Tapering Singapore office supply gives landlords room to increase rents
Office rents expected to increase by up to 25pc between 2018 and 2020
Singapore’s office market is in the early stages of a recovery as tapering office supply and strong pre-commitment levels have caused the office vacancy rate to decline, offering landlords higher bargaining power to increase rents.
“Office rent is expected to increase by 20 to 25 per cent between 2018 and 2020, of which 12 to 16 per cent is expected in 2018,” said Regina Lim, head of capital markets research at JLL in Southeast Asia, adding that prime office rents have already risen by 6 per cent in the first half.
According to Lim, the Singapore government is focusing on building up decentralised office hubs to bring jobs closer to homes.
For the first time since 2003, there have not been any central business district office sites in the confirmed or reserve lists in the second half of 2017, first half of 2018, and second half of 2018 government land sales programme.
JLL believes that this will keep office supply low until 2023 to 2024 and that could boost rental growth between 2020-2023.
“Confidence is high in Singapore’s commercial property market, with the pre-commitment levels as high as more 70 per cent in Marina One,” said Lim.
Completed at the end of 2017, Marina One is a commercial, residential and retail complex that offers 175,000 square metres of office space. Tenants include Facebook, Prudential and PwC Singapore.
CapitaSpring, which will be completed in April 2021, has also recorded a pre-commitment level of 24 per cent, with JP Morgan committing to 155,000 square feet of office space.
Allianz, on the other hand, will account for 50,000 sq ft in ASB Tower, set for completion in July 2020.
The accelerated office demand is coming from a variety of sectors, with a more diversified market compared to the over reliance on the finance sector around a decade ago.
Financial companies, which took up 47 per cent of gross office space between 2004 and 2014, accounted for 23 per cent between 2015 and 2017. On the other hand, the share of technology firms jumped from 8 per cent to 25 per cent over the same period, said Lam.
Meanwhile, occupied office space in the central business district expanded by 6 per cent year on year in the first half of 2018, compared to 3.2 per cent year on year in 2017 and 1 per cent year on year in 2016.
Around 15 years ago, global firms in the finance sector tended to open their Asia-Pacific headquarters in either Hong Kong or Singapore. But nowadays, there is a growing tendency for international companies to set up a base for the East Asia in Hong Kong or Shanghai, along with a base for Southeast Asia in Singapore.
Despite the recovery, Singapore office rents remain well below major Asian cities. Prime office rents in Hong Kong, Tokyo, Beijing and Shanghai Pudong are 2.9 times, 1.5 times, 1.4 times and 1.3 times higher than Singapore, according to JLL.