Office rents to recover on the back of accelerated vaccine rollout

It showed hopeful signs when prime offices occupancy rate increased for the first time since the pandemic to 94.3% in Q2, Knight Frank says.

After several circuit breakers that took place in the second quarter (Q2) of 2021, it does not come as a surprise that the commercial property market remained weak.

PropertyGuru's director of special projects, Winston Lee, said that the retail segment continues to be under pressure with travel restrictions and social distancing measures impacting shopper traffic.

Sales have dropped between 30% to 70% for some retailers since the pandemic. Meanwhile, the Urban Retail Development (URA) recorded slips in prices and rentals in the retail space.

However, on the back of the government’s vaccine rollout, the rising tech industry and pending economic recovery, analysts still see a silver lining for commercial property’s recovery.


CBD grade A rents continue to have weak but positive demand for Q2 2021.

In Cushman & Wakefield’s Office Q2 2021 marketbeat report, CBD grade A rents returned to growth at 0.5% quarter-on-quarter (QoQ), reaching $9.60 per square foot (sf) per month in Q2 2021 after five consecutive quarters of decline. 

“Net demand was positive at 17,000sf in Q2 2021 and 51,000sf in the first quarter (Q1) of 2021. Nonetheless, vacancy rates for CBD grade A continued to climb to 4.6% in Q2 2021, up 0.4 percentage points (pp) from Q1 2021 as net supply grew faster than net demand,” the report said.

Cushman & Wakefield pointed out the key drivers of net supply growth being the completion of Afro Asia i-Mark and the addition of Lazada One to C&W’s grade A basket. Meanwhile, outside CBD, rents in Suburban (all grades) rose by 0.2% QoQ amidst lower vacancy rates; whereas City Fringe (all grades) rents fell by 0.5% QoQ, dragged lower by non-grade A buildings.

Knight Frank agreed that rents showed hopeful signs of bottoming as soon as the occupancy rate for prime offices in the precinct increased for the first time since the start of the COVID-19 pandemic, growing 0.1 pp QoQ to reach 94.3% in Q2 2021. 

“Even though business sentiment improved with the recovering economy, pretermination space remained fairly stable in Q2 2021 with over 360,000 sf available compared to the 344,000-sf estimate in Q1 2021. This increase in shadow space was largely a result of right-sizing due to the adoption of rotational work-from-home protocols, more so than businesses downsizing,” Knight Frank said. 

“For similar reasons, banks and financial institutions also trimmed their office footprints. This has freed up space in prime buildings that were typically full, hence fueling “flight-to-quality” moves that characterise the current market activity. As a result, both shadow space and space given up at natural lease expiry in prime buildings should be absorbed,” Knight Frank added.

Cushman & Wakefield even predicted that office net demand will be six times that of 2020 levels.

Knight Frank Singapore’s head of research, Leonard Tay, however had a more modest prediction. The Information and Communications sector is expected to add more jobs over the next three years and the government’s expediting its vaccination rollout will eventually lead to economic recovery and boost the office market, as well.

“Consequently, office rents should level out and potentially improve moderately by 1% to 2% moving into the latter half of 2021,” Tay added.


The threat of a resurgence of COVID-19 cases still looms over the horizon for the retail property segment.

Cushman & Wakefield’s data showed that an economic turnaround of 1.3% was registered in Q1 2021, with Singapore on track to achieve 4% to 6% gross domestic product (GDP) growth in 2021.

At the same time, the retail market had also been expected to recover with retail sales growing 7.6% for the first five months of 2021. 

However, sales for all segments remained below pre-pandemic levels, except for supermarkets and hypermarkets, furniture and household equipment, recreational goods, and computer and telecommunications equipment. Although retail sales are likely to account for a full-year expansion in 2021, due to the low base last year, safe management measures under Phase 2 (Heightened Alert) are expected to hamper the pace of recovery. 

Islandwide, retail rents fell by 1.8% QoQ in Q2 2021 due to steeper rental dips of 3.1% QoQ and 2% QoQ in other city areas and Orchard.

Meanwhile, suburban rents fell moderately by 0.8% QoQ, with the dine-in ban in Phase 2 Heightened Alert and occupancy limits. Overall suburban vacancy rates remain very healthy, at 6.7% in Q1 2021, the lowest since Q2 2016. On the other hand, vacancy rates in other city areas and Orchard are notably higher, at 11.4% and 11.6%, respectively, in Q1 2021.

“Amidst challenging business conditions, there has been a spate of store closures within these two submarkets. For example, the lifestyle retailer, Muji, closed its Marina Square outlet and the US fashion brand, Abercrombie & Fitch, closed its only outlet in Singapore. Amidst border restrictions and ongoing safety management measures, a further drop in retail rents is projected for 2021. Nonetheless, prime retail rents will be supported by a limited new retail supply and strong demand for prime spaces in top tier malls,” Cushman & Wakefield’s report said.

According to Tricia Song, head of Research of CBRE Southeast Asia, a drop in sales from department stores, jewellery stores, and apparel may have also affected retail property; but the food and beverage (F&B) segment were able to quickly adjust to delivery and takeout.

“Despite the uncertainty, new openings and expansions were observed in the F&B, sporting goods and fashion segment. That said, for certain segments, the number of closures outweighed openings, with fashion, F&B and entertainment segments having the highest number of casualties,” Song added.


The manufacturing sector continued to be the main GDP driver, expanding by 10.7% year-on-year (YoY) in Q1 2021. According to data released by the Economic Development Board, manufacturing growth between January and May 2021 has been led by output expansions in three key sub-sectors: electronics that soared 22.9% YoY, precision engineering that rose 22.7% YoY, and chemicals that increased 10.3% YoY. 

The Purchasing Managers’ Index stayed in expansion territory at 50.8 points in June 2021, even as community infection cases resurged and pandemic measures tightened in the region.

Based on Cushman & Wakefield’s report on the industrial segment, city fringe business park rents registered the highest growth of 2.3% QoQ in Q2 2021, as vacancy rates continue to fall to 7.8% in Q2 2021 compared to 9.9% in the preceding quarter. 

The report observed that blue-chip corporations have been drawn to city fringe business parks due to the robust infrastructure and favourable locality to reach talents and users. Coupled with firms in CBD decentralising more back-end functions such as research and development, the city fringe business park segment is expected to achieve the highest growth rate in 2021. 

“The segment's sanguine outlook is also backed by strong investment sales such as Ascendas Reit acquiring the remaining 75% stake in Galaxis for $534m. Science Park, high tech, prime logistics and warehousing spaces also outperformed in tandem with the K-shaped economic recovery, registering a QoQ rental growth of 0.6%, 0.2%, 1.6%, and 0.9%, respectively,” the report said.

CBRE agreed with this assessment, saying that on the back of healthy demand factory rents tracked the real estate services firm registered its first quarter of increase by 0.7% QoQ in Q2 2021; however, space availability for the warehouse and prime logistics remained tight, hence rents for both segments began to materialise at a quicker pace, by 1.3% QoQ and 2.9% QoQ, respectively.

A new trend

The concept of 'live, work, and play in the city' is slowly gaining traction in Singapore.

"There is an increasing trend of old commercial buildings in the Central Business District (CBD) being repurposed to residential properties to bring about the concept of 'live, work, and play in the city'. A recent example is the redevelopment of Maxwell House, where around 80% of its new Gross Floor Area (GFA) will be set aside for residential use," PropertyGuru's Winston Lee said.

How this trend will affect the property market for both commercial and residential, however, is still unknown.

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