Grade A office rents in Singapore’s central business district (CBD) rose for the eighth straight quarter, hitting a 10-year high at S$9.93 per square foot per month (psf pm). This is up 12.6 per cent from a year ago, according to Colliers Research data.
Out of the six office micro-markets tracked, rental growth remained the strong in the Beach Road or Bugis area, rising 18 per cent from a year ago, largely due to tight vacancies in office buildings in the area. Average gross effective rents were at S$9.18 psf pm.
The micro-market with the second-highest rise is City Hall, which grew 13.6 per cent year on year with an average gross effective rent price of S$10.14 psf pm.
From a cumulative standpoint, Singapore CBD Grade A rents grew 5.4 per cent in the first half of 2019. Office rents are projected to grow by 5 per cent in 2020, and continue to moderate from the 15 per cent year-on-year growth seen in 2018.
Colliers International’s head of research for Singapore Tricia Song said tighter vacancies, along with healthy space take-up among occupier segments, such as technology and flexible workspace firms, continued to support rental growth in the second quarter.
“While we think the rent growth momentum remains strong, the pace of increase has probably peaked as tenants become more resistant to rent hikes,” Ms Song said. CBD Grade A rents are projected to to rise in 2019 and 2020, before dipping moderately in 2021 in view of new supply and potentially softer economic outlook, she added.
Colliers noted that the office investment market remains robust amid firmer rents, with “negligible impact” felt in the office market despite an ongoing US-China trade war.
Quarter on quarter (q-o-q), transactions for the second quarter jumped 176 per cent to S$2.63 billion, raising the rolling 12-month volumes of office and mixed-use commercial transactions by 27 per cent q-o-q to S$7.17 billion.
The two key contributing deals during the quarter were the sale of Chevron House by Oxley Holdings at S$1.03 billion to US-based real estate fund AEW; and the divestment of a 50 per cent stake in Frasers Tower by Frasers Property to South Korea’s National Pension Service, valued at S$982.5 million, Colliers added.
Looking ahead, Colliers is expecting capital transactions to “remain robust” on a favourable interest rate outlook and tight local office demand-supply dynamics in Singapore.
“According to media reports, deals are potentially brewing for the office and retail components of Duo in Bugis and 71 Robinson Road in the city centre,” it added.