Office rents in Grade A will be moderated as tenants become more cautious
Rent growth is expected in the Central Area to slow down in the following quarters due to an interest rate regime that will likely be higher for longer and economic uncertainty.
JLL estimates that the islandwide completion of office space will be at a seven year high by 2024. In the CBD alone, close to 1.9 million square feet of Grade A office space will be completed.
This is mainly due to two projects: IOI Central Boulevard Towers (1.33 million sq ft), and Keppel South Central (0.60 million sq ft).
JLL estimates there were still 1.1 million square feet of uncommitted space as of the 3Q2023.
URA’s headline index of office property rentals jumped sharply by 4.9% from 3Q2023, doubling the growth rate from the prior quarter, which was 2.3%.
URA’s Real Estate Statistics showed, however, that median rents declined for the first quarter in five for Category 1, office space. URA defines these buildings as being in the Core Business District which includes the Downtown Core and Orchard Planning Area. They were down 2.3% year-over-year.
Wong stated that the financial and professional service sectors remained the major demand drivers for office space within the CBD. These services made up 58% new leases during the first 9 months of 2023 compared to 26% of all 2022.
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Tricia Sing, CBRE’s head of Singapore and Southeast Asia research, says more diversified demand has made up for slack from the slowdown seen in the tech sector.
Private wealth, consumer goods and asset management were among the most active industries in 3Q2023.
Occupancy rates have increased from 89.2% at the end of 2Q2023, to 90% by 3Q2023. This is due to tighter market conditions, resulting from project redevelopments.
URA data indicates that about 0.45 million square feet was removed in 3Q2023, and this could be attributed the redevelopments of Faber House Central Square and Central Mall.
In 3Q2023, median rents for Category 2 (which URA defines is all other office spaces outside of category 1) fell for the very first time in 8 quarters. They were down 4.5% from one quarter to another.
JLL found that CBD Grade-A rents fell in the 3Q2023, putting an end to nine consecutive quarters of growth. JLL tracked the average gross-effective rents of CBD Grade A office space in 3Q2023, and they fell 0.3% on a quarterly basis to $11.29 PSF per month (pm), down from $11.32 PSF pm in 2Q2023.
Wong Xian Yang is the Cushman & Wakefield research head for Singapore and Southeast Asia. He says that the Downtown Core accounted for the majority of the net office demand in 3Q2023.
This was the largest qoq increase in net demand that Cushman & Wakefield has seen since 1Q2020.
In the Central Region during 3Q2023, the number of office strata transactions was only 57, the lowest level since the 3Q2020 period, when there had only been 47 transactions.
CBRE Research projects that the Grade-A office rental rates in the Core CBD are expected to increase by between 1.5% and 2.5% for the entire year.
The growth is higher than the projected GDP, but lower than the 8.3% growth rate in 2022.