Singapore Named As World’s 6th Most Expensive Office Market
SINGAPORE – A study by real estate consultancy Savills revealed that the city-state is the 6th priciest office rental market in the world, reported Singapore Business Review (SBR) on Monday morning (20 March, SGT).
According to the Savills Prime Office Costs (SPOC) analysis, overall office cost in Singapore edged up by 1 percent quarter-on-quarter to S$193.42 (US$142.73) psf per year in Q4 2022.
“The cost of fit-out at S$180 per square foot is amortised over the period of the lease and this adds to the overall all-in cost to occupier of US$142.73 (S$193.42) psf per annum,” explained the property consultancy, adding that the rate is inclusive of taxes and service charges paid by the office landlord.
Notably, the overall office tenant cost in Singapore exceeds that in Beijing, Shanghai, New Delhi, San Francisco and Dubai.
On the other hand, West End in London was named by Savills as the world’s priciest office market, followed by Hong Kong, New York, Tokyo, and London City.
Meanwhile, in a recent report by The Edge, RHB Group Research analyst Vijay Natarajan said he expects Singapore-listed real estate investment trusts (S-REITs) with office and retail properties to see some fluctuation in their occupancy rates in FY2023 due to declining demand. Nonetheless, these asset classes remain well supported by their limited supply.
“Unsurprisingly, Singapore asset values have held steady with slight increases in hospitality, office, and logistics assets. On the other hand, overseas portfolios [especially the office market] have seen a drop in value.”
In particular, Natarajan thinks that S-REITs with office and hotel assets would likely record the largest fall in distribution per unit (DPU) in FY2023 because of their relatively higher leverage and bigger percentage of debt due for refinancing this year. While S-REITs that own overseas commercial properties are trading at distressed valuations, he thinks that they could see a sharp recovery once the dust settles.
“We expect investors to stick to a defensive posture amid increased volatility, while industrial and healthcare REITs continue their outperformance. Overseas, office and retail S-REITs could potentially make a comeback in the second half of the year, upon normalisation of interest rates and a clearer view on the economic outlook,” he noted.
“Looking ahead, we expect a modest cap rate expansion (5 to 25 basis points) and do not expect any significant drop in [Singapore] asset values,” added Natarajan.