Singapore Office Rents Expected to Rise By Up to 5% in 2022

Office rents in Singapore’s central region are predicted to jump by 3 to 5 percent this year on tight supply, improved leasing sentiment and a bigger portion of the workforce returning to the office, according to analysts at Knight Frank and Edmund Tie.

With more employees returning to the traditional workplace as the pandemic abates, analysts say rents may have reached the bottom already and a sustained recovery is underway this year amid rising demand for quality spaces, especially from tech firms.

“With rents having bottomed out and on track to improve further in 2022, corporates have shifted from a wait-and-see stance to actively rationalising their space requirements,” said Leonard Tay, head of research for Knight Frank Singapore. “Fintech and technology players as well as international professional services will continue to fill good quality spaces in the CBD.”

Trend Reverses

The office rental index in the central region inched up 0.9 percent in the October-December period, reversing the 3.5 percent contraction recorded in the preceding three months, according to the latest statistics released by the Urban Redevelopment Authority last Friday. The reversal gave the leasing index a gain of 1.9 percent for all of 2021 after the deep, pandemic-induced 8.5 percent slump in 2020.

This year’s expected rent increase is supported by demand from tenants relocated from older office buildings undergoing redevelopment, with a relatively tight supply pipeline for 2022, said Lam Chern Woon, head of research and consulting at Edmund Tie.

“Additionally, sectors such as technology, financial services and healthcare-related industries continue to experience robust growth and will be the key sectors driving demand,” Lam said.

Office rents in Southeast Asia’s wealthiest nation will continue rising for the next three years as strong demand and limited new supply persist, said Tricia Song, regional research head at CBRE.

The global property consultancy forecasts 1.2 million square feet (111,484 square metres) of new office stock to enter the Singapore market this year. One of the most-awaited launches is the Guoco Midtown mixed development by local developer GuocoLand in the central business district, with over 700,000 square feet of new office space to be leased out.

Supply Constraints

Overall office vacancy across the country eased to 12.8 percent at the end of 2021 from 12.9 percent in the first nine months, according to the same URA statistics.

The change was largely due to reduced stock of available office space, which fell by 23,000 square metres in net lettable area to 8.17 million square metres, while occupied office space continued to drop by 10,000 square metres to 7.12 million square metres towards the end of the year.

Greater office take-up was seen mainly in premium areas Downtown Core and Orchard Planning Area, where vacancy fell by four percentage points to 12 percent in the fourth quarter, snapping the four straight periods of increase that started at the height of the pandemic.

At the end of 2021, the URA reported that 786,000 square metres of office space by gross floor area was in the pipeline, up 4.1 percent from 755,000 square metres lined up at the end of September. Of the total, 60 percent or 469,000 square metres of GFA is under construction and the remaining 317,000 square metres is planned for development.

Just 78,000 square metres of new office space is scheduled to be completed this year, a constrained supply amid anticipated rising demand.

There is also the “fight to quality” trend among occupiers that landlords have to accommodate, forcing them to reconfigure a portion of these offices to allow for more collaborative and flexible design approaches which occupiers are hoping can help them gain an edge in the city’s increasingly competitive hiring market, Knight Frank’s Tay said.

Retail Ready for Rebound

The return of employees to the workplace also bodes well for the retail segment as the economy reopens, barring a further surge in coronavirus infections, the analyst said.

URA data showed that the rental index for retail space rebounded by 0.6 percent in the fourth quarter after a 2.7 percent contraction in the previous three months.

Despite the uptick, the retail rent indicator still posted a 6.8 percent decline for all of 2021 — softer compared with 2020’s 14.7 percent drop, but still far from pre-pandemic levels.

“With prime retail rents in suburban malls already showing signs of bottoming out, retail locations in Orchard and the CBD could follow suit as cross-border travel progressively increases throughout 2022,” Tay said. “There is every chance that retail rents island-wide will turn positive in the process of rebound, growing between 2 and 4 percent for the whole of the year.”