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Singapore Office Rents Set to Rise in 2H 2021

2020/12/29 by Christopher Caillavet Leave a Comment

CapitaSpring will add 650,000 square feet of office space to the Singapore market upon completion in 2021

Despite a downturn in leasing this year due to the COVID-19 pandemic, property consultancy CBRE says office rents in Singapore are likely to rise in the second half of 2021, driven by a limited supply of new Grade A space and strong demand from Chinese tech firms and non-bank financial service providers.

Five new projects are set for completion next year, adding 1.23 million square feet (114,271 square metres) to the overall office supply, CBRE said in a release. The five projects include only one Grade A office development, CapitaSpring, which will add 650,000 square feet of office stock to the core CBD market.

The 51-storey CapitaSpring, a $1.3 billion mixed-use development in the Raffles Place commercial hub, is a joint venture of Singaporean developer CapitaLand, its REIT affiliate CapitaLand Commercial Trust and Japan’s Mitsubishi Estate Co. JP Morgan is signed up as the first anchor tenant, agreeing to lease office space spanning seven floors.

Delayed Projects Are Good News

“Leasing activity is improving, as we understand that there are currently more ongoing negotiations for CapitaSpring which is slated to complete next year,” said Desmond Sim, CBRE’s head of research for Singapore and Southeast Asia. “The initial office supply pressure for 2022 has been dissipated due to construction delays, but which augured well for the office market as it provided more time for pre-leasing activities. The future supply that will spread over a longer time horizon allows demand and supply dynamics to recalibrate.”

CBRE credited Singapore’s politically neutral position and new initiatives in terms of policy and tax structures for drawing Chinese tech firms looking to expand.

The city-state got a vote of confidence in May this year with the announcement that Alibaba would acquire a 50 percent stake in AXA Tower from an investment consortium led by Singapore’s Perennial Real Estate Holdings, in a deal valuing the landmark office property at S$1.68 billion ($1.2 billion). The Chinese e-commerce giant is already an anchor tenant of the building.

Alibaba and the Perennial-led consortium plan to redevelop the 50-storey office property into an integrated complex with commercial, hotel and residential components.

October brought reports that ByteDance, the Chinese owner of video app TikTok, was upping its office space in the city with an agreement to lease three floors spanning 60,000 square feet at One Raffles Quay, while Tencent was seeking to rent 10,000 square feet of co-working space in OCBC Centre East at Raffles Place for its first office in Singapore.

Desmond Sim, CBRE’s head of research for Singapore and Southeast Asia

Office demand in 2021 will also be fuelled by non-bank financial services firms such as investment managers and hedge funds, CBRE said. The Monetary Authority of Singapore in January launched the Variable Capital Companies framework, a flexible legal structure aimed at making the city a hub for investment funds.

Shaking Off a Lacklustre 2020

With most Singapore companies putting in place work-from-home practices since April, office leasing activity this year was driven by renewals and relocations, with a reduction in overall footprint.

The first three quarters of 2020 saw a cumulative net contraction in occupier footprint of 545,000 square feet, a reversal from the 10-year historical annual average net absorption of 1.63 million square feet, according to CBRE research.

One notable retreat was Citigroup’s relinquishing three floors spanning 90,000 square feet at Asia Square Tower 1 in the CBD. US e-commerce titan Amazon was set to take up the space, Bloomberg reported in September.

“While the cutback in large occupiers’ footprint has resulted in an increase in secondary space, this also presented more quality, fitted-out options for other tenants,” said David McKellar, co-head of office services at CBRE in Singapore. “We also observed that given the heightened uncertainties in the market, incoming tenants are open to taking over fitted premises as it reduces the need for additional capital expenditure.”

As firms reduced their footprint upon renewal or relocation, islandwide office vacancy rose from 4.5 percent in the fourth quarter of 2019 to 6 percent this quarter, CBRE said.

The emerging vacancies in the market led to downward pressure on Grade A rents, which fell for a fourth consecutive quarter in Q4 2020 to S$10.40 per square foot per month, down 2.8 percent from the third quarter.

For the full year, Grade A rents were down 10 percent, reversing growth of 6.9 percent in 2019.

Investment Market Slows by 57%

The office sector contributed 22.4 percent of Singapore’s real estate investment volume in 2020 as prime office assets remained attractive for their stability and yield, despite work-from-home trends, CBRE said in a separate release.

Overall real estate investment in Singapore totalled S$10.03 billion in 2020, according to CBRE’s preliminary estimate. That figure represents a 56.8 percent drop from the previous year, and marks the lowest turnover in the real estate market since the financial crisis in 2009.

On a quarter-to-quarter basis, Q4 2020 investment fell by 23.9 percent to S$2.14 billion.

CBRE said sales of investment properties would likely rebound in 2021, except for the retail and hotel sectors, although the consultancy noted that some investors are “on the prowl” to buy such assets on the cheap.

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Filed Under: Research & Policy Tagged With: CBRE Group, daily-sp, Featured, Singapore

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