Prime office rents show promise in Q2

After 9 consecutive quarters of lacklustre showing in the prime office rental sector, rents of Grade A office spaces in the Central Business District (CBD) have finally risen last quarter by 1.7% to $8.51 psf per month. In Q1, overall office rents fell 3.4% and vacancy rates also rose slightly.

RafflesPlaceOffice Offices in the Marina Bay district received the most attention from tenants with a huge increase in take-up. Rents here rose 5.8%, a very positive sign indeed when compared to the 1% decline in the previous month and the fact that 70% of the office spaces in Marina One have already been leased, even before the project reaches completion. Over at Raffles Place, prime office rents also rose 2.5%. Most of the tenants leasing office spaces in Q2 were from the technology, media and telecommunication and financial and professional services industries.

Marina Bay Financial CentreWhile Grade A office spaces were leased quickly last quarter, the same cannot be said for that in the city fringes and suburbs. Office rents in the city fringes and suburbs fell 0.6% and 0.2% respectively. This could also subsequently effect changes in the city fringe and suburban residential property markets. With property analysts predicting a 5% recovery for the market sector this year, will Q3 continue to show a price-rise?

Office rents in Central Business District expected to rise in 2018

Rental rates for Central Business District (CBD) offices are expected to rise next year, which may push companies to reconsider relocating to regional commercial hubs.

While office rents are expected to ride a growth curve towards the end of 2017, a sustained recovery is expected to occur only in 2018. That however gives companies the value of time to weigh in on the possibility of moving outside of the CBD and into growing regional hubs where they could save on housing and commercial space rental.

Take the upcoming Paya Lebar Quarter for example. Its 840,000 sq ft of office space across 3 towers will be ready for occupation next year and on the other side of the island, Woods Square in Woodlands will offer up 534,000 sq ft of office space by 2019. While this means the companies will have to be situated away from the buzz of the CBD, the decentralisation of office spaces is timely as the government moves towards a new era of self-sustaining regional townships.

WOods SquarePhoto credit: Far East Organization

The limited supply, of less than 1 million sq ft, of additional office space in the prime Central Business District from now to 2020 could mean a projected rental growth. Though Frasers Tower and Robinson Tower will add a combined 823,000 sq ft of new office space to the CBD next year, it is still a long way below the 2.15 million sq ft injected by the Marina One and 5 Shenton Way developments this year.