Flight to quality movement drives Grade A office demand

CBRE has reported that demand for high-end homes is also on the rise.

As the economy in Singapore gets back on track, CBRE said in its Q1, 2021 real estate market performance report that the real estate sector was likewise on the road to recovery.

Preliminary real estate investment volume increased by 11.5% QoQ to $3.523 b for Q1 2021. This is marked as its third consecutive quarter of increase since Q2 2020.

The office market registered a positive net absorption of 0.13 m sq ft. after three quarters of negative net absorption. CBRE also noted that there has been an uptick in leasing momentum, particularly in the Grade A Core CBD market.

Capitalizing on declining rents, occupiers were seen to have moved to prime office buildings. Among the tenants that drove the demand include firms in the technology and financial services industries such as asset management firms and family offices.

The flight to quality movement highlighted the gap between Grade A and Grade B markets. The Grade B market continued to have higher vacancy rates and saw a further rental decline of 1.3% QoQ to $7.80 psf per month.

CBRE reported that while demand is seen to increase in both markets, the Grade A market is likely to be the main beneficiary as large companies look for an upgraded location and quality whilst there is a pull-bank in rents.

For retail, there has been a return of shopper traffic indicating that business expectations have improved. Local spending increased, as retail sales posted a YoY change of -1.3% and 3.5% in January and February 2021.

As landlords continue to maintain a flexible stance towards rental expectations and leasing strategies, it was observed that there has been a slowdown in rental declines of prime retail spaces, from 3.6% QoQ in Q4 2020 to -1.2% QoQ of this quarter.

In the residential market, there has been strong performance driven mainly by homebuyers’ confidence and take-up of new launches. CBRE reported that preliminary estimates for new home sales volumes for Q1 2021 came to 3,376 units.

This is 57.1% higher than the same period last year. There has also been a strong demand for high-end homes among local homebuyers. Corollary, private property prices have increased by 6.2% since Q1 2020.

It is projected that the potential reopening of borders will also bring about the return of foreign investors.

For the manufacturing sector, signs of sustained growth in 2021 was observed. Output rose by 16.4% YoY in February, followed by a 9.2% YoY expansion in January. This is mainly driven by the electronics, biomedical manufacturing, and precision engineering clusters.

CBRE projects that high-specs buildings will continue to be in demand, whilst warehouse leasing demand Is likely to remain stable.