Investors may have the appetite to grow their office portfolio, but there is a limited supply of good quality investible real estate.
What is the future of investing in the office market in Singapore? Are locations outside of the Central Business District (CBD) good investment options?
In the second part of the Investment outlook for our Real Estate Talk series, Capital Markets and Investment Services experts Pearl Lok (PL) and Jerome Wright (JW) explore investment opportunities for the office asset class in 2021.
PL: Looking at the past 12-18 months, would you say there is an imbalance in supply and demand of office space in CBD? How does this impact rents in short to mid-term?
JW: We have seen a marked increase in redevelopment due to URA Incentive Schemes directly translating to 1.5 million sq ft of occupiers displaced. The delayed completion of some major office developments has also pushed out the new supply to 2023 and beyond.
"Short term rental market is likely to remain subdued in the next 6-9 months, but we can expect growth in the latter part of 2021."
While there are some great talks about the evolution of the workplace, Singapore’s Central Business District (CBD) occupancy is still very high with 93%, and many global technology players continue to enter the Singapore market and establish their headquarters.
Short term rental market is likely to remain subdued in the next 6-9 months, but we can expect growth in the latter part of 2021.
Related content: The Future of CBD Office | Colliers Flash report
Global technology players such as Tencent Holdings are establishing their regional headquarters in Singapore, boosting the growth of the technology occupier sector here
PL: How about the offices in the fringe CBD or suburban locations? Do you see if there are any opportunities for investors in 2021 and beyond?
JW: With an improving market sentiment in the last few months, many investors we speak to have the appetite to grow their portfolio in Singapore. However, the main challenge is a limited supply of good quality investible fringe offices.
As a result, many investors have broadened their search to include high-specifications – or commonly known as high-specs – business space. The quality of high specs buildings is very comparable to the grade A offices providing occupiers with suitable non-CBD alternatives.
Given the growth of the technology sector and the ability of its occupiers to work in the fringe offices/business spaces, we can expect strong growth in the non-CBD locations.
"Investors have broadened their search to include high specs business space… They are very comparable to Grade A offices providing occupiers with suitable non-CBD alternatives."
PL: If an investor has a budget of up to $300 million, which type of properties would you recommend him to consider acquiring in 2021, and why?
JW: If I had S$300 million of your money to invest, I would invest in a good quality, well-located – ideally even next to an MRT station – commercial office or high-specs building with good occupancy. It should have a strong anchor tenant that would provide me with core and/or value-add opportunities.
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