Office rents could bottom out by end-2021 amid uneven property segment recovery: report

Citi Commercial Pte Ltd

OFFICE rents in Singapore could bottom out by the end of this year, on expectations of recovery in the office sector, said a latest report by Edmund Tie on Wednesday.

With Singapore being an attractive base in the region for Western and, increasingly, Chinese companies, employment outlook could improve gradually, said the real-estate consulting firm. Office expansion plans by Tencent, Alibaba and ByteDance will support this growth, as these companies seek to recruit more talents in Singapore.

In a report dissecting the property segment in Singapore, the real-estate consulting firm highlighted that rents of premium-grade offices held up well in Q1 2021, as corporates in sectors such as technology, fintech and finance "embarked on a flight to quality".

Additionally, there was some leasing demand from tenants of AXA Tower and FujiXerox Towers, the impending redevelopment of which has sent these occupants on the hunt for alternative office space, the report said. The monthly rents in the different subzones of the office sector thus held steady or declined slightly.

Research statistics showed that the island-wide occupancy rate for office space remained stabilised at 93.3 per cent in Q1 2021. Occupancy rates in the central business district (CBD) fell by 0.4 percentage points quarter on quarter to 92.7 per cent in Q1 2021, from 93.1 per cent in Q4 2020.

Rentals of office space in Singapore's central region turned a corner in the first quarter of 2021, as rents rose 3.3 per cent quarter on quarter, versus a 3.5 per cent contraction in the fourth quarter of last year.

The latest report added that recovery in the top segment of office space was also spurred by the Phase 3 reopening of the economy last December, following the Covid-19 outbreak; this came in addition to recent government announcements this month that work-from-home is no longer the default arrangement.

However, the firm's senior director of research and consulting Lam Chern Woon cautioned that the relatively energetic uptake in the premium office sector was due to the convergence of localised factors, not necessarily reflecting broader economic fundamentals.

For instance, major banks are reviewing their operations and trimming their physical offices as they rethink the hybrid working model. DBS reportedly plans to shed 75,000 square feet of its office space at Marina Bay Financial Tower (MBFC) Three; co-working operator Just-Co, which announced last month that it was opening another office in Tampines said that businesses continue to remain cautious about expanding traditional office spaces.

"Overall demand is still soft, as net absorption island-wide declined from 390,000 square feet (sq ft) in Q4 2020 to 74,000 sq ft in Q1 2021," said Mr Lam.

Thus, there remain uncertainties surrounding the office segment this year due to factors such as the working-from-home model and the strength of recovery in this segment.

"The jury is still out on the ideal hybrid-working model, and we are likely to see a fair degree of variations in the office-home split arrangements across industries and job functions," Mr Lam noted.

On a broader level, there is uneven recovery in the property segment in Singapore as investment and residential sales improved their performance, said the report.

On investment sales, private investors were active in Q1 2021, accounting for S$4.8 billion in transactions, even in the absence of government land sales. This strong performance was driven by residential and office sectors, which posted total transaction amounts of S$1.8 billion and S$1.6 billion respectively, said the report.

As for residential segment performance, the firm underscored a 16.9 per cent increase in total private home sales volume in Q1 2021, hitting 8,100 units from the 6,929 units sold in Q4 2020.

The firm attributes this surge in sale of residential units to "timely government interventions during the worst of the pandemic last year", which kept many businesses and jobs intact. This was supportive of the demand for homes, said Edmund Tie.

"With the mainstream economic recovery now underway and the expectation of more launches ahead, we expect residential demand and prices to improve for the rest of the year," noted Mr Lam.


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