Despite a predicted quiet first quarter for the office rental market, numbers seem to indicate that Grade A office rents in the CBD have jumped significantly. New buildings seems to have driven this rise in commercial property rental. But why the rush to snap up prime plots?
Rents for premium office space in the Central Business District jumped 8 per cent in the first quarter of this year, as tenants rushed to sign deals on glitzy new buildings.
Singapore Central Business District. Image Courtesy of Singapore Tourism Board.
A report by Colliers International found that rents of Grade A office space in the Raffles Place/New Downtown area averaged $9.72 per square foot (psf) a month in the first three months of this year, compared with $9 psf in the last quarter of last year. The latest rise follows two straight quarters of double-digit growth.
Mr Calvin Yeo, executive director of office services at Colliers International, said the latest jump was driven by robust occupier demand, as firms rushed to seal deals on new and upcoming office buildings before the space becomes unaffordable.
These buildings include Asia Square Tower 1 and Ocean Financial Centre.
However, older office buildings are not expected to miss out on better returns, as Mr Yeo predicts the rise in rents will trickle down.
The older buildings may be refurbished to ensure they stay relevant in today’s market, with those unsuitable for enhancement likely to be redeveloped for other uses such as residential, he said.
According to data from CB Richard Ellis (CBRE), an extra 7 million sq ft of office space is set for completion between the second quarter of this year and 2015.
Mr Moray Armstrong, CBRE’s executive director for office services, said there is now greater certainty in the future supply of office space in Singapore.
‘This will likely moderate rental growth in the short to medium term, although we foresee Singapore rents still trending upwards over a three- to four-year horizon.’
Data collected by Jones Lang LaSalle (JLL) indicates that vacancy rates in the first quarter of this year climbed to 6.3 per cent, up from 5.4 per cent in the preceding quarter.
Although JLL expects the vacancy rate to rise for the rest of the year, it said the healthy level of office take-up by tenants, coupled with ongoing office redevelopments – which will temporarily take some space off the market – will help relieve pressure on the supply side.
Earlier this week, One Finlayson Green, a freehold office block in Raffles Place, was sold for $227 million, or about $2,520 psf. The building has a net lettable area of 89,950 sq ft.
The building was sold through private treaty, by a fund managed by Singapore-based Lucrum Capital, to a group of private investors registered under a British Virgin Islands vehicle.
The recent turmoil in the Arab world, continued weakness in the euro zone and the potential economic disruptions caused by the disaster in Japan will significantly affect the global economy, said Dr Chua Yang Liang, JLL’s South-east Asia research head.
He said: ‘This, in turn, will impact demand in the office market in Singapore, as firms may hold back their expansion or relocation plans in view of the uncertainties.’
Source: The Straits Times © Singapore Press Holdings Ltd. Reprinted with permission.
Editor’s Commentary:
As the older buildings in Raffles Place make plans for refurbishment, the opportunity window now lies with the newer buildings ready for occupancy. By the time the former have been renovated, the demand for prime office spaces may have changed. So would the global economic situation. It’s anyone’s guess what the property market will be like then.
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