Singapore office rents fall 0.6% in 1Q2019

/ EdgeProp Singapore
April 27, 2019 4:16 PM SGT
While island-wide occupancy and sales continued to improve, the rental index (Central Region) saw its first decline in seven consecutive quarters, according to figures released from the Urban Redevelopment Authority (URA) on April 26. Rentals of office space decreased by 0.6% in 1Q2019, compared with a 0.5% increase in 4Q2018. URA’s Office Rental Index for the Central Region in 1Q2019 is 8.6% below the most recent peak in 1Q2015.
Meanwhile, rent growth accelerated in 1Q2019 across almost all submarkets tracked, says Tay Huey Ying, head of research and consultancy at JLL Singapore. JLL’s research showed the average monthly gross effective signing rents for a fixed basket of Grade-A office assets in the CBD rose 3.7% q-o-q in 1Q2019 to $10.63 per sq ft from $10.25 per sq ft in 4Q2018. This is faster than the 3.3% q-o-q recorded in 4Q2018 and 2.3% q-o-q recorded in 3Q2018. The relentless rise in the rents of the basket of office assets tracked by JLL was underpinned by diminishing availability of good quality office space in the CBD for lease amid firm demand and limited new supply.
According to JLL’s Tay, the correction reflected in URA’s 1Q2019 office rental index could be due to the “occurrence of more leases taking place in Category 2 offices as the availability of Category 1 offices for lease diminishes amid firm demand”. She adds that a more active Category 2 office leasing market could have dragged down the overall rental index for the quarter.
‘Category 1’ refers to office space in buildings located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area (GFA), while ‘Category 2’ refers to the remaining office space in Singapore which are not included in Category 1.
Prices and rentals
Prices of office space increased by 3% q-o-q in 1Q2019, compared with a 2.4% increase q-o-q in the previous quarter. In the Central Region, office prices are now 8.9% above the recent low in 2Q2017.
Based on Colliers’ research, CBD Premium and Grade-A gross effective rents grew 2.3% q-o-q to $9.64 psf in 1Q2019. Increasing landlord confidence underpinned lower incentives and rental uplift.
Colliers says the net absorption in 1Q2019 was driven by technology and flexible workspace sectors, as vacancy tightened to 3.9% as of end-March 2019 from 5.4% as of...