Q3 2020 sees a further drop in Prime Grade office rents by 2.3% quarter-on-quarter to $10.37 per sq ft per month (psf pm). Occupancies also continued to fall, albeit at a slower pace at 0.6% quarter-on-quarter.
Prime Grade office rents in the Raffles Place/Marina Bay precinct dropped by a further 2.3% quarter-on-quarter to $10.37 per sq ft per month (psf pm) in the third quarter of 2020, taking the total decline in the first three quarters of the year to 8.4%, revealed a Knight Frank report.
Prime Grade occupancies also continued to fall, albeit at a slower pace at 0.6% quarter-on-quarter as existing leases generally remained committed.
“While occupancies were healthy despite the recession, the amount of shadow space increased as corporates continued to review the most efficient use of space through working from home rotations,” said the report.
Knight Frank estimates that the amount of shadow space rose from at least 170,000 sq ft in Q2 2020 to around 260,000 sq ft in Q3 2020.
The report noted that e-commerce and technology firms continued to lead office space demand. For instance, Amazon took up the 90,000 sq ft of office space vacated by Citibank in Asia Square Tower 1. Food-delivery service firm Delivery Hero is also set to expand from its current premises to take up around 50,000 sq ft of space in the upcoming Afro-Asia I-Mark.
More traditional businesses have also been contributing to co-working space demand as “corporates harness these flexible spaces on shorter leases to augment their space requirements”.
Arcc Spaces at One Marina Boulevard posted a 30% take-up rate with companies in technology, finance and professional services after commencing operations in August.
“Several office landlords have also followed suit to provide their own flexible space offerings within their office buildings for tenants. As such, office space will increasingly be offered “as a service” to occupiers,” said Knight Frank.
Meanwhile, the geopolitical uncertainties across the world and region “enhanced the attractiveness of Singapore’s hub status, with international law firms as well as tech giants such as Tencent, ByteDance and Alibaba selecting Singapore as regional bases”.
The redevelopment of several ageing office buildings within the Central Business District is also expected to provide a boost in easing occupancy levels.
Knight Frank said displaced occupiers due to the withdrawal of around 880,000 sq ft of Net Lettable Area (NLA) from the redevelopment of Keppel Towers, Tower Fifteen and Shaw Towers this year as well as the over 1.2 million sq ft of NLA from Fuji Xerox Tower, AXA Tower, and potentially Central Mall next year, will generate leasing demand.
In fact, pre-commitment rates at the upcoming CapitaSpring and Afro-Asia I-Mark are at 35% and 60%, respectively, while Guoco Midtown, Central Boulevard Towers and Hub Synergy Point are still marketing their spaces.
“Given the combination of these factors and the envisaged period of recovery, office rents are expected to drop closer to 10% within the projected range of 10-15% in 2020, followed by a more moderate 5-10% easing in 2021,” said Knight Frank.