Buoyant Economic Outlook
Singapore’s GDP remains on track to grow by 6% to 7% in 2021, returning to pre-Covid-19 levels. Singapore’s economy grew by 14.7% yoy in Q2 2021, despite the surge of Covid-19 cases that led to a tightening of safe management measures. Sectors that contributed to GDP growth included Information & Communications and Finance & Insurance, which are key office occupiers, grew strongly by 9.6% and 9.1% yoy respectively in the same period. In line with falling unemployment rate, office-using employment in these key sectors and professional services grew by 11,200 workers H1 2021.
China and United States, the twin engines of global economic growth, are poised to achieve GDP growth of 8.2% and 6.0% respectively for the whole of 2021. A recovering global economy, coupled with accelerated vaccinations that will enable further reopening of key advanced economies, will support Singapore’s open economy.
Demand Fueled by Flight to Quality and Tenant Displacements
CBD Grade A net absorption remained positive for a second consecutive quarter, reaching 215,000 sf in Q3 2021. As of Q3 2021 ytd, CBD Grade A net absorption reached 283,000 sf, as compared to 183,000 sf over the same period in 2020. The recovery in net absorption was driven by flight to quality and tenant displacement demand from office towers planned for redevelopment. Examples include Red Hat and FTI Consulting which are relocating from AXA Tower to CapitaSpring and One Raffles Quay South Tower respectively. Moreover, tech and finance occupiers have continued to expand their headcounts, driving up demand for Grade A office spaces. While CBD Grade A vacancy rates continued to climb to 5.8% in Q3 2021, we expect these rates to narrow going forward. A substantial amount of Grade A vacant spaces are currently under negotiation and are likely to be snapped up over the next few months.
Broad Recovery On The Cards
CBD grade A rents continued to recover by increasing at 0.5% qoq in Q3 2021, marking a second consecutive quarter of growth. Marina Bay, Raffles Place and Shenton Way / Tanjong Pagar led CBD grade A qoq rental growth at 1.6%, 0.3% and 0.1% respectively in Q3 2021, while rents remained stable in other submarkets. Additionally, CBD grade B rental growth turned positive in the same quarter, growing by 0.1% qoq after four consecutive quarters of decline. Market recoveries have been historically characterized with a recovery in CBD grade A office rents followed by CBD grade B office rents. As such, we believe the market has turned in a quality-led recovery. There are a few tailwinds supporting the office market encompassing a strong economic growth, continued occupier demand for quality offices, displacement demand, limited new grade A office supply, and the tightening of overall office supply in CBD due to planned redevelopments.