You are here
Prime office rents to jump 15.8% over three years: Knight Frank
SINGAPORE'S prime office rents are expected to rise 15.8 per cent over the next three years as demand starts to exceed supply, Knight Frank experts said at the release of the fourth edition of the Global Cities report.
This projected average growth pace for Grade A and A+ buildings in the Raffles Place and Marina Bay area could put Singapore in third position among 15 markets in the Asia-Pacific after Manila and Brisbane, where prime office space rents are expected to increase by 19.1 per cent and 16.5 per cent respectively from 2018 to 2020.
The prognosis further affirms estimates by various consultancies indicating that Singapore's Grade A office rents in the Central Business District (CBD) have turned the corner and have inched up in the second and third quarters this year.
Based on JLL's preliminary estimates, average monthly gross effective rent of Grade A offices in the CBD rose 4.3 per cent from a quarter ago to S$8.86 per square foot (psf) in the third quarter led by the Marina Bay area, following a modest 0.7 per cent uptick in the second quarter that ended eight straight quarters of rental decline.
Estimates by Cushman & Wakefield based on its basket of CBD Grade A office spaces also point to two straight quarters of improvement in rents, with average monthly gross effective rents rising 3.4 per cent from a quarter ago to S$8.90 psf in the third quarter led by Shenton Way/Tanjong Pagar, after posting a 1.7 per cent increase in the preceding quarter.
For Knight Frank, its third-quarter estimates showed a 0.6 per cent uptick in Grade A office rents in Shenton Way/Robinson Road/Tanjong Pagar and a 0.2 per cent rise in premium office rents in Raffles Place/Marina Bay area. Grade A office rents in Raffles Place/Marina Bay were unchanged in the third quarter after dipping 0.2 per cent in the second quarter.
Calvin Yeo, Knight Frank Singapore executive director and head of office advisory, noted that the current office market recovery has been supply-led, as newer buildings spur a flight-to-quality and a flight to more efficient buildings among office occupiers. The technology sector has also been a key driver of leasing activities.
He estimated that tenants generally benefit from an average 20 per cent gain in space efficiency when moving to a building of larger floor plates.
The prospect of positive rental reversions for office space has also spurred stronger investment interest in offices too, according to Ian Loh, Knight Frank Singapore executive director and head of investment and capital markets.
Notwithstanding the availability of cheaper business park spaces at half the rental cost of prime offices in the CBD, Mr Yeo noted that some technology companies will still be drawn to the CBD where their clients and vendors are located.
So far, Google has been the only notable one that has moved out of the CBD into a decentralised location (Mapletree Business City). Others such as Grab and Uber are moving into the city. Grab is vacating its Sin Ming premises to take up 100,000 sq ft in Marina One; Uber has shifted into Guoco Tower in Tanjong Pagar.
Among movements within the city, Facebook will be vacating its premises at South Beach Tower to move to Marina One; Microsoft is going to Frasers Tower upon its completion in mid-2018 from its current location at One Marina Boulevard.
But Mr Yeo cautioned that the supply of space from older buildings being vacated by the relocating occupiers could exert a check on overall rents.
Within the Asia-Pacific region, Manila is forecast to see the strongest growth in prime office rents due to strong occupier demand from the off-shoring and outsourcing market, said Nicholas Holt, Knight Frank head of research for the Asia-Pacific.
Beijing and Shanghai, which will see huge supply coming onstream, will likely see rental softening by 0.3 per cent and 0.2 per cent respectively despite healthy demand.
Knight Frank's Skyscraper Index offers another indication of how commercial buildings of 30 floors and above across 23 global cities perform. Hong Kong skyscraper rents were more than four times those of Singapore's, as at end-June.
During the first half of this year, net rents, excluding service charges, for the upper floors of Hong Kong's skyscrapers grew 1.1 per cent to US$304 psf per annum while Singapore's skyscrapers slipped 0.9 per cent to US$66 psf per annum. Toronto saw the biggest jump at 11.9 per cent to US$58 psf per annum.
On average, higher floor rents in Singapore's skyscrapers do not exceed a 5 per cent premium to rents for the lower floors, Mr Yeo observed.