Office Rent Growth in Singapore’s Prime Districts Slowed to 0.5% in Q1

Premium and Grade A office rents in Singapore’s core CBD rose 0.5 percent in the first quarter of 2023 compared with the prior three months, slowing slightly from the pace of the previous quarter’s 0.6 percent gain, according to Colliers.

Rents averaged S$11.46 (now $8.64) per square foot in the January-March period, the consultancy said in its Singapore Office Market Report released Tuesday. Although the overhang of hybrid working on office demand has subsided, the agency expects rental growth to continue to decelerate as demand weakens with slower global economic growth.

The uncertain environment has made tenants more cautious and extended their decision-making process, said Bastiaan van Beijsterveldt, managing director for Singapore at Colliers.

“However, this might actually turn out to be an opportune time to plan their real estate needs in advance, by taking advantage of a softening market and the availability of quality spaces,” van Beijsterveldt said in a release.

Tech Sector Right-Sizes

The vacancy rate for premium and Grade A offices in the core CBD climbed to 2.9 percent from 2.3 percent in the fourth quarter of 2022, as tenants gave back 113,000 square feet (10,498 square metres) more than they took up during the first three months of this year.

Vacancy in the top-tier Raffles Place/New Downtown precinct stood at 4.1 percent, up from 3.8 percent one year earlier. In Shenton Way/Tanjong Pagar, empty space reached 5 percent — more than doubling from 2.3 percent in the same quarter of 2022.

Redundancies, especially in the tech sector, have led to some tenants right-sizing and consolidating space, Colliers said. The push for efficiency and flight to quality have also driven relocations to new builds.

The only source of new prime office supply in the core CBD during the months ahead is Malaysian builder IOI Properties Group’s IOI Central Boulevard Towers, scheduled for completion by the end of 2023. Tech giant Amazon reportedly has agreed to occupy 369,000 square feet of office space at the Marina Bay complex.

Capital Market Flat

Capital values in the core CBD’s premium and Grade A segment remained flat at S$3,050 per square foot during the first quarter in the absence of big-ticket transactions. Net yields edged up to 3.53 percent as rental growth outpaced that of capital values.

“Confronted with a new reality of higher rates for longer, negative yield spreads and repricing pressures for the office sector appear to be on the cards,” said Catherine He, head of research for Singapore at Colliers. “However, office transactions in the next few quarters will likely be dominated by strata offices, where the price quantum is more manageable, and which attracts mainly private wealth typically not affected by higher borrowing costs.”

Grade A office capital values in the Lion City are likely to be less impacted, He said, since they remain well-supported by the strong holding power of institutional landlords, tight occupancy, rental growth and keen investor interest fuelled by Singapore’s safe-haven status.