Office leasing in Singapore swung into positive territory during the initial quarter of 2021 for the first time since the year-earlier period, nudged by the addition of tech firm Dyson’s lease commitment at a converted colonial-era power plant, according to CBRE.
Supported by tight vacancy in the core CBD market, the city-state also snapped a string of four straight quarters of rental declines as Grade A leasing rates held steady at S$10.40 ($7.73) per square foot per month in the first three months of the year, the global property consultancy said in a release.
CBRE noted an uptick in leasing momentum in the past six months as the tiny city-stage grows in importance with many multinational companies active in the region.
“There is optimism surrounding the mid-term outlook, as prospects of the office market remain healthy,” said Catherine He, the agency’s associate director of research for Southeast Asia. “Over the course of 2021, office demand is expected to be supported by gains in employment and a gradual recovery of Singapore’s economy. In addition, office rents will be supported by a tight supply pipeline.”
After three consecutive quarters of negative net absorption, Singapore’s office market registered a positive net absorption of 130,000 square feet (12,077 square metres) in the first quarter, CBRE said. The reversal stemmed mainly from Dyson’s St James Power Station lease commitment, which was added into total office stock this year.
Dyson, known for its vacuum cleaners and bladeless fans, relocated its headquarters from the UK to Singapore in 2019. The company famous for its turbo-powered appliances is leasing 110,000 square feet at the redeveloped St James, which lit up Singapore with its steam-driven turbines from 1926 until it was decommissioned in 1976.
The city’s Grade A office vacancy rate narrowed from 3.9 percent in the fourth quarter of 2020 to 3.3 percent in this year’s first quarter.
CBRE said occupiers have capitalised on declining rents and taken flight to prime office buildings. Key demand drivers include firms in the technology and financial services industries such as asset management firms and, to a smaller extent, family offices.
Addition by Displacement
Another influence on occupier activity in the past few months has been the displacement of tenants from buildings set for redevelopment, including AXA Tower and Fuji Xerox Towers.
Alibaba last May agreed to acquire a 50 percent stake in AXA Tower in a deal that valued the cylindrical office property at S$1.68 billion. The Chinese e-commerce giant, already an anchor tenant in the building, bought the half-stake from an investment consortium led by Singapore’s Perennial Real Estate Holdings, with an eye towards redeveloping the 50-storey tower together.
Alibaba and its online marketplace Lazada have since taken space at 5One Central in Bras Basah, a property owned by Singapore-based ARA Asset Management and Britain’s Chelsfield.
Local real estate giant City Developments Ltd (CDL), meanwhile, is proceeding with redevelopment of its 38-storey Fuji Xerox Towers in the central business district which will displace still more tenants in the near term.
The Grade A office segment is expected to gain further from the market recovery phase as large corporates take advantage of the short-term pullback to upgrade in location and quality.
An added boost to the market is the government’s latest announcement that working remotely is no longer the default and that up to 75 percent of employees can return to the workplace starting this week, said David McKellar, co-head of office services at CBRE Singapore.
“This bodes well for the office market as more firms are gradually planning for the return of employees to the workplace and this reinforces the importance of the physical office,” McKellar said.