Office rents rise 1.3% in 2Q2019, vacancy rate falls to 11.5%

Prices of office space increased by 0.9% in 2Q2019, compared with the 3% increase in 1Q2019, according to URA data released on July 26. In 2Q2019, URA’s Office Rental Index for the Central Region rose 1.3% quarter-on-quarter (q-o-q), compared to the 0.6% decline in the previous quarter.
The Office Rental Index for the Fringe Area boosted the overall rental index for the Central Region, rising by 4.5% in 2Q2019, the highest quarterly increase in eight years since 1Q2011, notes Christine Li, head of research, Singapore and Southeast Asia, of Cushman & Wakefield (C&W).
The growth in office rents in the Central Region “came on the back of the continued tightening of supply, as island-wide occupancy rate edged up to 88.5% in 2Q2019 from 88.2% three months ago,” notes Tay Huey Ying, head of research and consultancy, JLL Singapore. In Downtown Core, the occupancy rate “rose to its tightest in three years”, standing at 89% as of the end of 2Q2019, she adds.
The completion of Funan, notes Li, led to the office stock rising by about 75,347 sq ft in 2Q2019. Funan attained a “robust” pre-commitment rate of 98%, and the amount of occupied office space rose by about 376,737 sq ft, she says. According to Li, Funan’s south office block is fully leased to the Attorney-General’s Chambers, Singapore Department of Statistics, and the Smart Nation and Digital Government Office; while tenants in the north block include WeWork, Adidas, and Dutch payment platform Adyen. As a result, the islandwide vacancy rate declined to 11.5% in 2Q2019, from 11.8% as at the end of 1Q2019.
Office absorption will continue to rise in subsequent quarters when 9 Penang Road is completed in 4Q2019, as UBS has pre-leased the entire building, says Li. “This bold move will enable the Swiss bank to consolidate its current operations at One Raffles Quay and Suntec City into a single building with a campus-like environment,” she adds.
The office price index in the Central Region rose for the eighth consecutive quarter, reaching 144.4 in 2Q2019. A number of big ticket transactions during 2Q2019 led to the increase in office capital values, notes Li. For instance, AEW acquired Chevron House for $1.0 billion ($2,739 psf), while Frasers Property divested a 50% stake in Frasers Tower at about $2,869 psf. In the suburbs, 7 & 9 Tampines Grande was transacted at $395.0 million ($1,373 psf).
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