Grade A office rental market set to grow further this year

With the residential property market recovering slowly, it might be just the right time for investors to look towards commercial properties for quicker and larger returns, in particular, the Grade A office space segment.

Grade A office spaces in the Central Business District in demand

Perhaps due to uncertainties in global economies and the comparatively stable political and economic climate in Singapore, companies are moving their regional headquarters to the country, in turn boosting demand for office spaces. Flexible workspaces and the expansion of the technology sector could also account for much of the growth.

Prime office rents rose across the board last year. The annual growth for Grade A office spaces in the Central Business District (CBD) was only 2.3% in 2017. Last year, however, the annual growth stood at 14.9%.

Analysts are expecting demand to be strong this year as well, especially as a shortfall of supply of Grade A office spaces is expected to continue till 2021. There are expectations of a 8% year-on-year rise in average rents this year. The next bump in the supply of office spaces could be in 2022.

See more: Singapore’s premium office spaces 10th most expensive in Asia

Tanjong Pagar and Beach Road saw the highest rental increases

The Tanjong Pagar and Beach Road districts saw the largest rental increases last year. This could be due to the new developments of Guoco Tower near Maxwell Road and the Duo near Bugis MRT Station.

Aerial view, Wallich Residence. Picture: GuocoLand Singapore

Rental prices of Grade A office spaces in Beach Road rose 18.6% to $8.52 psf per month while that in Tanjong Pagar rose 18.4% to $9.53 psf per month. Overall, rents in the Central Region rose by 7.4% last year, compared to 0.4% the year before.

Analysts also advise landlords to be more proactive in engaging tenants and offering varied lease structures while tenants may also need to consider short-term leases and the possibility of working within flexible workspaces.

See more: Office rental market blooms with growth of co-working spaces