CBD Grade-A office vacancy rate at 4.6% in 2Q2021, highest since 1Q2018: C&W
The CBD Grade-A office vacancy rates increased to 4.6% in 2Q2021, from 4.2% in the previous quarter, according to an office market report by Cushman & Wakefield (C&W). It is the highest vacancy rate for this office segment since 1Q2018, when it was 4.9%.
This comes as net supply of CBD Grade-A office space outpaces net demand. In 1H2021, net demand was 68,000 sq ft, a stark contrast to the 223,000 sq ft fall in demand recorded in 2H2020. Demand stemmed from technology and finance tenants who accounted for most new office leases signed last quarter.
Banking tenants continued to rightsize, and much of the vacated space had been taken up or pre-committed to technology and finance occupiers. These firms leveraged the lower rents because of the pandemic to position themselves for future expansion, says C&W.
On the other hand, net supply was 359,000 sq ft in 1H2021. This is attributed to the completion of the Afro-Asia Building and the addition of Lazada One (formerly 5One Central) to the CBD Grade-A office market.
C&W expects net demand to remain positive for the rest of the year. “While the overall CBD Grade-A office net demand has turned positive, it remains relatively weak,” cautions Wong Xian Yang, head of research, Singapore, at C&W.
CBD Grade-A office rental growth turned the corner in 2Q2021 after five consecutive quarters of decline. Rents grew 0.5% q-o-q to reach $9.60 psf per month; for 1H2021, Grade-A CBD rents were up by 0.2% year-to-date. C&W expects office rents to climb further over 2H2021 on the back of a strong economic rebound, a successful vaccination rollout, and limited supply of new Grade-A office space in the CBD going forward.
“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,” says Mark Lampard, head of commercial leasing, Singapore, at C&W.