Singapore office rents, prices to see further upward momentum: analysts

Lam Chern Woon, Edmund Tie’s head of research and consulting, is optimistic on the rental outlook amid growing demand and tight supply. The prime segment could outperform with rental growth of 3 to 5 per cent, he said.

The Urban Redevelopment Authority’s (URA) data released on Friday (Apr 22) showed that the rental index for offices in the central region rose 1.6 per cent quarter on quarter this Q1, speeding up from the 0.9 per cent uptick in Q4 last year.

Wong Xian Yang, head of research for Singapore at Cushman & Wakefield, highlighted that the increase was led by fringe-area office rents, which grew 6.1 per cent, while those in the central area dipped 0.9 per cent.

“The fall in central-area office rents could be driven by older office stock that saw lower demand as hybrid work gained traction and the flight to quality continued,” he said. Net demand for Downtown Core offices remained negative at -183,000 square feet (sq ft), marking the sixth straight quarter of negative net demand, he added.

“Nonetheless, the level of negative net demand is considerably lower than the first half of 2021, when net demand had gone below -300,000 sq ft in each of the quarters then.”

Catherine He, head of research for Colliers in Singapore, said that as occupiers become more selective and focused on providing the right type of work environment – with a heightened emphasis on sustainability, wellness and talent attraction – high-quality spaces with updated specifications, such as those in the CBD premium and Grade A segment, will likely be the main beneficiaries.

With higher CBD rents, she also expects the market recovery to spill over to city-fringe and Grade B offices.

URA data showed that median rents at Category 1 buildings – covering the better-quality properties in the city area and a proxy for prime CBD offices – moved up by 1.6 per cent to S$10.25 per square foot (psf) per month, quicker than the 0.6 per cent growth in Q4 2021. CBRE’s Song said this was supported by limited supply and led demand to spill over to other submarkets.

Further signs of a broad-based recovery were observed in the Category 2 segment, where median rents increased by 3.9 per cent to S$5.32 psf per month, outpacing the 0.4 per cent rise in the previous quarter.

As at the end of March 2022, there was a total supply of about 834,000 square metres (sq m) in gross floor area of office space in the pipeline islandwide. That is about 6.1 per cent more than the 786,000 sq m of pipeline supply as at the end of 2021.

Colliers’ He pointed out that new CBD office supply remains tight, with Guoco Midtown set to be the only major completion there this year, while ageing office stock is expected to be taken off the market to be redeveloped under the URA rejuvenation schemes.

URA’s price index for office space in the central region climbed 4.4 per cent in Q1 this year, reversing from the 1.8 per cent drop in the previous quarter.

Leonard Tay, head of research at Knight Frank Singapore, described the turnaround in prices as “quite dramatic”. He noted demand for strata office space from private wealth and family offices as well as small and medium-sized enterprises looking to right-size space requirements in the technologically enhanced post-pandemic era.

“As such, demand for strata office units can be expected to grow in 2022 given the lack of new strata office supply in the medium term, some spillover investor interest from the private residential market as a result of the Dec 16 cooling measures, and the recent restriction on strata subdivision in certain corridors of the CBD,” Tay said.

Lam said the steeper rise in office prices, as compared to rents, reflected continued strong investor interest, even amid the nascent stages of rental recovery. “While a firmer rental growth is undoubtedly priced in, the weight of capital chasing quality office assets in our transparent and business-friendly environment has also led to the outpacing of capital values,” he added.

Islandwide, the vacancy rate remained at 12.8 per cent at the end of March this year, unchanged from December.

This came as net demand, as measured by the change in occupied space, as well as the stock of office space both fell quarter on quarter.

The amount of occupied office space shrank by 13,000 sq m, a bigger decrease than the 10,000 sq m drop in Q4 last year.

Total islandwide office stock fell by 17,000 sq m in Q1 this year, compared with the decrease of 23,000 sq m in the previous quarter.

Song said that the latest decline came mainly from the removal of stock in the Downtown Core (5,959 sq m), Rochor (3,656 sq m) and Yishun (3,738 sq m).

In her view, leasing activity in the CBD remains the focus of interest, while activity levels in the fringe and decentralised areas are picking up.

“Although non-banking financial sector and tech companies remain the main demand drivers, manufacturing and distribution sectors from pharmaceutical and FMCG (fast-moving consumer goods) companies also contributed to leasing activity in Q1 2022,” Song said.