journo
31-10-22, 09:53
In the third quarter, office rents in Singapore's central region rose at a slower rate of 2.1%
Observers predict that rent increases will continue to slow as leasing demand begins to wane amid macroeconomic uncertainty.
Oct 28, 2022
OFFICE rents in Singapore's central region increased by 2.1 percent in the third quarter of 2022 over the previous quarter, a slower rate of increase than the 2.4 percent qoq increase in Q2 2022.
This brings the total increase in the Urban Redevelopment Authority's rental index for office space in the central region to 6.3% in the first three quarters of 2022, following a 1.9% increase in the full year of 2021.
According to some property consultants, Singapore office rental growth will slow further in the fourth quarter, with the trend continuing next year as demand begins to weaken amid an uncertain macroeconomic environment. However, one of the countervailing factors cited for rental growth is the continuation of tight supply. Furthermore, landlords have begun to pass on higher service charges to tenants as a result of inflationary pressures, resulting in higher gross effective rent figures.
Net office demand on the island increased by 258,334 sq ft of net lettable area (NLA) in Q3 2022, the same as in the previous quarter, as measured by the change in occupied space. This brings total net demand in the first nine months of 2022 to a positive 376,737 sq ft, reversing negative demand figures of 613,542 sq ft for 2021 and 850,348 sq ft in 2020. Pre-Covid, net demand for 2019 was 1.67 million square feet.
The islandwide stock of office space shrank by 21,528 sq ft of NLA in Q3 2022, a smaller drop than the previous quarter's decrease of 473,612 sq ft. The islandwide vacancy rate for office space fell to 11.7% at the end of Q3 2022, down from 12.7% at the end of Q2 2022.
Tricia Song, CBRE's head of research for South-east Asia, stated that expansions by tech firms, flexible workspace operators, and non-banking financial companies were key office demand drivers in Q3. "During the quarter, CBRE Research notes that new pre-commitments to upcoming new projects such as Guoco Midtown and IOI Central Boulevard Towers were also inked."
It was reported in July that Amazon had signed a lease for approximately 369,000 square feet at IOI Central Boulevard Towers. Pacific International Lines is said to have signed a lease for two and a half floors totaling around 60,000 square feet at Guoco Midtown.
Wong Xian Yang, Cushman & Wakefield's Singapore head of research, stated, "While we remain positive on the Singapore office market's mid to long-term outlook, demand and rental growth could slow in Q4 2022 and 2023, as tightening financing conditions and an uncertain macro outlook dampen office demand."
"Tightening financing conditions would weigh down on tech companies, a key source of office demand, as they adopt a wait-and-see stance and assess market liquidity."
Similarly, Colliers' Singapore research head, Catherine He, stated that office leasing enquiries have slowed in Q3 2022. "Geopolitical and economic headwinds, as well as higher volatility in equity markets, have led to some firms announcing a hiring freeze or layoff for the remainder of 2022." "Leasing demand is likely to be impacted as companies become more conservative in their hiring or expansion plans," she added.
On a more upbeat note, He stated that multinational corporations with strong financials will continue to be drawn to Singapore because of its macroeconomic stability and geopolitical neutrality.
The increase in office rental rates in Q3 2022 was widespread. According to URA data, the monthly median rental rate (based on contract date) for Category 1 office buildings (covering the better-quality buildings in the city area) increased 5.6 percent year on year to S$10.66 per square foot (psf) in Q3 2022, compared to a 1.6% drop in Q2 2022.
The median monthly rent for Category 2 or remaining office space in Singapore increased 3% year on year to S$5.57 psf in Q3 2022, a larger increase than the 1.7% increase in Q2 2022. "In a tight supply environment, landlords were emboldened to raise their rental expectations," said CBRE's Song.
Colliers’ He also mentioned that the ongoing withdrawal of existing stock for redevelopment (such as the Fuji Xerox Towers and AXA Tower) has exacerbated the office shortage.
Tay Huey Ying, JLL's head of research and consultancy for Singapore, stated that the tailwind from Singapore's reopening helped the office leasing market hold firm against global economic headwinds and supported another quarter of rent increase in Q3 2022, albeit at a slower pace than in the previous quarter.
Demand has continued to gravitate toward newer and higher-quality CBD developments that are better suited to accommodating evolving workplace requirements, particularly in terms of sustainability and employee health and well-being.
"However, there is growing scepticism among occupiers in light of the worsening global and domestic economic headwinds, and more are delaying expansion and relocation plans," Tay added. This could increase competition among landlords of existing office buildings for replacement tenants to fill spaces vacated by tenants relocating to newer developments, resulting in moderate rent increases in the coming months."
The gross effective average monthly rental value for JLL's CBD Grade A office basket increased by 8.1% in the first nine months of 2022 and is expected to rise by 10% for the full year. This would be a larger increase than the 4.3 percent increase for the entire year last year. Tay anticipates that rental growth will slow to less than 5% in 2023.
Lam Chern Woon, Edmund Tie's head of research and consulting, also warns about the future supply situation.
"With the recent completion of Hub Synergy Point on Anson Road and the upcoming completions of Guoco Midtown office tower along Beach Road in late-2022 and IOI Central Boulevard Towers in 2023, the increase in supply of office spaces over the next 12 months will see competition among new building owners as they look to firm up leasing deals."
