Ravi Chandran
– Average Singapore CBD Grade A office monthly office rents grew 3.0% quarter-on-quarter to SGD9.93 psf in Q2 2019 – highest since Q4 2008
– Singapore CBD Grade A office rental growth momentum driven by strong net absorption from technology and flexible workspace sectors
– Cumulatively, Singapore CBD Grade A office rent grew 5.4% in first half of 2019, on track to hit 8% growth forecast for full year
– Singapore CBD Grade A office property investment market remains robust amid firmer rents
Colliers International on July 23 published its latest quarterly research report that tracks the performance of the Singapore office property market in Q2 2019 and its outlook ahead.
Data tracked by Colliers Research showed that Singapore CBD Grade A office rents posted the eighth straight quarter of increase in Q2 2019. Average CBD Grade A rent hit a 10-year high at SGD9.93 per square foot per month (psf pm) – representing an increase of 3.0% from the previous quarter and a rise of 12.6% year-on-year.
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Ms. Tricia Song, Head of Research for Singapore at Colliers International, said, “Tighter vacancies coupled with healthy space takeup among certain occupier segments – particularly technology and flexible workspace firms – continued to support rental growth in Q2 2019. While we think the rent growth momentum remains strong, the pace of increase has probably peaked as tenants become more resistant to rent hikes. We are projecting CBD Grade A rents to rise in 2019 and 2020, before dipping moderately in 2021 in view of new supply and potentially softer economic outlook.”
Of the six office micro-markets tracked by Colliers Research, rental growth remained the strongest in Beach Road/Bugis, rising by 4.6% QOQ and 18% YOY to SGD9.18 psf pm. This is largely due to tight vacancies in office buildings in the area, and as landlords price in the upcoming rejuvenation in the precinct, with the completion of Guoco Midtown in 2022 and the redevelopment of Shaw Tower slated to be ready in 2023.
Cumulatively, Singapore CBD Grade A rent grew 5.4% in the first half of 2019, on track to reach Colliers Research’s growth forecast of 8% for full year. Meanwhile, office rents are projected to grow by 5% in 2020 – continuing to moderate from the strong 15% YOY growth in 2018.
Office investment markets
The office property investment market remains robust amid firmer rents. Colliers Research notes that despite the ongoing US-China trade dispute, negligible impact was felt in the office market. It notes that Q2 2019 transactions jumped 176% QOQ to SGD2.63 billion, pushing the rolling 12-month volumes of office and mixed-use commercial transactions to SGD7.17 billion – up by 27% QOQ.
There were two key contributing deals during the quarter: the sale of Chevron House by Oxley Holdings at SGD1.03 billion to US based real estate fund AEW; and an agreement entered by Frasers Property Ltd to divest of a 50% stake in Frasers Tower valued at SGD982.5 million to Korea’s National Pension Service.
Ms. Song added, “For investors, the Singapore office market offers favourable demand-supply fundamentals over 2019-2023. Investment sentiment in the office market remains positive, supported by rising CBD rents in recent years. We also observed signs of investors looking beyond the prime CBD for office assets in search of yield – the sale of 7&9 Tampines Grande during the quarter is an example.”
Going forward, Colliers Research expects capital transactions to remain robust on a favorable interest rate outlook and tight local office demand-supply dynamics in Singapore. According to media reports, deals are potentially brewing for the office and retail components of Duo in Bugis and 71 Robinson Road in the city centre.
With optimistic valuations achieved in major transactions in Q2 2019, the average imputed capital value of CBD Grade A office properties rose 1.8% QOQ and 6.1% YOY to SGD2,498 psf. Colliers’ valuation team is of the view that cap rates compressed 10-15bps to range between 3.15% and 3.5% on average.
“With optimistic valuations achieved in major transactions in Q2 2019, the average imputed capital value of CBD Grade A office properties rose 1.8% QOQ and 6.1% YOY to SGD2,498 (USD1,849) per sq foot. Colliers’ valuation team is of the view that cap rates compressed 10-15 bps to range between 3.15% and 3.5% on average. With the hefty weight of capital continuing to shift towards key gateway cities such as Singapore, we expect rental yields to compress in 2019, and then to hold steady from 2020-2023, as capital values trail our projected rent growth.”
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