Rents for CBD Grade A offices moderate 1.2% in Q2
Tricia Song, Head of Research for Singapore at Colliers International, expects to see rents to further decline in the next two quarters, as leasing demand continues to weaken as the global economy slows down.
Singapore saw average Grade A office rents within the Central Business District (CBD) moderate 1.2% quarter-on-quarter in the second quarter of 2020 to $10 per sq ft (psf), while Grade B rents declined 1.8% on a like for like basis, revealed Colliers International.
Tricia Song, Head of Research for Singapore at Colliers International, expects to see rents to further decline in the next two quarters, as leasing demand continues to weaken as the global economy slows down.
“Further, landlords are starting to offer longer rent-free periods, and we are likely to see higher incentives reflected in the next quarter,” she added.
With landlords currently focused on tenant retention, rents for premium and Grade A offices in New Downtown and Raffles Place slipped 1.7% quarter-on-quarter, said Rick Thomas, Executive Director and Head of Occupier Services in Singapore at Colliers International.
He noted that there is even room for more negotiation within the Grade B office market, which saw new leases and renewals push down rents by 6% to 10%.
Supply for CBD Grade A offices is forecasted to be relatively muted through 2021, with annual expansion averaging 3% of stock compared to 5% over the past five years. Colliers revealed that the next major supply wave, at around 7% of stock, is set to enter the market in 2022.
CBD Grade A vacancy, on the other hand, increased from 3.1% in Q1 to 4.6% in Q2 and “could rise further as the year progresses and new supply enters the market”. In fact, Colliers Research expects vacancy to rise to 7.5% by year-end.
The flexible workspace sector emerged as the main demand driver in Q2 2020. New space take-up by the sector includes the 45,000 sq ft new branch opening by JustCo at OCBC Centre East and the 19,000 sq ft opening of a flagship centre by Arcc Spaces at One Marina Boulevard.
“Going forward, flexible workspace and technology sectors will continue to be the key drivers of office demand. As occupiers rationalise their space requirements and consider a flex-and-core or split-office strategy, we will see more flexible workspace centres opening next quarter such as JustCo at Centrepoint, The Work Project at Capitagreen, and WeWork at 30 Raffles Place,” added Thomas.
Despite the circuit breaker measures rolled out by the government from 7 April to 1 June, total office or mixed office investment volume jumped 76.7% quarter-on-quarter in Q2 2020 to $1.3 billion, taking the rolling 12-month volume to $6.2 billion.
Sales in Q2 2020 were primarily driven by two major transactions, both of which were sold by Perennial – the 50% stake in AXA Tower to Alibaba; and the remaining 30% stake in TripleOne Somerset to Shun Tak Holdings.
Meanwhile, CBD Grade A office properties’ average imputed capital value slipped 0.6% quarter-on-quarter to $2,504 psf, which is in line with the rental declines during the quarter. With this, the valuation team of Colliers kept cap rates unchanged at between 3.15% and 3.50% during the quarter.
Colliers Research, which remains optimistic, “expects long-term capital value growth to be intact, at 2% p.a., versus the long-term rental growth of 3.3%”.
Source: 8 Jul 2020, CommercialGuru