Singapore Central Business District Office Rent Growth Slowed to 1% in Q1

Grade A office rents in Singapore’s central business district rose 1 percent in the first quarter of 2023 compared with the previous three months as growth slowed for the second quarter in a row, according to JLL.

Gross effective rent in the January-March quarter averaged S$11.30 (now $8.50) per square foot per month, up from S$11.19 in the fourth quarter of 2022, the property consultancy said Tuesday in a release. The mild increase represented an easing from the fourth quarter’s 1.2 percent rise, which itself had marked the first slowdown after five straight quarters of growth acceleration.

Andrew Tangye, head of office leasing and advisory at JLL Singapore, said macroeconomic uncertainties have dampened demand for office space, with large users pressing the pause button on expansion and relocation plans.

“As such, leasing activity in 1Q23 was driven mainly by small-to-medium-sized space occupiers with immediate requirements such as new market entrants and those looking to accommodate new workplace design or increased hirings that took place in 2022,” Tangye said.

New Spaces Find Takers

Occupiers leasing space during the first quarter included German insurer Munich Re, which took up two floors for a new office at Cross Street Exchange, the commercial complex near Raffles Place acquired last year by Hong Kong’s PAG from Frasers Logistics & Commercial Trust.

UK-based wine merchant Corney & Barrow also recently relocated to a new office at Hub Synergy Point in Tanjong Pagar. The office tower at the corner of Anson Road and Enggor Street was developed by a member of Keck Seng Group’s Ho family and completed last year, with US chemical firm Celanese leasing a single floor as the property’s first tenant.

Elsewhere in the CBD, GuocoLand’s Guoco Midtown on Beach Road received its temporary occupation permit in January 2023 and has secured tenants for about 80 percent of its space, JLL said. At IOI Properties’ Central Boulevard Towers in Marina Bay, due for completion in the third quarter, the agency estimates that close to 45 percent of the space is pre-committed or under advanced negotiation.

The two properties are set to add a combined 2 million square feet (185,806 square metres) of net lettable area to Singapore’s downtown. Occupiers committing to spaces or in active talks at the buildings include companies in the financial services, technology, media and professional services industries, according to JLL.

“While we expect leasing activity for recently or soon-to-be completed projects such as Guoco Midtown and IOI Central Boulevard Towers to maintain good traction on the back of the limited availability of new and quality office space in the CBD, backfilling of spaces vacated by relocating occupiers could take a little longer given the subdued sentiment,” said Tay Huey Ying, head of research and consultancy at JLL Singapore. “This will likely keep rent growth modest, if at all, in the rest of 2023.”

Tech Slump Shadows Market

In a separate report on the Singapore office market, CBRE said muted demand from tech tenants is being offset by leasing activity from professional services, fast-moving consumer goods and state agencies as those sectors continue to add staff.

The agency expects the amount of shadow space — meaning leased but unused — to remain elevated as tech firms focus on cost containment. The tech sector alone accounts for roughly 80 percent of the market’s shadow space, up from 64 percent in last year’s fourth quarter.

With cost-cutting exercises by tech firms unlikely to ease soon, the amount of shadow space could potentially increase further in the coming quarters.

“The emergence of such space presents opportunities for occupiers seeking to upgrade, as quality office space has historically been tightly held,” said David McKellar, co-head of office services for Singapore at CBRE. “Tenants who are inclined to reduce their footprint to suit a hybrid workplace model can take this chance to upgrade to smaller but higher-quality premises.”