Office rental growth in Singapore moderated in Q2 2019 on the back of lower net absorption and occupancy levels, according to Knight Frank Singapore Office Market – Q2 2019 report.
”The weaker economic outlook resulting mainly from the uncertainties of a protracted trade war contributed to lower growth projections by businesses,” said in the report.
“While the technology industry is growing, we can expect the slowing economy to impact overall office space demand and rents,” said Calvi Yeo, Head, Office Advisory.
Net absorption in Q1 2019 for the Downtown Core Planning Area amounted to 247,570 square feet (sqft), a 14.8% year-on-year (y-o-y) decrease from Q1 2018. Net absorption was largely led by co-working space operators, taking up some 111,000 sqft of office space in Q1 2019. The remaining supply was absorbed mainly by the insurance, hospitality and the banking and finance sectors.
The office occupancy rate in the Central Business District (CBD) decreased by 1.8 percentage points quarter-on-quarter (q-o-q) to 95.7% in Q2 2019. Occupancy for Prime Grade offices in the Raffles Place / Marina Bay Precinct, while supported by underlying demand for quality space, saw a decrease of 0.5 percentage points q-o-q to 96.9%. As the decrease in occupancy is marginal, landlords continued to hold out for higher rents.
Prime Grade office rents in Raffles Place/Marina Bay precinct increased by 0.5% q-o-q to S$11.20 per sqft per month in Q2 2019, but at a slower pace compared to Q1 2019 when rents increased by 1.5% q-o-q. Likewise, Grade A office rents in the Shenton Way/Robinson Road/ Tanjong Pagar precinct increased at a slower pace by 0.4% q-o-q in Q2 2019, compared to 1.3% q-o-q increase in Q1 2019.
Growth in co-working space take-up has stayed largely the same. For the first half of 2018, co-working space take-up grew by about 50.0% y-o-y and a further 44.8% y-o-y in the first half of 2019, with the current total stock reaching a significant 3 million sqft. Nearly 78.4% of the coworking space take-up in the first half of 2019 were by two co-working space operators, WeWork and IWG.
Based on ongoing negotiations, the total stock of coworking space will surpass 3 million sqft by end 2019, amid rising concerns of an oversupply in the near future. The fintech sector is likely to see some growth, with the Singapore government announcing its intention to issue five new licenses to digital banks with companies’ head-quartered and controlled by Singaporeans. However, the demand for space by this industry is likely to offset the lower absorption rate by the other industries affected by increasing business disruption and an imminent economic downturn.
Singapore continued to attract Multinational Companies to set up their regional Headquarters. Global technology services provider NTT, which is the international arm of technology giant NTT Group, announced their plans to consolidate their Asia-Pacific headquarters in Singapore.
The total CBD pipeline is close to 2.24 million sqft for 2019 and 2020. Upcoming developments in 2019 and 2020 include 79 Robinson Road, Afro-Asia-i-Mark and Hub Synergy, which will account for some 1.03 million sqft of office supply. 79 Robinson Road has secured pre-commitment tenants with Allianz and EFG bank taking up some 90,000 sqft of space while 30 Raffles Place is also in an ongoing negotiation with a serviced office provider to lease nine floors totaling 82,500 sqft in the tower.
The economic outlook has weakened further due to escalating trade tensions, while the growth of office rents for the first half of 2019 has moderated to 2% compared to 16.5% for the first half of 2018. As a result, office rents are unlikely to reach an 8-10% increase for the year as initially expected.