Office rents in Central Business District expected to rise in 2018


RobinsonTower
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.

Long-term potential of Commercial property in Singapore

Commercial properties in Singapore still hold a special place in the hearts of investors, if the activity in the market last year was anything to go by.

straitstradingbuildingThere were some massive bulk purchases of prime sites from foreign entities in 2016 and developers were actively buying up land sites. Investors are obviously seeing huge potentials of the commercial property market here. The 43-storey Asia Square Tower 1 for example was sold at $3.38 billion to Qatar Investment Authority’s sovereign fund in June 2016. This record sale by investment firm BlackRock was the largest single-asset and office transaction in the Asia-Pacific region. On a smaller but not any less worthy scale, is the sale of the Straits Trading Building to Indonesia’s Mayapada Group for $560 million. At $3,250 psf, it set a record for psf prices in the district.

Investors from all over the world are spotting the potential for long-term positive growth in this region and in extending their reach in Singapore. Large assets here are of particular interest and 2017 may see more such transactions taking place.

sbf-centerNot only are they investing in completed commercial properties, but also in land with developmental potential, such as a white site in Central Boulevard which was purchased by Malaysian plantation and real estate tycoon, Lee Shin Cheng. This Marina Bay mixed-use site was released under the Government Land Sales (GLS) programme. Though the office rental market has not been in its best form last year, there is hope that it will bounce back up by 2021.

 

Office supply on the rise

As the supply of office spaces, especially in the Central Business District, increases, landlords are lowering office rents to entice new tenants. For the 3rd quarter in a row, CBD office rental prices have fallen.

Eon SHentonProperty analysts are expecting a rise in supply as companies move out of the prime central business district into cheaper regional business hubs and expansion plans for many foreign entities may have been put on hold due to the wavering global economy. Grade A offices were resilient despite the overall fall, perhaps due to the lack of supply of new units in the core areas. But moving outwards from the centre of the CBD, Grade B office spaces in Shenton Way, Robinson Road, Cecil Street, Anson road and Tanjong Pagar fell 4 per cent.

Co-working spaces have gained popularity of late, and demand for these sort of short-term leasing or shared-leasing arrangements may be on the rise. Most of these tenants are start-up firms in the technology and social media fields who need spaces close to their clients and conveniently located to attract and retain talents.

In addition to the off-kilter scale of supply and demand, some tenants may also be looking at subletting existing spaces which they have leased but are not occupying, thus increasing the actual amount of office space available in the market.