Average monthly rents of Grade A office space in the central business district (CBD) tracked by Savills increased to S$9.63 per sq ft in Q3 2014 from to S$9.22 per sq ft in the previous quarter.
“By location, Raffles Place/Marina Bay led the market with rents at a record high of S$10.27 per sq ft since Q3 2010, followed by Orchard Road at S$9.92 per sq ft and City Hall at S$9.66 per sq ft,” said the consultancy.
In terms of growth, rents of Grade A office space in the CBD expanded by 4.4 percent in the third quarter compared to the slower growth of 2.3 percent in Q2 2014.
Excluding Tanjong Pagar and Beach Road/Middle Road, where rental growth receded by 0.9 percentage point to 0.6 percent and 1.2 percentage points to 2.2 percent respectively, all other submarkets recorded positive rental growths.
“The City Hall area had the steepest increase at 6.1 percentage points to 7.5 percent, followed by Orchard Road with a four-percentage-point increase to 4.4 percent rental growth,” it noted.
By grade, AAA office space posted the largest quarterly rental growth of 6.6 percentage points to 8.8 percent (S$12.79 per sq ft), followed by the A Grade segment which recorded a gain of 1.9 percentage points to 3.4 percent (S$8.71 per sq ft).
“AA Grade office spaces, which led Q2’s rent growth, were the worst performers this quarter, slowing to a 3.3 percent growth at S$10.20 per sq ft. It suggests that there is greater resistance in this segment as rents have reached double-digits per sq ft.”
As for capital values of Grade A offices monitored by Savills, it climbed marginally to S$2,800 per sq ft in Q3 2014 versus S$2,780 per sq ft in the preceding quarter.
In total, office investment sales from the private sector during the third quarter reached its highest level since Q4 2012 at S$1.94 billion. Notable transactions include the sale of Anson House, Straits Trading Building and a 33.3 percent stake in MBFC Tower 3 for S$2,252 per sq ft to S$2,830 per sq ft, while the 18th level of Samsung Hub changed hands for S$3,225 per sq ft.
As for the vacancy rate of Grade A office space in the CBD, it improved to 3.4 percent in the third quarter from 3.9 percent in Q2 2014 due to the lack of new supply.
Moving forward, rents of Grade A office space in the CBD are expected to climb further in Q4 2014. But come 2015, it may stabilise due to factors arising from regional and global uncertainties. Building owners may also adjust their rents because of the upcoming supply deluge in 2016.
In addition, rents of older Grade A office buildings, especially those with small units, could be supported by the temporary relocation of Equity Plaza’s tenants, which will likely transfer to units under 5,000 sq ft by March 2015.
As for capital values of CBD Grade A buildings, it is forecasted to hold steady next year due to the limited number of transactions, stemming from the high price of such properties and the prevailing environment of low initial yields.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this and other stories, email firstname.lastname@example.org