Office rents to recover back to pre-pandemic levels: Colliers

CBD Grade A vacancy of 5.2% to tighten over the next two years on low supply.

The office rental market is heading towards recovery by the end of 2021, according to Colliers International.

Colliers said gross effective rents continue to moderate further by 2.1% QOQ to $9.57 per square foot in Q4 2020 and represent a 5.4% decrease for the full year.

"The prime office market has been relatively resilient considering we went through the deepest recession since independence. Going forward, market dynamics are conducive for a recovery towards end-2021. We forecast CBD Grade A rents to rise 5.5% to $10.09 per sq ft," said Trica Song, head of research for Singapore at Colliers International.

Colliers justified the recovery with several factors. They said new office demand will continue to be driven by the technology sector and overall business recovery.

“Supply levels are benign in 2021-2022, with the average annual expansion at 2.6% of stock versus 4.7% for the last five years. Consequently, the expected positive net absorption should tighten vacancy before the next supply hike in 2023. Finally, redevelopment plans will further reduce the Central Business District's stock,” Song said.

June Chua, executive director and head of tenant representation, said that 2020 was a favourable year for occupiers, providing them with opportunities to renew leases at lower rents, whilst landlords were more willing to negotiate and offer higher incentives.

“There is still a short window of opportunities for Occupiers who want to lock in their leases before rents increase. Larger occupiers should continue rationalising their space requirements and alternatively adopt a flex-and-core or split-office strategy," Chua added.

Meanwhile, the total office or mixed office investment volumes grew more than 10 times QoQ to $10.3b in Q4 2020, driven by the merger of CapitaLand Commercial Trust and CapitaLand Mall Trust, bringing the full year transaction sales volume to $13.2b, up 73% YoY.