Office rents tipped to recover in 2018

After a tough patch, prime office rents could find respite in 2018, likely boosted by tighter supply of new buildings and still-healthy leasing demand, said an international property consultancy firm.

It is forecasting a 3 per cent overall rental growth for Grade A office space in the Central Business District by the end of next year.

Rents of such office space has declined by about 20 per cent since a peak in the first quarter of 2015.

A lot of leasing is expected to happen. So there could be pick- up this year. In 2018, we could expect rents to stabilise and rebound towards the second half of the year, said an analyst with the firm.

The consultancy noted that the previous two downcycles in the office property market – during the global financial crisis in 2009 and the euro zone debt crisis in 2012 – did not last for more than two years.

Given that office rents are into their seventh quarter of decline, the firm believes there are some green shoots in that segment, which could be very near the trough of the market.

The average monthly office rent in Marina Bay is about $9.05 psf, Raffles Place at $8.72 psf, City Hall area at $8.42 psf and $7.86 psf in the Shenton Way/Tanjong Pagar sub-market, the consultancy said.

An influx of new office space has weighed on rents of late while weaker business sentiment crimped demand for space from the financial services and oil and gas sectors.

About 1.45 million sq ft of new supply hit the market here last year, and a projected 2.26 million sq ft could become available this year.

However, prospects look brighter from next year on, with about 805,000 sq ft of new office supply forecast for 2018, and 755,000 sq ft the following year.

As there are few projects beyond 2018, the market could possibly tilt back to the landlords’ side once the spaces are taken up. The next wave of new office supply will come in around 2020 to 2021.

Leasing for new mega office buildings such as Guoco Tower in Tanjong Pagar has been strong as firms take advantage of softer rents to upgrade to swanky new premises.

The total monthly values of CBD office leases have also grown over the last 10 years to $72.2 million in 2015, from $13.8 million in 2005.

The increase was partly attributed to a larger number of companies setting up regional offices here.