The rebound in Singapore’s office market is in full swing, with rents rising as the industry reacts to a shrinking amount of newly-developed space.
Office rents in the city-state increased three percent in the first three months of 2018, continuing a climb that started at the end of last year.
In the fourth quarter of 2017, Singapore recorded the strongest quarterly growth in office rent in Asia Pacific, supported by better occupancy rates. The CBD net absorption in the last quarter of 2017 was the highest level in 11 quarters.
The uptick follows sharp rental declines in 2015 and 2016, when a glut of new development projects in the central business district, coupled with weak economic growth, resulted in an oversaturated market.
Since then, developers have reduced the amount of office supply in production.
Most of the remaining stock from the 2016-2018 supply is expected to be absorbed over the next year or so, says Andrew Tangye, Head of Markets at JLL Singapore.
As a result, rents are expected to continue to grow through 2021, supported by a “limited supply pipeline and a growing economy,” he said. JLL estimates that the city’s average Grade A CBD office rents will finish the year 8 to 9 percent higher than the year before, followed by an additional 12 to 16 percent in 2019.
The pace of growth in Singapore has been particularly striking compared with its regional counterparts. Part of the reason: Singapore’s business district is cheaper than many other key cities in the region, which helps keep demand from occupiers strong, Tangye says. Based on the latest edition of JLL’s Premium Office Rent Tracker, rent in Singapore is not just cheaper than Hong Kong, but lower than Tokyo, Beijing, Shanghai, Shenzhen and Seoul.
In addition, the government is pushing ahead with infrastructure improvements and “focusing on further developing the sub-regional infrastructure hubs, like Jurong East, which will provide room for the economy to grow,” he says. For most tenants, the perks of continuing to operate out of this crucial economic hub will more than outweigh the additional costs.
According to Tangye, “Singapore is still best placed to benefit from further economic growth in ASEAN since many firms locate themselves here to conduct business activity in this region.”
The city-state, which is the region’s major financial centre, will further stand to gain as the ASEAN economy is set to grow at an estimated 5.1 percent this year. In the longer term, Singapore’s focus on building a smart, green, liveable and innovative city is expected to ensure resilience of its real estate market. According to JLL’s City Momentum Index, the city-state is the only Asia Pacific city that is in the “sweet spot” of city dynamism, scoring in the Global Top 30 on two measures, ranking 26th for short-term economic and real estate dynamism and 29th for its effort in future-proofing for longer-term success.
Click to read more about Singapore’s plans for an island-wide office market.