Office demand strong in Downtown Core; rosier hopes for 2018

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THE Downtown Core area, which includes the financial district, was the star in terms of net office demand in the fourth quarter as well as the whole of last year.

The area saw net demand - as measured by the change in occupied space - of 43,000 square metres (about 463,000 sq ft) in Q4 2017. This was the highest in more than five years (since Q3 2012), based on property consultants' analysis of latest figures by the Urban Redevelopment Authority (URA). For full-year 2017, net demand in the Downtown Core area rose to slightly over 1 million sq ft - three times the 333,700 sq ft in 2016 and the highest since 2012's 1.42 million sq ft.

Cushman and Wakefield research director Christine Li said: "The take-up rates for new projects such as Marina One, Duo, Frasers Tower and Paya Lebar Quarter have been phenonemal."

THE Downtown Core area, which includes the financial district, was the star in terms of net office demand in the fourth quarter as well as the whole of last year.

The area saw net demand - as measured by the change in occupied space - of 43,000 square metres (about 463,000 sq ft) in Q4 2017. This was the highest in more than five years (since Q3 2012), based on property consultants' analysis of latest figures by the Urban Redevelopment Authority (URA). For full-year 2017, net demand in the Downtown Core area rose to slightly over 1 million sq ft - three times the 333,700 sq ft in 2016 and the highest since 2012's 1.42 million sq ft.

Cushman and Wakefield research director Christine Li said: "The take-up rates for new projects such as Marina One, Duo, Frasers Tower and Paya Lebar Quarter have been phenonemal."

The group is forecasting a further rise of about 10 per cent in 2018. "With both the global and local economies on a firmer footing and business confidence strengthening, the pace of rental growth will accelerate this year," she said.

JLL is forecasting a 10 to 15 per cent increase in CBD Grade A office rents this year following an 8 per cent gain last year.

URA data released on Friday showed that the office market continued to improve in the fourth quarter of last year.

URA's rental index of office space in the Central Region rose 2.6 per cent quarter on quarter in Q4 2017 - a slightly faster pace of increase compared with the 2.4 per cent gain in Q3 2017.

For the whole of 2017, the index inched up 0.4 per cent. For 2016, it was a drop of 8.2 per cent.

URA's price index of office space in the Central Region rose 2.7 per cent quarter on quarter in the fourth quarter - after rising 0.4 per cent in the previous quarter.

For the whole of 2017, prices of office space fell 2.4 per cent, a slower pace of decline than the 2.8 per cent drop in 2016.

Total pipeline supply islandwide at the end of Q4 2017 was 6.4 million sq ft of gross floor area (GFA) of office space, slightly lower than the 6.5 million sq ft at end-Q3 2017.

The amount of occupied office space increased by 592,000 sq ft in net lettable area in Q4 2017, compared with a rise of about 107,600 sq ft the previous quarter.

The stock of office space fell by about 43,100 sq ft in Q4 2017, compared with a rise of about 980,000 sq ft in the previous quarter. As a result, the islandwide office vacancy rate eased to 12.6 per cent, as at the end of Q4 2017, from 13.3 per cent at the end of the previous quarter.

Duncan White, Colliers International head of office services, said: "Vacancy rates should reduce gradually over 2018-2019, from the oversupply situation of 2016/17.

"Continued expectations of new demand throughout 2018 and healthier global economic views will further boost confidence among landlords and occupiers and lift market sentiment. We also expect to see more international companies homing in on Singapore amid rosier economic prospects."

Alan Cheong, Savills Singapore research head, said the strong rental rise has reduced fears of further yield compression for office space.

"There is now even the possibility that over the course of this year, yields may not only stabilise, but instead rise by 25 basis points. This is because we believe that rents for the Savills basket of Grade A CBD office space can rise by 10 per cent in 2018 - with price increases lagging."

This rental rise is only indirectly due to demand-led factors. Landlords of new or soon-to-be-completed buildings have seen much of their space being taken up by tenants moving from older buildings.

"This trend began around the middle of 2017 and was augmented by the tenants in the TMT (telecommunications, media and technology) and disruptive business model segment, including co-working space providers, Uber and Grab, for example.

"These types of businesses have taken up large amounts of offfice space in new Grade A buildings as well as the secondary stock left behind in older buildings by tenants moving to newer office towers."

Lee Nai Jia, Edmund Tie & Co research head, said landlords of older offices may continue to face pressure in retaining tenants. "The current market makes it prime for older office buildings to be redeveloped. We anticipate more interest, especially for the collective sales of such properties."

Source: Business Times, 27 Jan 2018