Office rentals dipped 0.6% in Q1

Gross rent for prime office spaces grew 1.3%, causing slower leasing activity.

The number of office rentals in Singapore for the first quarter of 2018 dipped by 0.6% QoQ. Even if this still indicates a healthy market, Savills Singapore said that activity is slowing down due to the hike in asking rents.

Savills Singapore research senior director Alan Cheong noted that whilst the strengthening economy has lifted business sentiment and encouraged business expansion, manpower, and operating costs remain key concerns for most companies here. “In light of increasing rents, cost-conscious tenants are deciding either to pull down their expansion plans or relocate their middle/back offices to city fringe or regional centres so as to release space for core business,” he said.

On the other side, landlords, particularly those owning premium buildings with tight vacancy, continue to be in a strong position during rental negotiations. “This has caused a stalemate in the market, which is expected to continue in the coming quarters,” Cheong said.

Some 984,000 sqft of office space from the West Tower of Marina One in the Marina Bay added in Q1 brought the total stock of such space to around 31.4 million sqft. “On the demand side, owing to tenants’ moves in to newer developments over the last two years - including DUO Tower, Marina One and UIC Building – and the steady take-up of secondary space left by those relocations, approximately 754,000 sq ft of Grade A office space in the CBD was absorbed in Q1,” the analyst added.

The Marina Bay precinct continued to lead the market with a net take-up of about 400,000 sqft, whilst the remaining submarkets of Raffles Place, Shenton Way, Tanjong Pagar, City Hall, Orchard Road and Beach Road/Middle Road witnessed net absorption rates ranging between 12,000 sqft and 97,000 sqft.

Meanwhile, the vacancy rate of CBD Grade A office space in Savills’ basket inched up 0.5% QoQ to 8.2%. “Marina Bay was the only submarket where the vacancy rate edged up higher, by 5.8% QoQ, because net supply outpaced net demand during the same period. In contrast, positive take-up coupled with no new supply meant that occupancy levels in other micro-markets tracked by Savills showed improvement, with vacancy rates falling by 0.7% to 4.9% from a quarter ago,” Cheong added.

The average gross rent for Grade A office space in the CBD strengthened for a third consecutive quarter, albeit at a slower rate of 1.3% QoQ. This growth has brought rents to $9.06 per sq ft (psf) per month.

The analyst noted that the moderate rental growth was seen in the AAA and AA grade office sectors, especially the former where rates had risen quickly - by 6.1% over two quarters - from the last trough in Q2 to Q4 in 2017.

Cheong added that by location, the Tanjong Pagar and City Hall sub-markets both enjoyed the highest rental growth of 2.5% QoQ, whilst Marina Bay, Raffles Place, and Shenton Way recorded quarterly gains of 1.1% to 1.8%. “The rents in two remaining micro-markets – Orchard Road and Beach Road/ Middle Road – stayed flat from a quarter ago,” he said.