Prime office rents in Singapore recorded the highest increase

Prime office rents in Singapore recorded the highest year-on-year increase says a recent report by an independent global property consultancy, Knight Frank.

Knight Frank in launching its Asia-Pacific Prime Office Rental Index for Q1 2019, said the index fell 0.4% quarter-on-quarter in Q1 2019 to a reading of 142.6, though it remains up 6.2% year-on-year.

Results for Q1 2019

• Of the 20 cities tracked by the index, 15 recorded either stable or increased in prime office rents; two less than the 17 reported in the previous quarter.
• Singapore recorded the highest year-on-year increase in prime office rents at 23.7% in the last quarter, driven in part by limited supply for mid-sized units.
• Jakarta saw the biggest drop in prime office rents at -16% in the 12 months from Q1 2018 to Q1 2019, continuing its downward trend since Q4 2014.

Nicholas Holt, Head of Research for Asia-Pacific, said, “Prime office markets in Asia-Pacific saw a soft start to 2019, as sentiment continues to be dampened by uncertainties following major elections across the region, an unresolved Brexit and the re-escalation of trade tensions between the US and China. The muted start is likely to carry through the year, with moderate increases in rents compared to 2018.”

Asia-Pacific Prime Office Rents

City		Submarket(s)		3-month % change (Q4 2018 – Q1 2019)		Forecast next 12 months
Brisbane		CBD		0.3%		Increase
Melbourne		CBD		2.8%		Increase
Perth		CBD		0.0%		Increase
Sydney		CBD		1.1%		Increase
Tokyo*		Central 5 Wards		-1.9%		Same
Beijing		Various		-1.4%		Decrease
Guangzhou		CBD		0.0%		Same
Shanghai		Puxi, Pudong		-2.1%		Decrease
Hong Kong		Central		-1.6%		Decrease
Taipei		Downtown		1.0%		Increase
Seoul		CBD, GBD, YBD		0.2%		Same
Bengaluru		CBD		0.0%		Increase
Mumbai		BKC		0.1%		Increase
NCR		Connaught Place		1.4%		Same
Phnom Penh		City Centre		0.5%		Same
Jakarta		CBD		0.0%		Same
Kuala Lumpur		City Centre		-0.3%		Decrease
Singapore		Raffles Place, Marina Bay		1.5%		Increase
Bangkok		CBD		6.1%		Increase
Manila		Various		3.5%		Decrease

Source: Knight Frank Research / *Sanko Estate

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The Knight Frank report mirrors another report which said that Singapore prime office rents should continue to outperform the rest of the region in 2019 as a limited supply pipeline and healthy demand raises landlords’ expectations.

M&G Real Estate which released this finding in February this year in its Asia Real Estate Market Outlook report said demand for Singapore prime office is likely to remain positive as the city continues to position itself as a business hub for foreign corporates seeking to establish an APAC or South-East Asian head office.

The M&G Real Estate report said that healthy occupier markets and stable domestic macro fundamentals should continue to attract real estate investment in the region in 2019 despite cyclical, geopolitical and structural challenges.

“Furthermore, most market sector yields are still around 200 basis points above local 10-year government bond yields, providing a sufficient buffer to absorb a rise in interest rates and borrowing costs. Investment momentum is likely to be slower than the previous year, however, as diminishing returns may lengthen the search for investable assets and the underwriting process.”

Pricing for real estate assets may have reached its peak as yield compression across most market sectors plateaus, the report added. It suggested that investors should increasingly focus on income returns and profile in their investment decisions; assets with secure and stable income streams could prove to be more defensive against upcoming macro headwinds.

M&G Real Estate noted that the services sector has seen growth across the five developed APAC economies over the last two years, with the rise of financial and business services, as well as info-communications, media and technology industries.

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Competition for talent in APAC economies has ensured that prime office rents continue to grow in Singapore.

“This has driven demand for office space in the region, particularly prime buildings in the CBD due to competition for talent, as per Australia’s key cities as well as in Singapore. With the services sector expected to continue supporting growth of developed APAC economies, and potentially contributing more towards overall GDP in the medium term, demand for office space is expected to remain healthy overall.”

The report added that demand and supply fundamentals across most office markets in the five developed APAC economies should remain positive in 2019 with vacancy rates below long term averages and future supply relatively moderate. But regional Japanese cities, such as Osaka and Nagoya, are expected to show relatively strong office rental growth in the next 12 months as supply has been slow to respond to growing take-up.

Rising rents in the CBD, coupled with low vacancy, are likely to encourage more occupiers to consider taking up space in fringe sub-markets where costs are lower. But external headwinds remain the key threat to the five developed APAC economies, said the report.

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