Increase in Secondary Office Stock in 2015 May, Nonetheless, Dampen the Buoyancy of the Leasing Market
International property consultant, Colliers International’s latest quarterly research report forecasts that Singapore’s office property market in 2015 is likely to experience a similar pace of expansion seen in 2014. This will be on the back of steady occupier and investment demand, amid a cautious but positive economic environment.
Barring any external shocks, the average monthly gross rents for Premium Grade office space in the Raffles Place/New Downtown micro-market is forecast to continue to increase by about 10-15 per cent in 2015.
Meanwhile, rents for the overall Grade A and B office space in the CBD could grow by up to 10 per cent.
As of December 2014, the monthly gross rents of Premium Grade office space in the Raffles Place/New Downtown micro-market averaged at S$11.93 per sq ft, rounding up 2014 with an on-target full-year growth of 15.8 per cent. This is almost double the 8-per-cent growth in 2013, and closing in on its previous peak of S$12.25 per sq ft in 3Q 2011.
Similarly, the average monthly gross rents for Grade A and B office space in the CBD have gained 6.8 per cent and 4.9 per cent year-on-year (YoY) to reach S$9.23 per sq ft and S$8.09 per sq ft, respectively, by the end of 2014. In fact, they have surpassed their corresponding previous peaks of S$9.14 per sq ft in 3Q 2011 and S$8 per sq ft in 4Q 2011.
Office rental growth in 2014 had generally been driven by healthy demand, as well as the perceived scarcity of Premium Grade and Grade A office space available in the market over the next 12 months – given that South Beach Tower is the only Grade A office building that will be completed in 2015.
Overall occupancy rates of Premium Grade and Grade A office space islandwide recorded a decline at end-2014, but the market is expected to experience a gradual rebound this year.
Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “Favourable demand drivers – such as a positive economic environment and the strong appeal of Singapore as the preferred business location – as well as the expected decrease in supply of new office space to about 1.1 million sq ft this year, will likely provide a window for some of the space completed in 2014 to be gradually absorbed over the next 11 months.”
The addition of some 1 million sq ft of new office space from the completion of 2 major projects in 4Q 2014 – CapitaGreen and Westgate Tower, both of which have attracted strong leasing interest – has temporarily deflated the overall occupancy rates of Premium Grade and Grade A office space islandwide in 2014.
On the whole, the average occupancy rate for Premium Grade and Grade A office space islandwide declined 2 percentage points QoQ to 94.8 per cent as of December 2014. The largest QoQ drop in the average occupancy rate was recorded by Grade A office space in the suburban micro-market, which saw a decline of 7.2 pecentage points QoQ to 91.6 per cent in 4Q 2014.
Looking at 2015, the market could witness an increase in secondary office space stock, as some firms rationalise their space utilisation or relocate to new office developments.
Mr Marcus Loo (劳耀萳), Executive Director of Office Services at Colliers International, says, “While the common knowledge is that rents in 2015 are expected to climb due to demand and supply fundamentals, we are certain of a dampening impact on the buoyancy of the leasing market, as banks continue to rationalise usage of space to stay competitive.
More importantly, the current collapse in world oil prices has set off a contagious fear among investors, affecting global markets and we expect this apprehension to perpetuate throughout the rest of the year.”
On the sales market front, the growth in capital values for Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market is expected to be capped at 5 per cent in 2015. This is due to the strict loan-to-value regulations and the impending interest rate hikes, which will continue to weigh on purchasers’ decision-making processes.
In 2014, the new benchmark prices achieved for selected office space – such as the sale of an entire floor at Samsung Hub at S$3,280 per sq ft – helped push up the price points of office space across the market.
In particular, the average capital values for Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market each rose 2 per cent QoQ to S$2,779 per sq ft and S$2,490 per sq ft, respectively, by the end of 2014.
This brought the full-year growth in the average capital values of Premium Grade office space in the Raffles Place/New Downtown micro-market to 4.2 per cent in 2014, up from 1 per cent in 2013; while those for Grade A office space in the same micro-market rose by 4 per cent in 2014, outpacing the 0.2 per cent growth in 2013.
Ms Chia concludes, “In 2015, we expect that office properties in Singapore will continue to attract healthy interest from end-users – such as overseas corporate buyers and family offices looking for suitable business and investment premises, as well as opportunistic private-equity investors and institutional funds looking for yield-accretive investment properties.”