Prime office rents to rise after bottoming at $9 psf

Yields in 2017 were at 3.25%.

According to its Savills Investment Management (IM), after two-and-a-half years of decline, CBD office rents have bottomed out and should accelerate through 2021 as tenants capitalise on low rents and move to newer and better-quality buildings.

Its 2018 Outlook said that prime office rents reached $9 psf per month whilst yields were 3.25% in 2017. The firm expects rents will go higher in 2018 whilst the yields will stabilise due to an improving economic backdrop and business sentiment, a moderating supply cycle, as well as further interest rate hikes.

Savills IM noted that vacancy rates for CBD offices are also likely to ease after a supply peak in 2017. “Recent official indicators, including exports and GDP growth performance, point towards an improvement in Singapore’s economic momentum in line with stronger global Trade. The services sector is also showing signs of further strengthening that, in turn, supports office demand. Investor demand for prime assets remains robust.”

“We recommend that investors target high-quality offices that have leases marked to current rental levels that are in the trough of the cycle,” the firm concluded.

In Q4 2017, Grade A+ office space rents saw an increase of 1.7% QoQ at the Raffles Place and Marina with a fall in total space available for lease by 1.5% QoQ. Knight Frank office advisory executive director & head Calvin Yeo said, "Landlords of Grade A+ office buildings are gradually adjusting rents upwards in view of the limited new supply of prime offices coming on stream until 2020.