Office tenants in Singapore’s central business district push back on landlords’ attempt to raise rental charges
- Office rental charges had risen for nine consecutive quarters in Singapore’s central business district
- Average monthly rents climbed 1.5 per cent in the third quarter, from last year
Some office tenants in Singapore’s central business district (CBD) are resisting further increases in rents, following nine consecutive quarters of increase in grade A office rents in the business area, according to a market report by Colliers International. Cumulatively, grade A office rents in the CBD have risen by 27 per cent since the second quarter of 2017, driven by tightening supply.
Average monthly grade A office rents in the CBD have climbed 1.5 per cent to S$10.08 (US$7.36) per square foot in the third quarter, slower than the 3 per cent increase recorded in the previous quarter. But it was a jump of 9.6 per cent from a year ago, Colliers said.
On the back of a weakening economic outlook, most occupiers will exercise more caution regarding their space needs and real estate cost, Colliers said. This could curtail further sharp increases in office rents over the coming quarters.
“We are starting to see ‘flight to value’ in the market where some tenants eschewed higher lease renewal rate and opted to relocate to another building with a lower rent,” said Tricia Song, head of research for Singapore at Colliers International. “Whether this trend would become more widespread will depend on market dynamics and the state of the economy.”
“Broadly, we expect rental growth to continue to slow in line with slower economic growth,” she said. “Some trade sectors may have already felt some pressure. We may see some shadow space emerge from large occupiers, such as financial institutions.”
In the third quarter, the strongest rental growth was recorded in the Shenton Way/Tanjong Pagar micro-market which grew by 2.8 per cent to S$10.31 per sq ft per month, followed by premium grade A office rents in Raffles Place/New Downtown which climbed 2.6 per cent from the previous quarter to S$12.27 per sq ft per month. The rental performance of these two areas was driven by tight vacancies and new office space, notes Colliers.
Demand from the flexible workspace sector continues to drive office take-up rates. WeWork is set to lease the entire former HSBC Building at 21 Collyer Quay in the second quarter of 2021. It will fill the space left vacant when HSBC moves out. New entrant East Japan Railway also opened a 13,000 sq ft co-working space at Twenty Anson in August this year.
