q3 2018.

Also read: Industrial property rents dipped 0.3% in Q4

“Not only have business parks been spared the onslaught of new completions that have plagued the other industrial sub-sectors, demand for business park space has generally been firm, particularly for newer buildings,” Chan and Toh added. “This comes amidst a push by the government to grow the high-tech and advanced manufacturing industries, which has broadly benefitted properties that cater to these high value-added sectors.”

With pipeline supply limited and demand likely to benefit from a widening rental gap with office space, business park rents are expected to maintain a positive upward momentum in the coming months. Real estate investment volumes in Singapore slipped roughly 16% YoY in 2018 amidst a fall in office transactions, data showed. This is likely to be reflective of pricing levels and tight cap rates rather than a lack of interest, as Singapore still ranks high on investor surveys due to the ongoing cyclical recovery in the office market.