Grade A office rental growth to slow as supply moderates

Rents grew 14.9% in 2018.

Grade A office rents is projected to maintain an upward trajectory from 2019 to 2022, though more slowly compared to the early part of the rental recovery cycle, CBRE Research reported.

“Prospects for the office market looks largely sanguine in the next couple of years; demand looks relatively stable while pipeline supply is moderating, all of which are positive indicators,” CBRE wrote.

Also read: Average CBD Grade A office rents jumped 12.6% to hit 10-year high in Q2

Grade A office rents jumped 14.9% in 2018, a 21% growth from 2017 Q2. Net absorption was at a total of 1.59 million sqft, whilst net supply was at 1.51 million sqft.

The co-working market especially doubled in size to an estimate of 1.4 million sqft from 700,000 sqft in 2017. There have been facilities 60,000 sqft large like those of WeWork, JustCo and Distrii, from the average sizes of 5,000-10,000 sqft in 2013.

The market size of co-working operators is expected to surpass 2.0 million sqft in size by next year. Still, co-working spaces only account for 1.5% of the office market.

Also read: Landlords cash in on Singapore's coworking boom

“However, with new co-working facilities growing larger and larger, there has been a distinct shift in focus by co-working players towards larger enterprises to fill up their spaces,” CBRE wrote.

Office supply is expected to hit 5.39 million sqft, which is an annual average of 1.33 million sqft and about 30% lower than the 10-year average of 1.90 million sqft. The next wave may likely arrive at 2022, which will cap rental growth prospects in the moderate term.

In addition, the four unicorns in SEA located in Singapore occupy a combined floor area of over 500,000 sqft. The increasing presence of venture capital players is predicted to drive office expansions.

Vacancy levels for Grade A or Core Central Business District (CBD) segments also tightened to 5.1% from 6.2%. Occupiers are expected to widen their location criteria in office requirements, leading to an increase in leasing demand for Grade B/B+ offices.