Singapore Office Leasing Activity To Slow Down In 2023
SINGAPORE – Property experts have forecasted that office rental volume in the city-state would weaken next year amidst the mass retrenchment in the tech sector and a cooling global economy, reported The Business Times on Tuesday morning (27 December, SGT).
“The second half of 2022 has seen the easing of demand for office space, with economic headwinds and disappointing financial results leading to ‘belt-tightening’ and a pause in hiring,” said Ashley Swan, Executive Director for commercial leasing at Savills Singapore.
Still, he thinks that Singapore office rents will likely remain firm in 2023, but with a much smaller year-on-year increase thanks to the relatively low office stock, taking into account office towers that will be torn down for redevelopment.
Two other real estate consultancies agree with Savills’ Swan. While they have lowered their forecasts for Grade A office rents, it’s still within positive territory.
Until Q3 2022, CBRE Research had been projecting that monthly CBD Grade A office rents in Singapore would increase by 4 to 5 percent for the whole of 2023. But it recently slashed its prediction to an office rental uptick of around 1 percent.
For the whole of 2022, monthly office rents in Singapore climbed by 8.3 percent to S$11.70 psf on an annual basis.
Similarly, JLL reduced its forecast for CBD Grade A office rental growth to about 1 percent for 2023. This is lower compared to 3 prior forecasts it made for next year– 3 percent it made in Q3 2022, 4 percent in the 2nd quarter, and the 9 percent projection it said last year.
The lower revisions are “largely due to the unexpected turn in economic outlook for 2023 arising from the impact of the Russia-Ukraine war that began in early 2022, which accelerated interest rate hikes”, explained JLL’s Research Head in Singapore Tay Huey Ying.
Another factor that led to the weaker outlook for Singapore’s office sector is the lower demand for office space by the tech industry amidst recent hiring freezes and mass layoffs.
“Some players (tech firms) are gearing towards a smaller footprint in a bid to cut real estate costs,” noted CBRE’s Research Head for Southeast Tricia Song.
“The tech sector has been a large occupier of office space, generating about 40-50 percent of total gross leasing demand in Singapore over the past two years.”
Summing up this year’s situation, Cushman and Wakefield’s (C&W) Research Head in Singapore, Wong Xian Yang, said the local office market had shifted from exuberance during H1 2022 when 100 percent of workers were allowed to return to the office to caution in the 2nd half amidst interest rates hikes, high inflation, and tech firms changing their growth plans.