Rental gap between prime and suburban office space shrinks


But it will likely widen again in 2018 as CBD rents climb, given the healthy take-up of new projects and reduced supply

THE gap between suburban and Grade A Central Business District office rentals has narrowed to 75 per cent as at the first quarter of 2017, the narrowest since Q4 2012, real estate agency Cushman & Wakefield reported on Tuesday.

Christine Li, director of research at Cushman & Wakefield, said that the narrowing rental gap would explain the reduced decentralisation activities in the market since 2015.

This is because CBD rental rates have been more attractive compared to suburban rates, and present a better value proposition for tenants.

However, the gap will likely widen again in 2018. The agency expects Grade A CBD rents to bottom out in 2017 and climb again in the next year, given the recent healthy take-up of new projects and a reduced supply after 2017.

The upcoming Marina One struck the largest deal of the quarter with Facebook's lease of 250,000 square feet of space, and the project now has a pre-commitment rate of more than 60 per cent.

At Frasers Tower, The Executive Centre's lease of 20,000 sq ft has raised the project's pre-commitment rate to 30 per cent.

The co-working sector is also gaining traction with the introduction of Chinese co-working operator Distrii to the Singapore market. The company currently occupies 60,000 sq ft in Republic Plaza 1.

Ms Li said: "Prime CBD Grade A office rental will be close to the tail end of the downcycle by the end of 2017, so once the prime CBD rents return to growth in 2018, we could see decentralisation activities picking up pace from 2018 onwards."

The injection of new supply in regional centres such as Paya Lebar and Woodlands will contribute to the wider gap predicted after 2017.

For instance, Paya Lebar Quarters, which has a net lettable area of approximately 883,000 sq ft, will be available in 2018.

The total incoming supply for 2017-2019 stands at 1.4 million sq ft.

Tenants who need not be in the CBD will have an easier time finding more affordable alternative space in the suburbs over the next two years, said Ms Li.

Depending on the location and quality of the decentralised office and business park space, they could enjoy rental savings ranging from 30 to 70 per cent.

Source: Business Times, 26 Apr 2017