Observers predict that rent increases will continue to slow as leasing demand begins to wane amid macroeconomic uncertainty.
Oct 28, 2022
OFFICE rents in Singapore's central region increased by 2.1 percent in the third quarter of 2022 over the previous quarter, a slower rate of increase than the 2.4 percent qoq increase in Q2 2022.
This brings the total increase in the Urban Redevelopment Authority's rental index for office space in the central region to 6.3% in the first three quarters of 2022, following a 1.9% increase in the full year of 2021.
According to some property consultants, Singapore office rental growth will slow further in the fourth quarter, with the trend continuing next year as demand begins to weaken amid an uncertain macroeconomic environment. However, one of the countervailing factors cited for rental growth is the continuation of tight supply. Furthermore, landlords have begun to pass on higher service charges to tenants as a result of inflationary pressures, resulting in higher gross effective rent figures.
Net office demand on the island increased by 258,334 sq ft of net lettable area (NLA) in Q3 2022, the same as in the previous quarter, as measured by the change in occupied space. This brings total net demand in the first nine months of 2022 to a positive 376,737 sq ft, reversing negative demand figures of 613,542 sq ft for 2021 and 850,348 sq ft in 2020. Pre-Covid, net demand for 2019 was 1.67 million square feet.
The islandwide stock of office space shrank by 21,528 sq ft of NLA in Q3 2022, a smaller drop than the previous quarter's decrease of 473,612 sq ft. The islandwide vacancy rate for office space fell to 11.7% at the end of Q3 2022, down from 12.7% at the end of Q2 2022.
Tricia Song, CBRE's head of research for South-east Asia, stated that expansions by tech firms, flexible workspace operators, and non-banking financial companies were key office demand drivers in Q3. "During the quarter, CBRE Research notes that new pre-commitments to upcoming new projects such as Guoco Midtown and IOI Central Boulevard Towers were also inked."
It was reported in July that Amazon had signed a lease for approximately 369,000 square feet at IOI Central Boulevard Towers. Pacific International Lines is said to have signed a lease for two and a half floors totaling around 60,000 square feet at Guoco Midtown.
Wong Xian Yang, Cushman & Wakefield's Singapore head of research, stated, "While we remain positive on the Singapore office market's mid to long-term outlook, demand and rental growth could slow in Q4 2022 and 2023, as tightening financing conditions and an uncertain macro outlook dampen office demand."
"Tightening financing conditions would weigh down on tech companies, a key source of office demand, as they adopt a wait-and-see stance and assess market liquidity."
Similarly, Colliers' Singapore research head, Catherine He, stated that office leasing enquiries have slowed in Q3 2022. "Geopolitical and economic headwinds, as well as higher volatility in equity markets, have led to some firms announcing a hiring freeze or layoff for the remainder of 2022." "Leasing demand is likely to be impacted as companies become more conservative in their hiring or expansion plans," she added.
On a more upbeat note, He stated that multinational corporations with strong financials will continue to be drawn to Singapore because of its macroeconomic stability and geopolitical neutrality.
The increase in office rental rates in Q3 2022 was widespread. According to URA data, the monthly median rental rate (based on contract date) for Category 1 office buildings (covering the better-quality buildings in the city area) increased 5.6 percent year on year to S$10.66 per square foot (psf) in Q3 2022, compared to a 1.6% drop in Q2 2022.
The median monthly rent for Category 2 or remaining office space in Singapore increased 3% year on year to S$5.57 psf in Q3 2022, a larger increase than the 1.7% increase in Q2 2022. "In a tight supply environment, landlords were emboldened to raise their rental expectations," said CBRE's Song.
Colliers’ He also mentioned that the ongoing withdrawal of existing stock for redevelopment (such as the Fuji Xerox Towers and AXA Tower) has exacerbated the office shortage.
Tay Huey Ying, JLL's head of research and consultancy for Singapore, stated that the tailwind from Singapore's reopening helped the office leasing market hold firm against global economic headwinds and supported another quarter of rent increase in Q3 2022, albeit at a slower pace than in the previous quarter.
Demand has continued to gravitate toward newer and higher-quality CBD developments that are better suited to accommodating evolving workplace requirements, particularly in terms of sustainability and employee health and well-being.
"However, there is growing scepticism among occupiers in light of the worsening global and domestic economic headwinds, and more are delaying expansion and relocation plans," Tay added. This could increase competition among landlords of existing office buildings for replacement tenants to fill spaces vacated by tenants relocating to newer developments, resulting in moderate rent increases in the coming months."
The gross effective average monthly rental value for JLL's CBD Grade A office basket increased by 8.1% in the first nine months of 2022 and is expected to rise by 10% for the full year. This would be a larger increase than the 4.3 percent increase for the entire year last year. Tay anticipates that rental growth will slow to less than 5% in 2023.
Lam Chern Woon, Edmund Tie's head of research and consulting, also warns about the future supply situation.
"With the recent completion of Hub Synergy Point on Anson Road and the upcoming completions of Guoco Midtown office tower along Beach Road in late-2022 and IOI Central Boulevard Towers in 2023, the increase in supply of office spaces over the next 12 months will see competition among new building owners as they look to firm up leasing deals."