CBD office rents continue northwards, underpinned by healthy demand: Colliers

CBD (Central Business District) Premium and Grade A office rents rose for the third consecutive quarter, growing 1.5 per cent quarter on quarter in Q1 2022 to S$10.26 per square foot (psf), making it the fastest pace of growth since rents' reversion in Q3 2021, said investment management firm Colliers on Monday (Apr 11).

In its quarterly report, Colliers said leasing demand for the CBD Premium and Grade A segment continued to see positive net absorption at 134,000 square feet, with vacancy rate for this segment tightening further to 3.3 per cent during the quarter.

A broad-based recovery in the office market is expected, thanks to support from economic recovery and return-to-office momentum. The CBD Premium and Grade A segment is likely to outperform amid flight-to-quality trends and Guoco Midtown being the only source of prime office supply this year.

Colliers expects rents for this segment to grow about 4 to 5 per cent by the end of 2022, with vacancy to tighten further, before the next wave of supply in 2023.

The firm holds the view that occupiers should take early action on future office decisions, as the balance of power increasingly shifts towards landlords.

On the investment front, average capital values of this segment increased 5.6 per cent in the quarter, hitting S$2,850 psf. Correspondingly, net yields compressed by 0.1 per cent to 3.4 per cent.

June Chua, Colliers' executive director and head, tenant representation, said that with hybrid arrangements no longer the default and greater certainty of economic growth, occupiers are likely to be more selective and focused on providing the right type of office environment.

"High quality office spaces with updated specifications will likely outperform," said Chua. "Hence, landlords of more mature office buildings should consider repurposing or redeveloping their assets into innovative and sustainable developments."

This is especially so on the back of tight yields and interest rate uncertainties, where active asset management or enhancement is needed for investors to achieve their return targets.

Moving forward, Colliers expects office assets in prime locations to continue attracting a wide range of capital, given the rosy leasing market outlook and limited new supply.

Moreover, the reopening of international borders, Singapore's safe-haven status amid geopolitical tensions, and its position as a gateway hub to South-east Asia will also fuel cross-border investments into Singapore's office market.

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