Office space prices rise 0.4% in Q3

Demand is growing amongst shipping, energy, legal, and tech sectors.

The price of office spaces in Singapore increased 0.4% in Q3, compared to the 1.4% decline in Q2, Urban Redevelopment Authority (URA) revealed.

Rentals of office spaces rose by 2.4% in Q3, compared to the decline of 1.1% in Q2.

According to Cushman & Wakefield (C&W) Research director Christine Li, "With strong 3Q2017 gross domestic product (GDP) numbers confirming an earnings recovery story in 2017, market confidence has returned to the office sector, particularly the newer prime office buildings with higher specifications."

Demand for office space in premium locations has also been buoyant.

Based on C&W’s Grade A central business district (CBD) basket, office rents rose by 3.4% QoQ to $8.90 psf pm. In addition, the net absorption for Grade A CBD for the first 9 months of the year amounted to 1.77 million sqft, significantly higher than the annual average of 1 million sqft over the last 10 years.

Absorption in the Downtown Core micro-market also hit to 139,930 sqft, showing a strong quarter of net demand.

"While demand has been soft primarily amongst banks and financial services companies, the slack has been picked up by other sectors such as shipping, energy, legal and technology," Li said.

Vacancy rates hit a 12-year high of 13.3%, but this is due to the 5.4 million sqft of office space coming on-stream between 2016 and 2017.

"Now that the tsunami of office supply has passed, and with rents having fallen to very attractive levels, major occupiers are taking advantage of this market through to negotiate for early renewals and relocations," Li said.

Here's more from C&W:

With rents turning the corner, office prices are also trending up despite the compressing yield.

With much liquidity looking to park monies in safe heavens like Singapore, resulting in increased competitions for a very limited pool of tradable office assets, Singapore office market is expected to be on the radar for both the major landlords/developers and instituitional investors, as it has further potential for future capital appreciation.

The largest deals during the quarter were CapitaLand Commercial Trust’s acquisition of Asia Square Tower 2 for $2.1 billion and we expect more to come with the impending divestment exercise of Chevron House.