Singapore Grade A Office Rental Growth Moderated In Q4

SINGAPORE – The pace of office rental growth of Grade A office space in the core central business district (CBD) has slowed, with rents of such commercial properties rising by just 0.9 percent quarter-on-quarter in Q4 compared to the 2.7 percent quarterly gain seen in Q3, according to a report published by CBRE on Friday afternoon (16 December, SGT).

Nonetheless, gross effective rents of Grade A office buildings in the core CBD rose for 7 straight quarters to S$11.7 psf per month by the end of 2022. This translated to a full year rental growth of 8.3 percent, exceeding last year’s 3.8 percent. The higher office rental growth came amidst solid return-to-office demand and robust office occupancies in Singapore.

Thanks to a strong second half that was supported by the completion of Guoco Midtown, overall office net absorption in Singapore reached 1.15 million sq ft for the entirety of 2022, a far cry from the 0.32 million sq ft seen in 2021. The latest figure was also 17.9 percent higher than the 10-year average annual net absorption of 0.97 million sq ft from 2013 to 2022.

“Singapore’s office market saw a gradual return to office in 2021, and this momentum has carried forward to 2022. The full relaxation of measures since late April further motivated occupiers to take affirmative action to adjust their corporate real estate needs,” said CBRE’s Co-Head of office services in Singapore David McKellar.

“Amidst some right-sizing and consolidations across various sectors, we have seen net expansions coming from the technology, wealth management as well as the flexible workspace operators.”

However, the office sector’s sentiment has started to turn cautionary towards the end of 2022, with demand for office space beginning to slow down for the larger tenants, particularly those from the tech sector.

“With the recent mass layoffs and hiring freeze from the tech sector, some tech companies have already geared towards a smaller footprint in a bid to cut real estate costs,” noted CBRE’s Research Head for Southeast Asia Tricia Song.

“The tech sector has generated about 40 percent to 50 percent of total gross leasing demand in Singapore over the past 2 years. We expect the amount of shadow space to potentially increase to 0.7 million sq ft next year from 0.2 million sq ft in Q3 2022 given that some tech companies have offered their office space on an early surrender basis.”

In addition, the real estate consultancy reduced its rental projection for next year, with Singapore core CBD Grade A rents forecasted to edge up by around 1.0 percent year-on-year from the prior projection of between 4 percent to 5 percent.

Due to the expected weaker demand for office space next year, office vacancy levels could potentially rise as well, added CBRE.