Office rents set to fall by 5% in 2021

This is before they bottom out and recover next year.

Singapore office rents may decline by around 5% in 2021 before bottoming out and recovering next year, barring new strains of COVID-19 and consequent lockdowns, according to property consultant Knight Frank.

This is amidst an expected 5.3 million square feet(sq ft.) of new supplies island-wide from Q4 2020 to 2023, a 94.1% estimated occupancy for the central business district (CBD), and an average of $10.16 per sq ft. per month overall prime office rents.

Knight Frank said it expects a lower net new demand for office space due to the permanent adoption of rational remote working by many companies, and despite the economic recovery and growing presence of tech companies in the country.

“The rethinking of traditional office space usage in an age of flexible work arrangements, and the casualties of the COVID-19 pandemic as the government withdraws business support measures will likely add to contractionary pressures for office space,” the consultant said in its report.

The report also mentioned that prime grade office rents in the Raffles City/Marina Bay precinct contracted 10.2% in 2020, as rental declines moderated in Q4 to dip by 2% QoQ, compared to the 2.3% decrease in Q3.

Whilst pre-termination space continued to rise to an estimated 330,000 sq ft. in Q4 2020 from 260,000 sq ft. in Q3, occupancy levels for prime grade offices remained supported by these committed leases resulting in a slight 0.2 percentage point decline QoQ in Q4.

Knight Frank noted that the government’s effective handling of the pandemic, as well as its commitment to developing key sectors of the economy will boost Singapore as an office destination.