CBD Grade A office net absorption turned positive in Q1 2021 following two consecutive quarters of contraction. 

Singapore saw stabilised rents for Grade A offices in the CBD in the first quarter of 2021, falling by only 0.3% quarter-on-quarter to $9.54 per sq ft (psf). The downtick was mainly by Orchard and Raffles Place/New Downtown Premium micro-markets which posted a 0.9% and 0.7% drop in rents respectively, revealed Colliers International.

In Q1 2021, CBD Grade A office net absorption turned positive following two consecutive quarters of contraction. 

“This is a sign of recovery, and we can expect rents to rebound 5.5% by end-2021, in line with the GDP growth, as supply stays at benign levels,” said Tricia Song, Head of Research for Singapore Colliers.

Demand for new Grade A office space was mainly driven by the technology sector. Bytedance, for instance, expanded another floor with almost 32,000 sq ft at One Raffles Quay South Tower, in addition to the two floors it committed to at Guoco Tower.

With rental hikes witnessed in selective buildings, landlords are becoming increasingly confident of renting out their spaces, said June Chua, Executive Director, Head of Tenant Representation at Colliers International.

She then advises occupiers to “take this opportunity to lock in leases early as rents hit an inflexion point”.

Meanwhile, she noted that last year’s events brought various changes and disruptions to the workplace, which could lead to higher take-ups from the flexible workspace sector.

With this, she expects “key operators to continue their expansion at a moderate pace”.

“JustCo’s expansion with new centres expected at Razer SEA HQ business park and Asia Green in Q3 2021 (each about 30,000 sq ft) is a great testimonial,” said Chua.

Colliers also revealed that total office of mixed office investment volumes climbed 13.9% year-on-year to $850 million in Q1 2021, as confidence returned with the global vaccine roll-out.

“The Allianz Real Estate acquisition of a 50% interest in OUE Bayfront from OUE Commercial Real Estate Investment Trust for $633.8 million (equating to $3,170 psf) reflects once again the long-term attractiveness of Singapore to foreign investors and appetite for high-quality premium and Grade A office buildings,” said Jerome Wright, Senior Director, Capital Markets and Investment Services in Singapore at Colliers International.

On Grade A capital values, Keng Chiam Tan, Executive Director, Head of Valuations at Colliers International, said CBD Grade A office properties average imputed capital value remained flat quarter-on-quarter at $2,436 psf in Q1 2021.

“In Q1 2021, cap rates remained between 3.00% and 3.50%. We expect long term capital value growth to be between 2.00% and 3.00% per annum, relatively in line with the long-term rental growth of 3.7%, on low-interest rates and the increasing weight of capital allocation to gateway cities in Asia,” he added.

Source: CommercialGuru, 7 April 2021