Office market pops the champagne on high pre-commitment rates

Marina One is already 60% pre-leased.

The lower GDP growth and economic uncertainty continue to weigh on the office market but the market in Singapore is showing signs of bottoming, according to CBRE.

“Notwithstanding Singapore’s exposure to concerns around the geopolitical landscape in the global economy, Singapore’s fundamentals remain very strong,” it said.

Its attraction as a stable investment location and ability to bounce back have proven to be robust in past cycles. CBRE Research believes that there is potential for some return to growth by the end of 2017 and a more sustained market recovery in 2018.

Here’s more from CBRE:

This recovery however is expected to be mixed, with Grade A offices the main beneficiary of any uplift in rents.

Net absorption of islandwide office space expanded for the third consecutive quarter in the first three months of 2017, albeit at a smaller magnitude relative to the previous quarter.

However, net supply, driven by a few new completions, outpaced net absorption, which led CBRE Research’s islandwide office vacancy to rise to 6.4% in Q1 2017 from 6% in the previous quarter.

The initial fears around supply overhang are beginning to diminish with new developments now seeing higher take-up. Pre-commitment rates for new projects have been stronger than expected.

Take-up has shown to accelerate when projects near completion. For example, Guoco Tower was reportedly 70% pre-committed when it received its Temporary Occupation Permit in September 2016 compared with 10% in January 2016.

Marina One was earlier reported to be 60% pre-leased as at Q1 2017, compared with 30% in June 2016.

The bulk of leasing deals have been driven by relocation and consolidation although a number of occupiers have expanded their office footprint marginally when moving to their new premises.

The tech and media sector has been a key demand driver of office space, along with insurance groups and pharma firms seeking opportunities. Recent notable examples include a US social media giant that is slated to take up more than 250,000 sq ft in Marina One from its current 70,000 sq ft office whilst GrabTaxi announced that it will be moving to a 100,000 sq ft office in the CBD.

Grade A Core CBD rents stand at S$8.95 psf/month, a 1.6% quarter-on-quarter decrease from the previous quarter and 9.6% from a year ago. The pace of rental decrease has slowed further, prompting expectations of an earlier-than-expected rental growth recovery.

Moray Armstrong, managing director, advisory & transaction services, CBRE, said, “It looks likely that after a period of market softening that has spanned over two years, rents may soon find support levels and at a level slightly above previous forecast. Singapore’s core CBD Grade A space is available at rents that look increasingly competitive when set against other key regional centres; by way of example, Singapore offices are less than half the cost of equivalent quality space in Central Hong Kong. This has been noted by many multinational corporations as they consider an Asia Pacific strategy and more recently we have observed increasing footprints in the Republic.”

“Going forward with relatively few new office projects scheduled through the next two to three years, the conditions for a return to rental growth are developing. This has not been lost on the investor community and Singapore is attracting strong buying interest,” Armstrong added.