What can relax office rental jitters in the next few quarters?
Volatilities are likely to ease because of these inter-linked reasons.
Whilst some are expecting further downsides for rents especially in older Grade A office developments, several things point out that it may not turn out to be the case, as Savills stated in their latest report.
Savills said even with the uneasy position of the rental market at this point, feedback from the ground is that these volatilities are likely to relax due to several inter-linked reasons.
"Firstly, there are only a handful of Grade A office landlords, and all have deep-rooted liquidity, especially Marina One and Duo Tower, both of which are owned by the same sovereign wealth funds of Singapore and Malaysia," Savills said.
As these two projects have a total of 2.45m sq ft, or about 30% of the known supply of Grade A CBD office in the pipeline, Savills noted that they are right on top of the leader-board from which all other developers and landlords, who themselves also have strong holding power, make reference to when setting rents.
"With 60% of Marina One being pre-committed, the pressure to lease out the remaining 40% is reduced," it added.
Meanwhile, Savills said it is equally important in explaining the state of the rental market is that cash flow to fund these two projects is not an issue.
"With this, the market has thus stabilised, easing the anxieties of owners of the other Grade A offices under construction. Signed-on rents for the next two quarters are thus likely to veer more towards the latter end in the bid-ask spread," Savills explained.
On the tenants' side, they made more enquires about leasing space in the new buildings for delivery in 2018 and beyond because they were inundated with reports that Grade A office rents are likely to remain soft this year.
"However, on finding out that landlords are now holding asking rents firm, with some even upping them, they are in a conundrum. This then plays back into the hands of their existing landlords, reducing the pressure on them to lower rents," Savills said.