As Grade A CBD office vacancy rates reached 3.7% in Q4 2020, from 3.4% in Q3 2020, its net demand amounted to only 94,000 sf, the lowest in a decade. Grade A CBD office rents fell 2.7% qoq in Q4 2020 to reach $9.58 psf/mth. For the whole of 2020, Grade A CBD office rents have fallen by 10.1% yoy. While city fringe and suburban office spaces were more resilient given their lower rental levels and demand from displaced tenants due to office redevelopments in the CBD such as AXA Towers and Fuji Xerox Tower.
Singapore’s Economy Contracted at a Slower Pace
On the back of the economic re-opening, Singapore’s GDP contracted at 5.8% yoy in Q3 2020, a considerable improvement from the record decline of 13.2% in the previous quarter. The Construction, Transportation & Storage and Accommodation & Food Service sectors continued to be the largest contributors to the contraction. The Manufacturing and the Information & Communications sectors grew by 10.0% and 2.0% yoy respectively, a turnaround from their contractions in Q2 2020. GDP growth is forecasted to land between +4.0% to +6.0% in 2021. Total office-using employment declined by 2,300 workers in Q3 2020, an improvement from 15,000 workers in in Q2 2020.
Grade A CBD Net Demand Reached 94,000 sf, the lowest in a decade
Amidst challenging business conditions and on-going flexible work arrangements, Grade A CBD office vacancy rates reached 3.7% in Q4 2020, from 3.4% in Q3 2020, as Grade A CBD net demand amounted to only 94,000 sf, the lowest in a decade. Grade A CBD office rents fell 2.7% qoq in Q4 2020 to reach $9.58 psf/mth. For the whole of 2020, Grade A CBD office rents have fallen by 10.1% yoy. On the other hand, city fringe and suburban office spaces were more resilient given their lower rental levels and demand from displaced tenants due to office redevelopments in the CBD such as AXA Towers and Fuji Xerox Tower. Outgoing Fuji Xerox tenants, Prudential Assurance and Fuji Xerox will be relocating out of the CBD to the city fringe at UE Bizhub West and Mapletree Business City respectively. For the whole of 2020, City fringe and suburban office rents fell by 3.2% and 1.9% respectively.
Demand Drivers to Shift
Office vacancy rates could rise further as firms remain cautious and right-size their workspace requirements amid the uncertain business environment. For example, Mizuho Financial Group is looking to cut about 16% of space, and Sompo Insurance reduced its office space by 50%. With a slowdown in business expansion, office leasing activity in 2020 was driven largely by renewals and relocations. A notable case reported this quarter was CIMB Bank’s relocation to 30 Raffles Place, where its lease is expected to begin in early 2022.
Moving forward, we expect technology and investment firms will continue to expand and steer demand in view of Singapore’s status as a gateway city to Southeast Asia and ongoing concerns over the future of rival financial hub, Hong Kong. Amazon will take up three floors relinquished by Citigroup in Asia Square Tower 1, Alibaba and Lazada are in advanced negotiations to occupy about 135,000 sf of space at 5One Central. Also, Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, is opening a family office in Singapore to run his investments across the region, while D.E. Shaw & Co, a U.S. hedge fund, has plans to expand into Singapore in 2021.
