OFFICE rents are poised for a smaller hike this year than the increase last year, going by the slowdown in the pace of growth in office rents in the fourth quarter of 2018.

The Urban Redevelopment Authority's rental index for office space in Singapore's central region rose by 0.5 per cent during the quarter over the previous three months. In Q3 2018, the rise had been by 2.5 per cent.

For the whole of 2018, the rental index rose 7.4 per cent, compared with the increase of 0.4 per cent in 2017.

CBRE's head of research for Singapore and South-east Asia Desmond Sim said: "Flight to quality and new-builds continue to feature heavily."

He noted that URA's vacancy rate for Category 1 office space, akin to Grade A office space, tightened from 15.7 per cent at end-Q4 2017 to 11 per cent at end-Q4 2018.

In Category 2 space (or Grade B offices and below), the vacancy rate rose from 11.2 per cent to 12.6 per cent over the same period.

The URA's island-wide office vacancy rate eased from 12.6 per cent to 12.1 per cent over the same period.

For the whole of 2018, the net absorption nearly tripled the 60,000 sq m of net lettable office space in 2017 to hit 172,000 sq m - a six-year high, noted JLL.

JLL's head of research and consultancy for Singapore Tay Huey Ying said: "Not surprisingly, demand was concentrated in the Downtown Core, which accounted for more than 90 per cent of the 172,000 sq m absorbed in 2018.

"Besides the physical occupation in new projects such as Marina One and UIC Building by tenants who signed the leases predominantly in 2016 and 2017, the sterling net absorption performance is also the result of robust backfilling of spaces vacated by these occupiers. This is a reflection of the upbeat business sentiment on the back of steady economic growth."

A broad range of segments drove office demand last year. These range from insurance and business-services companies to tech companies and co-working operators.

Most property consultants expect CBD Grade A office rents to continue to climb this year, although at a slower pace than last year.

As Mr Sim of CBRE put it: "While vacancy rates are tightening, most of the rental growth has been front-loaded.

"There is some degree of caution in terms of expansion plans by occupiers on the back of global economic uncertainty - Brexit, the US-China trade tension.

"On the real estate front, new office space completion will tighten in 2019 and the first half of 2020, but there is looming increase in office completions from late 2020."

JLL forecasts that its basket of Grade A office space in the CBD could post another year of growth in average gross monthly rental value, to the tune of 8 to 9 per cent this year. In 2018, the growth figure was 10.7 per cent; in 2017, it was 7.7 per cent.

URA's Q4 data also showed that prices of office space in the central region rose 2.4 per cent quarter on quarter in Q4 2018 after inching up 0.1 per cent in Q3 2018. The price index rose 5.7 per cent for the whole of last year, against a drop of 2.4 per cent in 2017.

Colliers International's head of office services Duncan White highlighted that the accelerated office price growth in the fourth quarter came on the back of big-ticket deals such as Robinson 77 and 78 Shenton Way .

Cushman & Wakefield Singapore's head of research Christine Li said: "It is quite clear that the tide has turned for the Singapore office market and the general bullishness reflects the positive outlook for rents over the next few years.

"Investment sentiment has been buoyant, as investors rushed to grasp the window of opportunity to acquire prized office assets in a fast-rising upcycle ahead of further rental escalation in 2019."

Said Mr White of Colliers: "The punitive additional buyer's stamp duty (ABSD) measures on the residential sector since July 2018 should continue to fuel a shift in investor interest towards the commercial sector."

In the URA data, there was a total supply of about 732,000 sq m in gross floor area (GFA) of office space in the pipeline as at the end of the fourth quarter of 2018 - slightly less than the 793,000 sq m of space at the end of the previous quarter.