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Q3 office rents near 14-year high; landlord’s market to extend into 2023: consultants

DESPITE global economic headwinds, Singapore’s office rents in the third quarter have exceeded the pre-pandemic peak to reach a near 14-year high, with expectations of continued strength next year.

According to JLL, Central Business District (CBD) Grade A office rents reached S$11.06 per sq ft (psf) per month in Q3, taking just 18 months to recover the grounds lost due to the Covid-19 pandemic.

The real estate consultancy’s research showed that the gross effective rent for CBD Grade A office space rose 2.9 per cent quarter-on-quarter (q-o-q) in Q3, from S$10.74 psf per month in Q2. This surpasses the pre-pandemic peak of S$10.81 psf per month recorded in Q4 2019, and is the highest since the S$12.55 posted in Q4 2008.

“The office leasing market has withstood the pressure of external economic headwinds better than expected,” said Tay Huey Ying, JLL Singapore’s head of research and consultancy. “Net absorption of Grade A CBD office space stayed elevated, coming in just marginally below the 17-quarter high recorded 3 months ago, and way above new supply from the completion of Hub Synergy Point.”

While there is some growing caution among occupiers in light of global economic headwinds, Andrew Tangye, JLL’s head of office leasing and advisory, says the office leasing market is still riding on the tailwind of the economy’s reopening.

“The market activity of the past 9 months proves beyond doubt that corporates regard physical office as a critical component of the work ecosystem, be it hybrid or not,” he said.

He added that the dispersed workforce arising from hybrid work has elevated the importance of physical offices as the anchor for building corporate values, instilling a sense of belonging in employees and stimulating cross-team collaboration.

Meanwhile, Knight Frank’s (KF) analysis of its own basket of office properties shows that prime grade office rents in the Raffles Place/Marina Bay precinct increased 1.4 per cent q-o-q in Q3, averaging S$10.51 psf per month, with rental growth rising by a cumulative 5.3 per cent year-on-year since rents bottomed out in Q3 2021.

“Occupancy levels in the Raffles Place/Marina Bay precinct remained healthy at 95.4 per cent, with the overall CBD occupancy maintaining at 93.6 per cent during the quarter,” said Calvin Yeo, managing director, occupier strategy and solutions at KF.

“Many businesses are bringing employees back to the office as functions resume to pre-pandemic levels and as companies expand headcount in the second half of the year to meet the operational needs of a normalising economy.”

Average office rentals by key precincts in Q3 2022

LocationGross effective monthly rents
(S$ psf pm)
Q-O-Q change (%)Vacancy (%)Q-O-Q change (% points)
Raffles Place / Marina Bay (Grade A+)11.45 – 11.95▲
Raffles Place / Marina Bay (Grade A)9.40 – 9.90▲ 1.28.6▲ 0.2
Marina (Grade A)9.30 – 9.80▲ 1.34.2▲ 0.1
Shenton Way / Robinson Road / Tanjong Pagar (Grade A)9.25 – 9.75▲ 1.78.4▲ 3.0
Beach Road / Middle Road (Grade A)8.90 – 9.40▲ 1.34.7▲ 1.2
Orchard (Grade A)8.15 – 8.65▲ 1.24.5▼ -2.1
City Fringe North – Novena / Newton6.95 – 7.45▲ 1.42.3▼ -0.3
City Fringe West – Alexandra / Harbourfront6.60 – 7.10▲ 2.22.8▼ -0.3
City Fringe East – Paya Lebar6.50 – 7.00▲
Suburban West5.30 – 5.80▲ 1.39.6▲ 0.9
Suburban East4.55 – 5.05▲

Demand drivers include business service firms in the Asia-Pacific region relocating their headquarters here due to geopolitical tensions, technology startups from South-east Asian countries such as Indonesia, private equity companies and family offices drawn by Singapore’s sophisticated financial infrastructure and political stability, and co-working spaces.

Given that total employment reached 99.5 per cent of pre-pandemic levels in Q2, with retrenchments at a record low, plus expected further expansions in business headcounts and the new S$400 million grant to grow local financial services talent, any reduction in office space requirements due to remote working in the medium to long term will be offset and outpaced, said KF.

It maintains its forecast of a 3-5 per cent growth in rents for 2022, with the sector increasingly becoming a landlord’s market going into 2023.

Over at JLL, the consultancy believes Grade A CBD rents could close with a full-year growth of around 10 per cent, accelerating from the 4.3 per cent clocked in 2021.

“The downcast skies could weigh down demand for office space in 2023 and soften rent growth to within 5 per cent,” said JLL’s Tay.

This takes into consideration the expected intense competition for tenants to backfill space vacated by occupiers upgrading to new projects – such as Guoco Midtown scheduled for completion by the end of 2022 and IOI Central Boulevard Towers in 2023, she added.

“We remain upbeat that CBD Grade A rental growth momentum is poised for another strong rebound once the global economic headwind recedes, in light of limited new supply after 2023.”

By Corrine Kerk, Business Times

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