Net demand for CBD Grade A office space turned positive in H1 2021

Xian Yang Wong • 05/07/2021
Full year 2021 office net demand expected to rebound rapidly

SINGAPORE – July 5, 2021 – Net demand for CBD Grade A office space has turned positive, at 68,000 sf in H1 2021, according to Cushman & Wakefield’s latest data. The full year forecast for office net demand is estimated to increase by up to six times that of 2020. 

“While the overall CBD Grade A office net demand has turned positive, it remains relatively weak. Nonetheless, this is a stark contrast to a contraction in demand of 223,000 sf in H2 2020,” said Wong Xian Yang, Head of Research, Singapore at Cushman & Wakefield. “However, net supply has continued to outpace net demand, at 359,000 sf, leading to a rise in vacancy rates. The increase in net supply was attributed to Afro-Asia Building and the addition of Lazada One (formerly known as 5One Central) to the CBD Grade A basket.” 

Vacancy rates have continued to climb, for the fifth consecutive quarter, with CBD Grade A vacancy rates rising to 4.6% in Q2 2021, up 0.4 percentage points from Q1 2021 of 4.2%. This is the highest vacancy rate for the CBD Grade A office market since Q1 2018 (4.9% vacancy rate). 

Amidst the K-shaped economic recovery, technology and finance tenants were the key drivers for CBD Grade A office space, accounting for the bulk of new leases signed in H1 2021. Although banking tenants have continued to right size and trim spaces, many of the vacated spaces have been taken up or pre-committed by technology and finance occupiers that have leveraged on lower rents amidst the pandemic to expand and position for the economic recovery. 

Figure 1: CBD Grade A Demand and Vacancy Trend

CBD Grade A Demand and Vacancy Trend
 Source: Cushman & Wakefield 

Other Key Office Market Highlights in H2 2021 

  • CBD Grade A rental growth turned positive in Q2 2021, after five consecutive quarters of decline. Rents grew 0.5% q-o-q to reach $9.60 psf pm in Q2 2021, suggesting a possible turnaround in rents. For H1 2021, Grade A CBD rents were up by 0.2% YTD. 
  • Rental growth was driven by prime Grade A office buildings as tenants embarked on a flight to quality. Based on Cushman & Wakefield’s basket of Grade A office properties in the CBD, prime Grade A rents rose by 1.0% q-o-q in Q2 2021, while non-prime Grade A office rents grew slightly by 0.1% q-o-q in Q2 2021. 

What’s Next – H2 2021 Outlook 
CBD Grade A office rents are poised to recover, increasing by up to 1 to 3% in H2 2021 and this will be driven by a few factors

  • Strong economic rebound: Singapore’s economic growth could exceed 6%, bringing it back to pre-COVID-19 levels
  • Ambitious vaccination rollout: Singapore is targeting to have two-thirds of its population vaccinated by early August
  • Steady demand: Fast-growing technology firms which have thrived in the new economy and financial and investment firms will continue to be attracted to Singapore’s reputation as a leading wealth management hub in Asia
  • Limited new Grade A supply in the CBD: CapitaSpring, which will contribute the bulk of new supply in H2 2021, has seen strong pre-commitments. Only Guoco Midtown in Bugis will be completed in 2022 and is undertaking pre-lease marketing with active negotiations underway.

“Market recovery will be two-tier, with prime office buildings recovering the fastest, while older buildings lag behind. Nonetheless, as prime office buildings fill up, demand will spill over to the other buildings in the CBD,” said Mark Lampard, Head of Commercial Leasing, Singapore at Cushman & Wakefield

Available traditional office space would start to decline as landlords incorporate more flexible space into their buildings to meet shifting tenant desire for more flexibility. The introduction of flex space can be via direct lease or management agreements with co-working operators, or by their own co-working brand. Co-working operators have started to expand again, as seen from the expansion of IWG at PLUS building at 20 Cecil Street, taking up around 22,000 sf. While co-working operators were a major driver of office demand pre-pandemic, there will likely be a more moderate growth trajectory going forward as they adjust their business models to adapt to pandemic risks and are favouring management agreement contracts with landlords. 

Mark added, “Historically, the rebound in CBD Grade A office rents tends to be V-shaped as available office spaces are quickly snapped up amidst an expansion in economic activity. However, the current K-shaped recovery will result in a gradual rebound in rents, influenced by a number of factors. There is structurally a lower demand for office space due to the hybrid work model with some tenants taking a watch-and-wait approach given the uncertainty around the pandemic situation. Tenants also have more options with more quality workplaces such as offices and business parks (for eligible tenants) in decentralised locations such as one-north, Alexandra or Harbourfront precincts.”


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