CBD office tenants resist further rent hikes

On the back of a weakening economic outlook, most occupiers will exercise more caution regarding their space needs and real estate cost (Picture: Shutterstock)
Some office tenants in the CBD are resisting further increases in rents, following nine consecutive quarters of increase in Grade-A office rents in the business area, according to a market report by Colliers International. Cumulatively, CBD Grade-A office rents have risen by 27% since 2Q2017, driven by tightening supply.
Average Grade-A office rents in the CBD have climbed 1.5% q-o-q to $10.08 psf per month (pm) in 3Q2019, which is slower than the 3% increase recorded in the previous quarter. But it is a jump of 9.6% y-o-y, says Colliers.
The consultancy notes that on the back of a weakening economic outlook, most occupiers will exercise more caution regarding their space needs and real estate cost. This could curtail further sharp increases in office rents over the coming quarters.
Tricia Song, head of research for Singapore at Colliers International, says: “We are starting to see ‘flight to value’ in the market where some tenants eschewed higher lease renewal rate and opted to relocate to another building with a lower rent. Whether this trend would become more widespread will depend on market dynamics and the state of the economy.”
She adds: “Broadly, we expect rental growth to continue to slow in line with slower economic growth. Some trade sectors may have already felt some pressure. We may see some shadow space emerge from large occupiers, such as financial institutions.”
In 3Q2019, the strongest rental growth was recorded in the Shenton Way/Tanjong Pagar micro-market which grew by 2.8% q-o-q to $10.31 psf pm, followed by premium Grade-A office rents in Raffles Place/New Downtown which climbed 2.6% q-o-q to $12.27 psf pm. The rental performance of these two areas was driven by tight vacancies and new office space, notes Colliers.