Office rents will rise 8% in 2019 amidst stable leasing demand from finance and law tenants.
Singapore’s high popularity amongst Asia’s office markets is set to persist in 2019 on the back of the government’s push to promote technology, innovation and research and development (R&D) which will further feed the market, according to Colliers International’s Asia Property Outlook 2019 report.
The firm hailed Singapore as the third top location for finance occupiers, and second for both tech occupiers and law tenants after Hong Kong, citing how the Lion City benefits from its strong reputation as a source of talent, good political stability and strong regulations, pro-business government policies and high scores on human factors.
Average prime grade office rents in Singapore rose 15% to $9.43 psf per month as vacancy tightened to below 6%. Demand was driven by flexible workspace operators, as well as technology and professional services firms looking to further expand their footprint.
“In 2019, with a lower but benign gross domestic product (GDP) growth forecast of 2.5%, we think demand will stay firm,” Colliers International said in its report. “We expect reduced Central Business District (CBD) Grade A office supply over 2019-2021 with annual expansion averaging 2% stock, and the continued tightening of vacancy should support rental growth.”
From the large supply injection in 2017, CBD Grade A supply pipeline is set to taper down by 2019-2021, with new supply averaging 0.57 million sq feet (53,000 sq metres), or 2% of stock per annum, Colliers said in a previous report, adding that the supply shortfall should keep CBD Grade A vacancy below the 10-year average of 6.2%.
That being said, rental growth is projected to slow to 8% in 2019 given the higher base for comparison and new office spaces available outside of the CBD.
Meanwhile, its logistics market was observed as starting to stabilise given its absorption of the supply influx seen in 2017 and H1 2018. Colliers International attributed the stabilisaion to greater interest from developers and investors.
“However, uncertainty arising from the US-China trade dispute and global slowdown will probably weigh on the sector,” Colliers noted, with warehouse vacancy still at a high of over 10%. “We predict new supply equal to 3% of current stock over 2019. We expect logistics rents to remain weak in H1 2019 before recovering 1-2% towards the year-end.”
With regards to the retail market, Colliers International predicted rents on Orchard Road prime shopping centres to rise 1-2% YoY in 2019 due to the lack of new stock in the area, and landlords seeking the optimum trade mix and digitalisation of their malls. It added in its report that new retail space supply in 2019 will be spread out over the central region, city fringe and suburban area.
“Supply should taper off significantly from 2020…, whilst prime floor rents in suburban regional centres should stabilise,” Colliers International highlighted.
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