Islandwide office rents jump 6.8% amid workplace space squeeze

Landlords are the big winners in this game.

Local landlords are reaping the rewards of tight office space supply in the island, as office rents are up 6.8% from the recent low in 2013.

According to CIMB, the present uptick is a function of limited new completions, space taken out of circulation for redevelopment as well as brisk leasing activity.

“The upward momentum in the office rental market is expected to continue over the next 12 months as landlords price rents up ahead of a near term squeeze of new prime CBD space.
Apart from the 1.2msf of new space to be completed this year, there is minimal additional CBD stock in 2015,” noted the report.

Here’s more from CIMB:

Going into the rest of 2014 and 2015, we think the lack of new CBD supply will continue to drive the rental growth momentum of prime Grade A space while quasi office will face the challenge of high incoming supply.

Current pre-commitments have been robust and business formations will continue to
underpin demand for office space. Our projection for office demand of 1-1.5msf this year is maintained, as is our overall rental growth forecast of 5-10%.

However, we think growth in CDB rents is likely to outpace those in non-CBD locations, thereby widening the differential between the two segments. That said, the large influx of new CBD supply beyond 2015 is likely to cap significant rental hikes for this cycle.

Office value appreciation is expected to be relatively minimal as cap rates have compressed to record low levels. Going forward, capital value expansion is likely to be driven by organic income improvements. This would provide an offset to the prospect of interest rate hikes in the medium term.