Space crunch: CBD office occupancy rates hit 5-year high in 2Q

Rents climb for the 5th consecutive quarter.

Space is even more scarce and extremely expensive in the country’s Central Business District. The space crunch has heightened in 2Q, even as rents continued to climb with a quarter-on-quarter (q-o-q) increase of 2.8%, bringing the total increase in office rents to 5.2 per cent since the beginning of 2014.

According to Knight Frank, the quarter saw the conclusion of several big deals, most of which involved large space occupiers consolidating their activities within the prime office buildings in order to enhance business efficiencies.

“Despite the increase in prime office rents, tenants are still willing to relocate to such buildings due to the prestige location and asset quality. As a result, occupancy rate in Downtown Core Planning Area improved from 90.3 per cent in 1Q 2014 to reach a 5-year high of 90.7 per cent in 2Q 2014. Overall, island-wide occupancy rate inched upwards from 90 per cent to 90.4 per cent,” noted the report.

Here’s more from Knight Frank:

In 2Q 2014, the only major completed project with office space was Orchard Gateway @ Emerald. The quarterly new supply of 65,000 sq ft of net floor area in the Orchard Planning Area is the highest since 4Q 1999. Meanwhile, in the Downtown Core Planning Area, tenants continued to face the challenge of supply-constrained new office spaces.

In the upcoming quarters, the pressure on supply of new office spaces is expected to ease with the new addition of major developments such as CapitaGreen, South Beach Tower and Westgate.

Going forward, overall office rental increase will continue to maintain its momentum in the next few quarters. Rents are expected to rise by around 2 to 3 per cent q-o-q in 3Q 2014. We maintain our forecast that average office rents in the CBD area will increase by about 10 per cent by end of 2014.