Tight office supply props up CBD office rents in 3Q2019

/ EdgeProp Singapore |

October 8, 2019 4:58 PM SGT

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SINGAPORE (EDGEPROP) - Last quarter, office space landlords maintained their rents due to tight vacancies and limited upcoming supply. Grade-A CBD office rents increased 0.4% q-o-q in 3Q2019 after remaining flat in the previous quarter. This is partly due to landlords of less premium spaces raising rents to match those at better quality buildings, according to an office leasing report by Cushman & Wakefield (C&W).

“Rents are still holding up at the current level at for many buildings due to the lack of CBD supply through 2021, but competition for potential tenants is likely to intensify, especially with more flexible office operators joining the fray,” says Christine Li, head of research for Singapore and Southeast Asia at C&W.

Emerging sectors in the technology industry, such as artificial intelligence (AI) and data analytics, are increasingly fuelling the demand for office space. AI start-up SenseTime, backed by Temasek, has taken close to 10,000 sq ft in Fraser Tower, and the company plans to triple its local staff to 300 in three years.

Co-working operators and technology companies continue to anchor demand for office space. For example, new co-working entrant One&Co by JR East Singapore opened a new 13,000 sq ft co-working space at Twenty Anson in August. Companies still find co-working an attractive alternative, and the flexibility to increase or decrease the number of members on a monthly basis is another big draw for companies facing an uncertain outlook, the report says.

Traditional occupiers like the financial sector maintained their overall demand for office space. The three floors at One Marina Boulevard left vacant by Microsoft’s move to Frasers Tower was eventually leased to American Express.

“Should the economy start to weaken, we may reasonably expect some landlords to start offering subsidies for fitting out work in order to secure tenants,” says June Chua, head of leasing at C&W.

Li adds: “Occupiers could also expand their search to city-fringe or even suburban locations with good infrastructural connections and local amenities. This would increase their range of leasing options.”

Meanwhile, prime retail rents on Orchard Road climbed 1.2% q-o-q to reach $35.64 psf in 3Q2019, based on a basket of prime retail malls tracked by C&W. This was caused by low supply of prime space and higher footfall from rising tourist arrivals, the consultancy says. Non-Orchard Road retail rents in the city centre also rose 0.3% q-o-q to $21.69 psf, while suburban rents were flat at $31.71 psf.

Athleisure retailers have been expanding rapidly in Singapore, and Foot Locker has taken up more than 5,000 sq ft of space in the new PLQ Mall. It is their fifth store since opening here last year. JD Sports also opened their third store at Funan, occupying 2,788 sq ft of retail space in the mall. C&W expects the athleisure market to record a global growth of 9% this year.

Retailers grapple with high operating costs and declining revenue, and retail landlords should offer greater flexibility to prospective tenants by way of effective rental rates and shorter-lease terms to minimise vacancy risks. The pace of retail leasing cannot be sustained if the expectations between landlords and retailers widen further, says C&W.

For price trends, recent transactions, other project info, check out these projects' research page: Twenty Anson, One Marina Boulevard, Frasers Tower, Orchard Road

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