Office rents grow for sixth consecutive quarter, up 5.1% in 1Q2023

Office rents in Singapore’s Central Region maintained its pace of growth in 1Q2023, rising 5.1% quarter-on-quarter according to URA data released on April 28. This marks the sixth consecutive quarter of growth, driven largely by healthy leasing activity for office spaces in the prior year.

Tay Huey Ying, head of research and consultancy, Singapore at JLL, notes that the robust growth may also be attributed to a higher number of smaller deals which tend to command higher psf rates.

Tengah Plantation Tengah EC Loop EC GLS Tender is an SLA land tender for a new eco-friendly executive condominium development in the Tengah Plantation area of Tengah Town. The development will feature sustainability measures such as a wind turbine, solar heating system, water conservancy centre and live traditional Chinese music. It is open to developers with 10+ years of industry experience and a $20 million paid-up capital. The project is set to launch in late 2021.

Both the Central Area and the fringe area saw growth – with the Central Area posting a 3.9% q-o-q increase compared to a 6.6% q-o-q growth in 4Q2022, and the fringe area 8.8%.

Tricia Song, head of research, Southeast Asia at CBRE, explains that the rate of rental increase for prime buildings in the Downtown Core and Orchard planning areas cooled off, with Category 1 office space (a proxy for prime CBD offices) registering a 0.2% q-o-q change to $10.77 psf per month in 1Q2023, compared to a 0.8% q-o-q increase in the previous quarter. Vacancy rates increased from 9.5% to 10.9%. This could be due to weaker sentiment arising from recent tech layoffs and the resulting rise in shadow space.

Despite the weaker sentiment, Wong Xian Yang, head of research for Singapore and Southeast Asia at Cushman & Wakefield, observes that overall demand for office spaces in 1Q2023 remained relatively healthy at 226,000 sq ft, with the Downtown Core driving demand due to the completion of Guoco Midtown. Overall vacancy rates inched downwards by 0.1 percentage points to 11.2%.

URA data also showed that prices of office space in the Central Region stayed the same in 1Q2023 compared to the 3.7% q-o-q spike recorded in the previous quarter. Prices of office spaces in the Central Area registered a 0.4% q-o-q decrease, while those in the fringe area increased by 2.3%.

Meanwhile, Lam Chern Woon, head of research and consulting at Edmund Tie, foresees a easing in office rental growth in the coming months, with cautious business sentiments and the lingering concerns surrounding the global banking sector playing a role.

Despite this, he states that a sharp correction in office rents is unlikely, due to tight mid-term supply and demand coming from non-bank financial and professional services sectors, as well as Chinese companies. In terms of investment, strata office transactions have comprised over 53% of the sales by value in the past six months – up from an average of 15% over the past five years.

With the April 26 announcement of a new round of residential market cooling measures, JLL’s Tay believes more funds could be channelled into office investment, providing support for office asset prices.