GRADE A offices could lead the recovery of Singapore's office market in 2021, said a CBRE report on Monday. This comes amid announcements that work-from-home arrangement no longer remains the default arrangement in Singapore.

Catherine He, associate director for research, South-east Asia, at CBRE said that a gradual recovery of Singapore's economy and raised office demand supported by gains in employment contribute to optimism surrounding the mid-term market outlook.

More flight to quality movements were tracked due to occupiers focusing on higher quality products within the central business district (CBD), said the report. This gave rise to a two-tier market comprising: Grade A (core CBD market) and Grade B (islandwide market). The Grade A market showed resilience with tightening vacancy while the Grade B market continued to grapple with higher vacancy rates.

Based on the Grade A basket tracked by CBRE Research, office rents remained stable quarter on quarter (q-o-q) at S$10.40 per square foot per month (psf) in Q1 2021. On the other hand, Grade B rents registered a further rental decline of 1.3 per cent q-o-q to S$7.80 psf per month.

Additionally, the report also mentioned that the office market registered a positive net absorption of 130,000 square feet in the first quarter of 2021. This comes after three consecutive quarters of negative net absorption.

Singapore remains on the radar of large multinational companies, CBRE said, noting an uptick in leasing momentum over the past six months.

Particularly, the Grade A market registered a positive net absorption in the first quarter of 2021. Some key demand drivers included technology firms and financial services industries including asset management firms.

The displacement of tenants from buildings scheduled for redevelopment also contributed to occupier activity, including AXA Tower and Fuji Xerox Towers. These tenants include Alibaba Group and Lazada's relocation from AXA Tower to 5One Central, together with ByteDance's latest take-up in Guoco Tower.

Yet, there will not be a uniform recovery across all office buildings, said Ms He. As large corporates leverage the short-term market pull-back to upgrade in location and quality, Grade A office market is expected to be the main beneficiaries with Grade B market facing further pressure from emerging vacancy.

In the absence of commercial government land sale sites with an allowable office use in the CBD, there is limited availability of new supply over the mid-term. Factoring in the likely removal of existing stock stemming from buildings that are scheduled for redevelopment such as AXA Tower, Fuji Xerox Towers, Central Mall and Faber House, this will offset the incoming supply over the next three years, CBRE added.