Singapore Office Rents Flatten in Q2 as New Projects Enter the Market

Grade A office rent growth in Singapore’s central business district slowed for a third straight quarter and nearly ground to a halt in the April-to-June period of 2023, according to JLL.

Gross effective monthly rent for CBD Grade A office space inched up 0.2 percent to an average of S$11.33 ($8.36) per square foot from S$11.31 in the first quarter, the consultancy said in a release. Growth eased from 1.1 percent in the first quarter and 1.2 percent in the fourth quarter of 2022.

Andrew Tangye, head of office leasing and advisory at JLL Singapore, said leasing activity in the first half was led by enquiries that originated in 2022, keying on the resurgence of employees returning to the office, business growth after the reopening of the economy, and the relocation of regional headquarters to the city-state.

“However, the number of new leasing enquiries, particularly from large space users, has been notably scarce in 2023,” Tangye said. “Given the limited pipeline of leasing transactions and the longer business approval process, we can expect demand for office space to be subdued in the second half of 2023.”

Morgan Defies Slowdown

While many tenants remained wary and continued to renew or right-size their office premises, Tangye noted that some financially sound occupiers took a longer-term view and secured deals to upgrade to quality premises.

Morgan Stanley defied the slowing market to lease five floors at the upcoming IOI Central Boulevard Towers building in the downtown core, Mingtiandi reported earlier this month. The investment bank signed a binding pre-lease agreement with Malaysian builder IOI Properties Group to occupy just over 100,000 square feet (9,290 square metres) of floor space at the Marina Bay development.

In mid-June, advertising giant Publicis Groupe announced its leasing of 55,000 square feet of office space in GuocoLand’s Guoco Midtown project. The Paris-based parent of Leo Burnett, Saatchi & Saatchi and Zenith is moving its Singapore operation to the S$2.4 billion development on Beach Road, where it will occupy more than one floor in the 30-storey office tower and a portion of the conserved Midtown House building.

IOI Central Boulevard Towers will introduce over 1 million square feet of additional office space to the CBD inventory once the project is completed in the next few months, said Tay Huey Ying, head of research and consultancy at JLL Singapore.

“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 square feet of space waiting to be taken up,” Tay said. “Coupled with the rising amount of shadow space in the market competing for tenants in a subdued market, rents will come under downward pressure in the second half.”

Institutional Investor Retreat

In the capital market, institutional investors have largely retreated to the sidelines given the unfavourable spread between borrowing costs and office yields, with a mismatch in price expectations between buyers and sellers continuing to hamper dealmaking, JLL said.

In contrast, the investment-grade strata-titled office market has been buoyed by ultra-high-net-worth individuals and family offices, the agency said.

A local company set a new Singapore price record earlier this year with the purchase of a trio of office floors at Solitaire on Cecil, an office project under development by TE Capital and LaSalle Investment Management near the Raffles Place commercial hub. The buyer, which is said to be expanding its operations in the city-state, picked up the top level of the 20-storey tower, along with floors 17 and 18, for a combined S$162.8 million.

“The office investment sales market is anticipated to stay muted in the second half as investors will likely stay cautious given the uncertain interest rate climate and the wary leasing activity,” said Ting Lim, head of capital markets for JLL Singapore. “However, we are observing strong interest for rare freehold acquisition opportunities below the S$500 million ticket size which have recently become available in the market.”