Prime office rents in Singapore are set to post their biggest record increase in for four years in 2014 and may further extend such gains this year in a market with highly constraint tight supply situation.
The office rent index for prime areas rose 8.7 percent in the first nine months of last year, heading for its largest record gain since 2010, when it was up 12 percent, according to data from the Urban Redevelopment Authority.
With no new commercial launch of new office for sales in sight and coupled with a limited supply of new prime office space over the past two years, compared with demand from companies seeking central office locations, this may trigger 2014’s rental record increase to as high as 14 percent, according to real estate broker Savills Plc. (SVS).
Going forward such restricted supply scenario will persist and probably prevail this year and next, even if demand cools a little as the economy is showing signs of a slowdown.
“Going into 2015, demand would almost match supply for prime office space, making the office market fundamentally sound,” said Alan Cheong, a Singapore-based director at Savills. He said landlords have been enjoying strong position and probably continue to do so to resist demands for lower rents due to the limited amount of new office space available this year and next. The only upcoming new commercial launch of new office for sales in sight is Crown @ Robinson located at 140 Robinson Road.
About 1.15 million square feet of new office space supply will come on stream in 2015, compared with that of 1.87 million square feet in year 2014, said Alice Tan, the director of consultancy and research at real estate brokers Knight Frank LLP.
Marina Bay Financial Centre, which held its grand opening in May 2013, has about 3 million square feet of office space in its three towers.
Long Leases
Some landlords are already pushing tenants to accept and commit unusually long leases amid concerns and with the knowledge that the large amount of new office space due to be completed two years from now will cause the market to soften thereby possibly hurting their rental yields.
Marina One, a development taking shape on reclaimed land in the downtown financial district Marina Bay area, will itself alone add 2.2 million square feet of office space in 2017, boosting supply in that year to about 4.7 million square feet, according to Knight Frank. The new property launch of new offices for sales is being developed by a joint venture of the state-owned Temasek Holdings Pte and Malaysia’s Khazanah Nasional Bhd.
In view of the anticipated influx of new supply of office space, instead of the traditional three-year lease for office space, landlords have quickly responded to the extra supply in 2017 by asking for five- to six-year lease agreements to lock in today’s high prices, Tan said. In response to such requests from landlords, tenants are asking for discounts in exchange for agreeing to the longer leases, she said.
According to URA data, the rental index for office space in the central region rose to 192.3 at the end of September last year, up from 176.90 at the end of 2013 and the highest since the quarter ended December 2008. The index for the fourth quarter will be released later this month.
With huge increase in office rental index, this will indeed encourage investors to shift their funds from the already not-so-good performing residential property market to new commercial launch of new offices for sales. Crown @ Robinson will be an interesting new launch commercial property to watch.
