Singapore Office Rents May See Downward Pressure From Q3
SINGAPORE – Property consultancies revealed that rents of Grade A office space in the city-state’s central business district (CBD) could inch downwards from the second half of the year, according to a recent report from The Business Times.
Jones Lang LaSalle (JLL) said the reason for this is that near-term demand could fall short of office stock. The real estate consultancy’s Research Head for Singapore Tay Huey Ying disclosed that rents of prime office space flattened in Q2 and mostly stayed where they were in the first quarter. However, owners of office properties with significant shadow space have begun caving in to the pressure by slashing office rents to increase their occupancy rates in Q2.
Moreover, CBRE’s Research Head for Southeast Asia Tricia Song noted that particular office tenants, like those from the tech, cryptocurrency, and consumer banking sectors “continue to face challenging business conditions”. Consequently, these occupants could be mulling to reduce their office footprint, “potentially contributing to more shadow space in the second half of the year”.
Shadow office space refers to the excess workspace under an existing lease that an occupant would like to surrender by finding a replacement tenant, rather than ending the lease and incurring penalties. While not technically deemed as current vacant office space, shadow space can lead to future vacancy.
Also, shadow office space levels have started to edge up. Savills estimated that about 660,000 sq ft or 2.1 percent of the Grade A workspace it tracks in the Downtown Core consisted of shadow office space in the first quarter. A separate report from Cushman & Wakefield (C&W) issued earlier this month estimated that shadow office space accounted for around 1 percent of the overall office stock, with roughly two-thirds of shadow office space entering the market in Q1 hailing from the tech industry.
Nonetheless, the office supply in Singapore’s CBD is forecasted to remain tight, with present office vacancy standing at about 4.4 percent to 4.5 percent.
JLL’s Tay forecasted that prime Grade A office rents would “enter into a correction mode in the final six months of 2023, given that near-term demand will likely fall short of supply”. Moreover, she shared that more than 1 million sq ft of additional will be added to the CBD office stock over the next few months from IOI Central Boulevard Towers.
“While approximately 50 percent of this space has already been pre-committed or is currently undergoing advanced negotiations, there remains a substantial amount of over half a million sq ft of space waiting to be taken up.”
Meanwhile, CBRE thinks that rents of Grade A office space in the core CBD would stay flat for the rest of the year amidst cautious sentiment due to the high-interest-rate environment and weaker economic growth, on top of the shadow office space competing with new office supply.
Nonetheless, CBD Grade A office rents in Singapore are still primed for growth in the longer term. JLL agrees, expecting a potential for a recovery next year on the back of a brighter economic outlook.