Grade A office rents and prices in Singapore’s Central Business District (CBD)has improved for the second straight quarter at a faster rate based on the latest data from property consultancies.

This has made experts predict that the worst appears to be over for Grade A office rental and prices.

Two consecutive quarters of rent and capital value growth, with the second at a stronger pace than the first, is a reaffirmation that the CBD Grade A office market is now firmly on a recovery path, according to one analyst.

According to preliminary estimates, the average monthly gross rent of Grade A offices in the CBD rose by 4.3 per cent to S$8.86 per square foot (psf) from the second quarter to the third quarter. The rents for Marina Bay sub-market has also increased a modest 0.7 per cent in the second quarter after eight straight quarters of rental decline.

Companies scrambled to lease in anticipation of further rental increases in 2018. Companies were also caught off-guard by the speed of the office market recovery.

The major leasing transactions in the third quarter included Ocean Network Express taking up about 50,000 sq ft of space in Marina One and WeWork, a giant coworking space operator, occupying about 28,000 sq ft of space in Beach Centre.

Capital values rose a steeper 5.1 per cent in the third quarter from a quarter ago to S$2,376 psf, compared to the 2.3 per cent quarter-on-quarter increase in the second quarter on the back of strong investment interest in the office sector.

Recovery in office rents and prices has come on the back of improving economic fundamentals and labour market. Government data released on Tuesday showed surging global demand for electronics lifting factory output in August. Manufacturing output jumped 19.1 per cent year-on-year in August, beating economists’ expectations of a 16 per cent increase This follows from a 21 per cent surge in July.

Business sentiment is generally more positive now compared to a year ago, and this has increased occupier activity. The rapid ramp-up of co-working demand has also had a very positive impact on sentiment.

Consultants estimate that CBD Grade A office rents and prices will continue increasing in the quarters ahead as the brighter economic outlook should continue to lift business confidence and support relocation of office occupiers.

CBD Grade A office rents could post full-year growth of between 6 per cent and 8 per cent, given that the year-to-date increase stands at 3.7 per cent. Capital values are expected to outperform rents, and could chalk up growth in excess of 10 per cent for the whole of 2017.

But many of the large occupiers with lease expiries before 2019 have already locked in their accommodation. To fill developments with significant vacancy, investors will either need to commit a larger number of smaller tenants, or look to attract occupiers with lease commencement dates are more than 18 months away.

A two-tiered office market has emerged with new projects enjoying higher occupancy and rental recovery, while older and less efficient office buildings may struggle to fill the space vacated by tenants relocating to newer developments. The market will experience stronger rental growth in subsequent years on the back of better economic prospects and a significant reduction in supply pipeline after 2017.