Singapore’s Office Price Index rose 5.7% for the whole of 2018, compared to a 2.4% decline in 2017, according to URA’s real estate data released on Jan 25.
“With [the] Office Price Index rising for six straight quarters, accumulating a total gain of 8.9% from the trough in 2Q2017, office prices are just 0.07% away from the all-time high in 2Q2015,” points out Christine Li, senior director and head of research at Cushman & Wakefield Singapore.
The recent residential property cooling measures have diverted institutional investors’ interest from the residential sector to the commercial space, says Li. The “office sector will remain a star performer in 2019”, she adds.
Meanwhile, rents increased by 7.4% for the whole of 2018, despite falling in the last quarter by 0.5% q-o-q. “The increase in office rents in 2018 was supported by limited supply in the CBD and strong demand from both co-working operators and technology firms,” says Calvin Yeo, executive director and head of office advisory at Knight Frank Singapore.
Demand for office space rose significantly in 2018, with net absorption islandwide amounting to 1.85 million sq ft in 2018, more than 2017’s absorption of 645,834 sq ft, highlights Li.
She attributes the demand to the “rapid” expansion of co-working firms, such as Hong Kong-based Campfire taking up 85,000 sq ft at 139 Cecil Street, and The Work Project (in which CapitaLand took a 50% stake) leasing 41,000 sq ft in Asia Square Tower 2, as well as 31,000 sq ft in Capital Tower.
In the financial sector, HSBC Bank concluded a deal to take up 140,000 sq ft in Marina Bay Financial Centre Tower 2 in 2020, while financial services provider Allianz inked a lease for 50,000 sq ft in ASB Tower.
Office supply is expected to fall. From 2019 to 2021, supply in the CBD is estimated at an annual average of 0.7 million sq ft, well below the 10-year annual average of 1.2 million sq ft, notes Li.
Some 639,000 sq ft of office space will enter the market in 2019, as 9 Penang Road, Funan and 18 Robinson will be completed this year, Li points out. In 2020, 782,000 sq ft of office space will come onto the market with the completion of ASB Tower, Afro-Asia I-Mark and Hub Synergy Point. CapitaSpring will contribute 635,000 sq ft of prime space in 2021, she highlights.
Cushman & Wakefield expects the tech, co-working, insurance and finance sectors to drive office demand this year. “While the tech sector took a backseat in 2018, leasing activity by tech companies may increase further,” says Li.