Here's what will drive CBD Grade A building landlords to hike rents

Space supply is just 700,000 sq ft in 2H13.

Citing the Monetary Authority of Singapore’s latest quarterly survey, Savills reported that economists from the private sector are still positive about the Singapore economy and expect a 2.8% growth for the whole of 2013.

This is near the top end of the government’s forecast of 1% to 3%. However, a flare-up in Europe’s debt crisis and the impact of the US government’s fiscal deals remain the biggest downside risks.

Here's more from Savills:

For the foreseeable future, it is likely that office demand will continue to come from real economy companies like oil and gas, chemicals, and IT companies.

On the other hand, for the rest of 2013, the low interest rate environment and the lack of new prime CBD supply could embolden landlords of CBD Grade A buildings to push up rents, despite knowing full well that the underlying and future market fundamentals may remain soft.

This situation may continue over the next few years as Grade A supply in the CBD is limited, with 700,000 sq ft in the second half of this year, 692,000 sq ft in 2014 and 506,900 sq ft in 2015.

Therefore, when the substantial supply comes on stream beyond 2015, the landlords would have already set a much higher base from which to discount instead of doing so from a low base.

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