CBD Grade A buildings to lead Singapore office market recovery in 2022: Colliers

THE growth in Central Business District (CBD) Grade A office rents in the last quarter of 2021 is likely to continue in 2022 and build traction for Singapore's office market, said investment management firm Colliers on Tuesday (Feb 15).

In its Office Market Outlook 2022 report, the firm said CBD Grade A rents will grow around 4.4 per cent in 2022, compared to the 0.8 per cent rise in 2021, along with vacancy rate tightening to just under 4 per cent.

This comes on the back of limited new supply coming on stream and the removal of ageing office stock for redevelopment, barring the emergence of downside risks that could derail economic recovery, Colliers said.

It also noted that leasing momentum for this sector will strengthen further through heightened emphasis on flight-to-quality, sustainability and wellness among the office spaces.

The year 2021 had concluded with positive market sentiments in the prime office market, with Grade A rents rising by 0.5 per cent quarter on quarter in Q4 to S$9.64 per square foot (psf).

Leasing demand in the segment has also been resilient, said Colliers. CBD Grade A saw net absorption of 373,000 square feet (35,000 square metres) and its vacancy rate lowered by 1.3 per cent to 5 per cent in Q4 2021, as occupiers started to move into the recently completed CapitaSpring on Market Street.

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Continued expansion of technology and selected financial services firms and displaced tenants of office buildings undergoing redevelopment such as AXA Tower and Singapore Land Tower were among reasons Colliers cited for the continued demand for Grade A offices.

In contrast, Grade B spaces in the district have been muted, with rents remaining flat for the second consecutive quarter.

June Chua, executive director and head (tenant representation, Singapore) of Colliers, said the low CBD Grade B movement will cause the office rental gap to "inevitably widen".

"There is now more urgency for the older office buildings to upgrade and refresh their image," she added.

Meanwhile, Colliers viewed that investment volume is likely to grow further in 2022 as investors anticipate steady growth amid softened new supply and strong leasing demand, whereas yield could potentially compress.

In Q4 2021, office investment sales picked up by 3.7 per cent quarter on quarter to S$1.4 billion, with the biggest deal on One George Street valued at nearly S$1.3 billion.

The research company said this deal, along with other notable sales at Robinson 112 and Crown at Robinson, indicates investors' evident appetite for high quality freehold or premium Grade A office buildings.

Additionally in Q4 2021, the average imputed capital value of CBD Grade A offices also surged by 5 per cent on-quarter to S$2,560 psf. Colliers Valuation and Advisory Services team also found that cap rates in the quarter for these spaces remained between 3.2 and 3.5 per cent.

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