Office demand in Singapore holds strong

Singapore’s CBD is seeing decade-high capital values, driven by strong demand for quality office space in the Island State

June 12, 2019

Just last month, Chevron House – a 32-storey office and retail building in the heart of the city’s CBD - was sold to U.S. real estate fund AEW for S$1.025 Billion, a 35 percent increase on capital value from when it was purchased in 2017.

“The strong growth in Singapore office capital values over the last 12 months is supported by the market’s very favourable demand-supply dynamics and a benign interest rate outlook,” says Regina Lim, Head of Capital Markets Research for Southeast Asia in JLL.

Office rents in the city have been steadily climbing in the past two years with this year’s growth forecast of 12 percent expected to outpace the rest of the region.

The rental market has “improved significantly” in the last 18 months, says Lim. “Demand for office space is strong even with increasing rents, driven mainly by professional services, technology and flexible work spaces providers.” 

Demand for office space in the nation state is unwavering. According to Forbes Magazine, 59 percent of large multinational technology companies have set up their Asian headquarters in Singapore, with Hong Kong coming in at 18 percent.

Occupied office stock in the CBD has increased significantly by 6 percent in 2018, compared to just 2.3 percent annually between 2013 and 2017, supported by a mix of new entrants, expansions and renewals.

Alongside increasing demand, the city is set to face supply shortages in the CBD until at least 2021 which may lead to rents growing by 4 to 6 percent annually in the next 5 years.

A changing CBD

A recent announcement of a ‘CBD incentive scheme’ from the Urban Redevelopment Authority could change both the type and supply of office space in the CBD in the next 5 years.

The scheme is part of the government’s decentralisation strategy to bring jobs closer to homes and inject more residents and vibrancy into the CBD.

“Many existing developments lack the retail and lifestyle elements that corporates now expect,” says Lim.

Buildings which meet the size requirements and are at least 20 years old are eligible for a 25 to 30 percent higher plot ratio if they’re converted into mixed use developments by their owners.

 “By encouraging the redevelopment of older buildings into integrated mixed used developments, we believe Singapore will widen its lead as a global city for companies, talent and capital,” she says.

There are more than 20 buildings with over 6.5 million square feet of office space eligible for the scheme, according to estimates from JLL. If redeveloped – this will exacerbate the supply shortage in the CBD in the short term.

Over the next 5 years office supply will constrict to 0.4 million square feet per annum, compared to an estimated demand of 0.7 million square feet, according to JLL data.

“This compelling demand-supply dynamic is one of the key reasons for the strong rise in capital values,” says Lim.

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