OFFICE rents in Singapore’s central region continued rising in the first quarter of this year, as pipeline supply shrank, data released by the Urban Redevelopment Authority (URA) indicated.
Rents for office space rose 5.1 per cent in the first quarter of 2023 over Q4 2022, URA said on Friday (Apr 28). This was the same percentage increase in the period from Q3 2022 to Q4 2022.
Despite overall resilience in the office rental market, analysts saw demand moderating for prime offices in the Downtown Core and Orchard areas.
Office rents in the central area rose by 3.9 per cent in Q1, compared with the 6.6 per cent increase in the previous quarter, said Edmund Tie’s head of research and consulting Lam Chern Woon.
Tricia Song, CBRE’s head of research for South-east Asia, said the slower rental growth in prime Central Business District (CBD) office space could be due to weaker sentiment arising from recent tech layoffs and the resulting significant increase in shadow space.
Shadow space refers to excess space on an existing lease obligation that a tenant would like to give up by finding a replacement tenant for the landlord.
Song noted that median rentals for prime CBD space inched up by 0.2 per cent in Q1 2023 to S$10.77 per square foot per month, moderating from growth of 0.8 per cent quarter-on-quarter in Q4 of 2022. In addition, vacancy rates for prime buildings rose from 9.5 per cent in Q4 2022 to 10.9 per cent in Q1 2023.
Meanwhile, in the fringe area, rents rose were up 8.8 per cent, a reversal from the 4 per cent fall in Q4 last year, said Lam.
Wong Xian Yang, research head at Cushman & Wakefield, said: “Given an uncertain economic outlook alongside tightened financing conditions, some cost-conscious tenants are looking at lower cost options outside the CBD. This could have driven office rents in the fringe area higher.”
Prices of office space in the central region were flat in Q1, compared with the 3.7 per cent increase in the previous quarter.
In Q1 2023, notable strata office deals include the sale of five full strata floors at 20-storey freehold office project Solitaire on Cecil reportedly to high-net-worth individuals and family offices.
The 17th, 18th and 20th floors of the building were sold for S$162.8 million, or S$4,300 per square foot (psf) on a blended basis.
JLL head of research and consultancy Tay Huey Ying said the 20th floor in particular was sold at S$4,325 psf, a record unit price for a full floor space in a strata-titled office building in Singapore.
Islandwide, at the end of the first quarter, total supply came to about 837,000 square metres (sq m) in gross floor area (GFA) of office space in the pipeline, a 4 per cent fall from the 872,000 sq m at the end of the previous quarter.
Net demand, as measured by the amount of occupied office space, rose by 21,000 sq m in Q1, compared with the 9,000 sq m increase in the previous quarter.
The stock of office space also increased by 14,000 sq m in Q1, after contracting by 23,000 sq m in the previous quarter.
The islandwide vacancy rate of office space declined to 11.2 per cent as at end-March, from 11.3 per cent as at end-December.
Quality office space remained full, said Leonard Tay, head of research at Knight Frank Singapore, as businesses continued to relocate headquarter functions to Singapore and domestic office users moved from ageing office buildings upon lease expiry.
Looking forward, analysts expect modest office rental growth as tight supply persists and firms pursue rightsizing while business sentiment remains cautious.
JLL’s Tay said: “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… backfilling of spaces vacated by relocating occupiers could take a little longer given the subdued sentiment.”
While the volume of shadow space available has yet to impact rents, “if grown more widespread, landlords with more exposure may need to consider more competitive commercial terms to compete with the availability of such spaces”, CBRE’s Song said.