SG office market expects continued rental recovery: analyst

Thanks to its overall improved performance in Q3 2021.

According to Cushman & Wakefield, rental performance in the Singapore office market is seen to continue on its road to recovery.

This comes after the positive net absorption of CBD Grade A office space for the second consecutive quarter. As of the third quarter (Q3) of 2021, this reached 283,000 square feet (SF), an increase when compared to the 183,000 sf in the same period in 2020. 

CBD Grade A rents also rose for the second consecutive quarter. It recorded an increase of 0.5% quarter-on-quarter (QoQ) in Q3. This was led by Marina Bay, Raffles Place and Shenton Way/Tanjong Pagar. These posted CBD Grade A QoQ rental growth rates of 1.6%, 0.3% and 0.1%, respectively.  

Wong Xian Yang, head of Research, Singapore at Cushman & Wakefield, credited this to quality and tenant displacement. 

“The recovery in net absorption was driven by flight to quality and tenant displacement demand from office towers planned for redevelopment. Examples include Red Hat and FTI Consulting which are relocating from AXA Tower to CapitaSpring and One Raffles Quay South Tower respectively. Moreover, technology and finance occupiers have continued to expand their headcounts, driving up demand for Grade A office spaces.”

The net supply of available space, however, remains elevated. The vacancy rate climbed to 5.8% in Q3 2021, up from 4.6% from the previous quarter. 

According to Wong, this vacancy rate is expected to narrow going forward. 

“The vacancy rate is expected to narrow going forward. A substantial amount of Grade A vacant spaces are currently under negotiation and are likely to be snapped up over the next few months. The positive economic outlook for Singapore and the recovering global economy, coupled with accelerated vaccinations - which will allow the further reopening of key advanced economies - will be supportive of Singapore’s open economy and help to prop up
business sentiment.”