CBD Grade A rents stabilize, recovery seen in H2
Vacancy in the second quarter expanded, but CBD Grade A rents are expected to recover in the second half.
Central Business District (CBD) Grade A rents stabilized in the second quarter (Q2), declining 0.1% from the first quarter (Q1) to S$9.52 per sq. ft., according to research from commercial real estate services firm Colliers. This is despite the negative net absorption, which resulted in higher vacancy.
June Chua, executive director and head of Tenant Representation at Colliers, said CBD Grade A vacancy expanded to 5.6% in Q2, from 5.0% in the previous quarter. Grade B vacancy rose 2.1 percentage points, dragged by Shenon Way/Tanjong Pagar as tenants moved out of the district due to the upcoming redevelopment plans for Fuji Xerox Tower.
"Overall vacancy deteriorated in Q2 2021, as businesses continue to rationalise real space needs and seek value space options,” Chua said.
“We expect vacancy to moderate to 5.5% by end-2021 and benign supply to keep vacancy rates at 5.0% or below thereafter," she added.
Furthermore, Chua said they expect CBD Grade A rent to recover by the second half (H2) of the year.
"We believe CBD Grade A rents are hitting a turning point and expect a recovery in H2 2021 supported by strong economic growth and potential COVID-19 easing measures. Occupiers should take the opportunity to lock in their leases early before rents start rising in the coming quarters," she said.
Colliers Research said that the new demand on rents is driven by the technology sector, including Twitter, which expanded one more floor, about 22,000 sq. ft., at CapitaGreen. US-based data management company, DataStax, also established its regional Asia-Pacific headquarters in Singapore as it opens a new office.
The Flexible Workspace is also continuing with its expansion with IWG's Regus expanding by 22,000 sq. ft. into PLUS building. JustCo has just announced its contract to manage around 35,000 sq. ft. of office space at The Metropolis Tower 1 from Q1 2022.
Total or mixed office investment volumes rose 51.5% quarter-on-quarter in Q2, “reflecting the long-term attractiveness of Singapore to foreign investors and appetite for high-quality freehold or premium and Grade A office buildings.”
Ling Wei Kong, senior director of Capital Markets and Investment Services in Singapore at Colliers, said there were a few major transactions in the previous quarter. “Over the next few years, we remain optimistic for deal volumes on a favourable interest rate outlook and capital allocation to Asia's key gateway cities."
Colliers Executive Director and Head of Valuations Keng Chiam Tan said the average imputed capital value of CBD Grade A office properties has stayed flat in Q2 at S$2,439 per sq. ft., while the cap rates remained between 3.15% and 3.50%. “We expect long-term capital value growth to be intact on low-interest rates and higher capital allocation."