Office demand shrinking but Grade-A rents will hold steady in 2020: CBRE

By Valerie Kor / EdgeProp Singapore | March 2, 2020 4:20 PM SGT
central business district - As the agile space sector eases off in take-up of leases, CBRE projects that office market demand will be ‘more balanced’ in 2020 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
As the agile space sector eases off in take-up of leases, CBRE projects that office market demand will be ‘more balanced’ in 2020 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
SINGAPORE (EDGEPROP) - Weaker GDP growth projected for Singapore is expected to weigh on office demand, according to CBRE’s research report, “Real Estate Market Outlook 2020 – Singapore”
For the office sector, islandwide office net absorption has dropped to 1.08 million sq ft in 2019, down 31.9% from 2018, which is indicative that office demand is shrinking.
Broadly, office net absorption is a metric that moves in tandem with GDP growth. With the government’s revision of GDP growth from 2020 to the range of -0.5% to 1.5% from the previous projection of 1.5% to 2.5%, office take-up rate is likely to be impacted as well.
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In an environment where business sentiments are cautious, CBRE foresees lower capital expenditures and more renewals.
There will be more small to mid-sized transactions rather than large deals above 30,000 sq ft. This is due to slower growth in the technology and agile space sectors, which usually required large office spaces.
CBRE predicts that only agile space operators with strong corporate funding will expand this year. In addition, CBRE Research notes that many office buildings already have an agile space component to address any short-term changes in headcount from existing building occupiers.
As the agile space sector eases off in take-up of leases, CBRE projects that office market demand will be “more balanced” in 2020, with more small to mid-sized companies contributing to leasing activity.
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Rents and vacancy (Graph: CBRE Research)
Vacancy levels are expected to trend upwards over the next couple of years, which signals that rental increase will slow, says CBRE. However, prospects for the office market seem stable as there will be limited supply of Grade-A offices in 2020. Therefore, rents of Grade-A offices will hold steady.
If office demand remains low and more projects are completed in Singapore, office rentals may face downward pressure from 2021 onwards.
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