Singapore’s prime office market proved to be resilient through the recession, with transaction sales volume standing at $13.2 billion in 2020, up 73% from 2019.
Singapore saw CBD Grade A office rents ease moderate further by 2.1% quarter-on-quarter to $9.57 per sq ft (psf) in the fourth quarter of 2020, revealed a Colliers International report.
For the whole of 2020, rents declined 5.4%.
“The prime office market has been relatively resilient considering we went through the deepest recession since independence. Going forward, market dynamics are conducive for a recovery towards end-2021. We forecast CBD Grade A rents to rise 5.5% to $10.09 psf,” said Tricia Song, Head of Research for Singapore at Colliers International.
Colliers noted that the recovery can be justified by the alignment of several factors.
“Firstly, Oxford Economics forecast a positive GDP growth of 5.6% for 2021. Secondly, new office demand will continue to be driven by the technology sector and the overall business recovery. Thirdly, supply levels are benign in 2021-2022 (average annual expansion at 2.6% of stock versus 4.7% for the last five years),” said the report.
“Consequently, the expected positive net absorption should tighten vacancy before the next supply hike in 2023. Finally, redevelopment plans will further reduce the Central Business District’s (CBD) stock.”
Among the Grade A micro-markets, Song believes Shenton Way/Tanjong Pagar has the biggest potential for rising rents since it is best positioned to benefit from the CBD incentive schemes.
“The longer-term Greater Southern Waterfront development nearby could further uplift the precinct,” she added.
Meanwhile, total office or mixed office investment volumes increased by over 10 times quarter-on-quarter to $10.3 billion in Q4 2020, driven by CapitaLand Commercial Trust and CapitaLand Mall Trust’s merger.
For the full year 2020, transaction sales volume stood at $13.2 billion, up 73% from 2019.
“While it was a record year for deals, transaction volume fell 61% year-on-year in 2020 when all REIT mergers in the year are excluded. Nonetheless, last year’s transactions highlight Singapore’s long-term attractiveness to foreign investors and appetite for rare freehold buildings,” said Jerome Wright, Senior Director, Capital Markets and Investment Services in Singapore at Colliers International.
“Over the next few years, we remain optimistic for capital market volumes on a favourable interest rate outlook and capital allocation to Asia’s key gateway cities.”