Grade A office space rents look set to rise

Investors who were early in the game of commercial property investment may reap the rewards in the few years ahead as rental prices of Grade A office spaces look set to rise.

Office spaces in the Central Business District prime property

Analysts are expecting rents of Grade A office spaces in the Central Business District (CBD) to rise as much as 8% this year, and possibly another 5% next year. This is due partly to the tight supply of such commercial spaces in the CBD.

Some existing stock may also have been withdrawn for redevelopment as landlords take advantage of the Urban Redevelopment Authority’s (URA) incentive scheme, hence tilting the scale towards demand.

From now to 2021, the new supply of office spaces will average 614,000 sq ft per year, 2% lower than the existing inventory of such available spaces and 5% lower than the annual average from the past 5 years.

Raffles Place. Picture: Allie Caulfield

The Raffles Place area has always had the highest concentration of financial services firms and the demand for office spaces has traditionally been driven by this sector, as well as the professional services, energy and shipping sectors. However, the rise in popularity of flexible workspaces has accounted for a large rise in the demand for office spaces.

Coupled with the notable growth in the technology, media and telecoms sectors, these sectors have accounted for the high absorption levels of office spaces last and this year.

Redevelopment of Shenton Way and Tanjong Pagar lends to rise in demand

The recent and continued rejuvenation of the Shenton Way/Tanjong Pagar areas may also have lent itself to the trend of increasing demand for office spaces.

Condominiums located in Tanjong Pagar. The private property market has experienced a strong rebound for the past five quarters. Photo: Khalil Adis Consultancy.

Recently completed buildings such as Frasers Tower, Guoco Tower and UIC Building may have also improved the image of workspaces in the area, and accordingly, its rents.

Tenants are no longer only attracted by the location and rental prices. Instead, they are also drawn to spaces which allow for flexibility, space efficiency and which provide wellness and lifestyle amenities.

One of the upcoming new buildings to watch is the Afro-Asia Building and the CPF Building (to be named the ASB Building). Analysts are expecting the completion of these buildings to boost rents further.