Grade-A office rents to moderate as occupiers turn cautious

URA’s office property rental index recorded a sharp jump of 4.9% q-o-q in 3Q2023 – double the 2.3% q-o-q growth in the preceding quarter. This is likely attributed to leasing deals concluded some time back when occupier demand was still robust, according to Tay Huey Ying, JLL head of research and consultancy, Singapore.

However, URA’s real estate statistics showed the opposite. Median rents for Category 1 office space dropped 2.3% q-o-q in 3Q2023 – the first time in five quarters. Category 2 office space saw an even sharper fall of 4.5% q-o-q, also the first time in eight quarters.

JLL affirms this decline in CBD Grade-A office rents. Its data showed that gross effective rents for this office space fell 0.3% q-o-q to $11.29 psf per month (pm) in 3Q2023. According to Tay, tenants have taken advantage of this soft market to negotiate for more favourable rental terms.

Meanwhile, the Downtown Core saw 398,264 sq ft of net office demand in 3Q2023, according to Cushman & Wakefield head of research for Singapore and Southeast Asia, Wong Xian Yang. This is the strongest q-o-q growth since 1Q2020.

Financial and professional services remains the strongest demand driver for office space in the CBD, making up 58% of new leases in the first nine months of 2023. This suggests that Singapore is still attractive to investors and companies within these industries.

Apart from this, private wealth, asset management and consumer goods sectors were some of the more active sectors in 3Q2023. This, along with the tighter market conditions arising from project redevelopments, has helped prop up occupancies to 90% – up from 89.2% in 2Q2023.

In 2024, islandwide office completion will hit a seven-year high, with about 1.9 million sq ft of Grade-A office space scheduled for completion in the CBD. This is expected to put downward pressure on rents in the coming quarters, and further increase with the emergence of secondary stock in the Central Region.

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Central Region office prices rose by 0.8% q-o-q in 3Q2023. However, overall office transaction volume remained subdued owing to the high interest rates. CBRE Research forecasts Grade-A office rents in the Core CBD to grow by 1.5% to 2% for the whole year.

Overall, the Singapore office market was driven by the technology sector in 3Q2023, but is now being supplemented by other sectors as the market turns soft. With expected higher-for-longer interest rates and global economic uncertainties, care and caution can be expected from occupiers moving forward.